Nimco

I have looked and can't find an answer to this... if we move to the US, can I maintain and manage UK based investments for my wife and I while living in the US?

And can I do this without becoming liable for US tax on the capital growth / income of the UK investments?

Does it make any difference if I am the partner in a couple that is not actually working/employed while over there...

Specifically, I run a stocks&shares based ISA as my main investment and retirement pot. I have seen some people say there is a complication wrt shares ISAs.

Thanks!

Bayleaf_01

I am not an expert, but thought you had to be paying UK tax to be allowed to hold an ISA?

theOAP

Yes, provided 1) you have the time and expertise to research throughly the underlying investment, and be prepared to devote the substantial resources neccessary to complete the relevant US tax forms, or 2) have sufficiant funds to employ a qualified professional in US/UK tax law to do this for you (or have a tax equalization package with your US employer).

If you are resident in the US for tax purposes, you must declare your worldwide income to the IRS. That means ALL income and increases (or decreases) in value of investments yearly (FMV in some cases), from any where in the world. The US/UK tax treaty may come into play, and you will need full understanding of it's principles (something professional tax advisors can not agree on). Although, I would find it hard to believe any would support an ISA as/is a pension plan.

It depends if you are filing MFS or MFJ. In the end, someone (or both) will have to declare the income/gains/losses.

See above. You may maintain an ISA purchased when resident in the UK, but you can not make additional contributions to it once you are no longer resident in the UK.

Many professionals and knowledgeable amateurs suggest not keeping these products (other than a traditional cash ISA) if you will be resident in the US for tax purposes.

Clue: If you understand the full impact of FMV relating to pensions (or trusts) and investments, you may want to study the situation further.

nun

The OAP makes excellent points.

Your stocks and shares ISA will be taxable by the US if you are a US resident. Therefore, any dividends or capital gains distributions must be included on your US tax return. The first difficulty you'll have will be obtaining appropriate documentation of these gains and figuring out the tax rate that applies to those gains.

The IRS will see your stocks and shares ISA as a foreign grantor trust, it will not qualify as a pension or retirement account under the US/UK tax treaty. Therefore, you will need to file IRS forms 3520, 3520A and the Passive Foreign Investment Corporation form 8621. Here is an explanation of the US tax treatment of PFICs.

http://www.offshorepress.com/offshoretax/otpfic.htm

So the bottom line is that you can maintain an ISA while in the US, but it is not a sensible thing to do from ease of tax filing or investment return perspectives. Your best option would be to cash out the ISA before you move to the UK and invest it in some low cost US based mutual funds. If you become UK tax resident sometime in the future you should then be careful of those US mutual funds as HMRC also has rules about offshore funds that tax the gains differently from UK based funds.

sir_eccles

Check the small print, some providers don't want you having an ISA at all if you are non-resident in the UK.

Nimco

Thanks for these thorough answers. As we are only going to move to th US for 2-4 years I am reluctant to cash out this long term investment plan with shares ISAs as I could not regain the tax benefit at a later date by reinstating the ISAs. Once closed that's that. I don't like the sound of the reporting requirement either so I'm wondering if a get round would to sell holdings and just hold cash in the account until we return? My provider allows this and the resultant interest would be almost nil.

Maybe I'm grasping straws here but it's not a sensible option to close this savings vehicle. Any other get round ideas.

dunroving

That's a good idea that often doesn't get suggested in these situations.

Many providers like Fidelity allow you to move your holdings into a Cash Park .... however, I think there is a time limit to this (less than your suggested 4 years). You might want to check Martin's Moneysavingexpert Web site for further information on this option. Especially as the stock market's future is rather uncertain, you might make more with it sitting in cash than invested in stocks and shares.

You can't move it into a Cash ISA, unfortunately, other than if it is less than about £6k and you use this year's ISA allowance.

nun

Sorry that won't work. You are just moving your money within a stocks and shares ISA, you still own a foreign grantor trust and that "cash account" is still a PFIC. Also you cannot transfer a stocks and shares ISA to a cash ISA so that potential solution is off the table.

If you want to keep your stocks and shares ISA while you are in the US for future UK tax deferral you will just have to do the reporting and pay the US tax. Having the money in a single cash fund will make filling out the forms easier though.

Nimco

OK, thanks all. As this is a long term investment plan (over 15 years worth of shares ISAs allocation) it wont make sense to close it for a approx three year timescale in US, so I guess I'll need a proper tax accountant specialising in PFICS and expat tax planning for the duration. Thanks

dunroving

Yes, if it's that amount of money, and you only plan to stay in the US for 2-5 years (I think that's what you said), I'd hesitate to give up 15 years of tax-free ISA allowances just to avoid 2-5 years of form-filling. As you probably know, once you take everything out of your tax-sheltered ISAs, you can't get that tax-sheltered status back.

I don't know anything about the complexity of all the form-filling, but I'd imagine one way to simplify the situation would be to move all of your diversified stock holdings into a much smaller number of very low-risk investments.