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-   -   Tax efficient way to transfer ISA to USA (https://britishexpats.com/forum/usa-57/tax-efficient-way-transfer-isa-usa-905881/)

Oropars Nov 15th 2017 3:52 pm

Tax efficient way to transfer ISA to USA
 
Hi all,
I couldn't find a similar post so apologies if I am re-creating a thread here. Pls point me in the right direction if the answer exists somewhere else.

My investment company is asking me to close my UK Share ISA since I am not a UK resident any longer and they claim it would be too cost prohibitive to comply with USA regulations.

What is the most tax efficient to import the assets to the US?

1. If I were to sell the assets, will I have to pay taxes CG either in the UK or the US before bringing the cash to the US?

2. If I transfer the shares over to the USA, what cost basis should I record? I believe there is a tax agreement between the the two countries implying I should not be taxed on CG made on an ISA. Is that true?

3. Is there a type of accounts (with deferred tax on CG) in the US that will accept deposit in the form of shares?


Thank you all

Olivier

Owen778 Nov 15th 2017 5:01 pm

Re: Tax efficient way to transfer ISA to USA
 
I'm afraid I don't think you're going to like my answer:

1. Now you are tax-resident in the US (I assume this is the case?), you are subject to taxation by the US, from the IRS. The IRS does not recognise the ISA wrapper, so you will be subject to tax on all gains. Generally, the best option is to take all gains before becoming US resident, but it's unfortunately too late for that now.
2. You don't say whether the ISA contains individual shares or mutual funds / unit trusts etc. If the latter, are you aware of the onerous IRS PFIC rules?
3. Are you planning to stay in the US long-term or only for a few years? This may make a difference to whether you will want to keep the ISA with a different UK broker (if possible) or sell and re-invest through a US broker.
4. Are you aware of US reporting requirements for foreign assets?

Edit - to answer your actual questions:
1. Yes, pay CG taxes to US.
2. It is possible to transfer shares from a UK to US broker, in a normal account. I have done it, though I had to pay a percentage to convert the sale proceeds from GBP to USD, so it wasn't a great deal. I'm not sure if it's possible from an ISA. If you were to somehow transfer the shares, I would assume that the cost basis would be what you originally bought them for.
3. I think it's very unlikely this is possible. There is no equivalent US tax-advantaged account that isn't specifically for retirement or education, and even for those, you can't transfer into them from similar accounts outside the US.

Cook_County Nov 15th 2017 5:04 pm

Re: Tax efficient way to transfer ISA to USA
 
A UK ISA containing PFICs is typically toxic for a US resident. Have you been reporting this correctly in the US?

Owen778 Nov 15th 2017 5:10 pm

Re: Tax efficient way to transfer ISA to USA
 

Originally Posted by Cook_County (Post 12382852)
A UK ISA containing PFICs is typically toxic for a US resident. Have you been reporting this correctly in the US?

Hopefully it only contains individual shares. His post suggests this might be the case.

BarneyJing Nov 15th 2017 10:29 pm

Re: Tax efficient way to transfer ISA to USA
 

Originally Posted by Cook_County (Post 12382852)
A UK ISA containing PFICs is typically toxic for a US resident. Have you been reporting this correctly in the US?

I have a follow up question - I am still in the UK but will be moving to the US. I have an ISA containing mutual funds and understand that these may get penalised by PFIC rules once I become resident in the US

Are there any funds that are "PFIC friendly"? - I did read that there were some Vanguard funds that were recognised by both the US and UK tax authorities, but I think these may only be US based Vanguard funds, not UK based ones. I'm not sure I can buy the US based Vanguard funds in a UK ISA.

Any clarification would be appreciated.

Pulaski Nov 16th 2017 3:36 am

Re: Tax efficient way to transfer ISA to USA
 

Originally Posted by BarneyJing (Post 12383087)
I have a follow up question - I am still in the UK but will be moving to the US. I have an ISA containing mutual funds and understand that these may get penalised by PFIC rules once I become resident in the US

Are there any funds that are "PFIC friendly"? - I did read that there were some Vanguard funds that were recognised by both the US and UK tax authorities, but I think these may only be US based Vanguard funds, not UK based ones. I'm not sure I can buy the US based Vanguard funds in a UK ISA.

Any clarification would be appreciated.

Holding an ISA when you are tax resident in the US is at best pointless. Liquidate it before you relocate to the US and you will save yourself a lot of headaches.

Cook_County Nov 16th 2017 6:52 am

Re: Tax efficient way to transfer ISA to USA
 

Originally Posted by BarneyJing (Post 12383087)
I have a follow up question - I am still in the UK but will be moving to the US. I have an ISA containing mutual funds and understand that these may get penalised by PFIC rules once I become resident in the US

Are there any funds that are "PFIC friendly"? - I did read that there were some Vanguard funds that were recognised by both the US and UK tax authorities, but I think these may only be US based Vanguard funds, not UK based ones. I'm not sure I can buy the US based Vanguard funds in a UK ISA.

Any clarification would be appreciated.

There are probably less than a dozen UK funds that could provide you the data to make a QEF election. I would doubt these are available to retail investors; a financial adviser might be able to track them down; but even so I am not sure why you would want them unless you will only be in the US on a temporary basis.

BarneyJing Nov 16th 2017 7:00 am

Re: Tax efficient way to transfer ISA to USA
 

Originally Posted by Cook_County (Post 12383243)
There are probably less than a dozen UK funds that could provide you the data to make a QEF election. I would doubt these are available to retail investors; a financial adviser might be able to track them down; but even so I am not sure why you would want them unless you will only be in the US on a temporary basis.

Yes - I don't yet know if I will stay in the US or move back to the UK at some point in the future, so although the ISA wrapper is of no use whilst in the US, I was hoping to keep it so that my investments were tax free once/if I returned to the UK (otherwise I would have to start from scratch again on my return)

Owen778 Nov 16th 2017 11:09 am

Re: Tax efficient way to transfer ISA to USA
 

Originally Posted by Cook_County (Post 12383243)
There are probably less than a dozen UK funds that could provide you the data to make a QEF election. I would doubt these are available to retail investors; a financial adviser might be able to track them down; but even so I am not sure why you would want them unless you will only be in the US on a temporary basis.

I could be wrong, but I thought there were quite a few Vanguard Ireland ETFs that were HMRC-reporting funds, and therefore suitable? I don't know any of the details, because they are irrelevant to me, but I think nun has posted about this.

mrken30 Nov 16th 2017 6:39 pm

Re: Tax efficient way to transfer ISA to USA
 

Originally Posted by BarneyJing (Post 12383087)
I have a follow up question - I am still in the UK but will be moving to the US. I have an ISA containing mutual funds and understand that these may get penalised by PFIC rules once I become resident in the US

Are there any funds that are "PFIC friendly"? - I did read that there were some Vanguard funds that were recognised by both the US and UK tax authorities, but I think these may only be US based Vanguard funds, not UK based ones. I'm not sure I can buy the US based Vanguard funds in a UK ISA.

Any clarification would be appreciated.

There is a published list that has been posted previously in another post. However if you ever liquidate the assets while being a US tax payer you will pay US CGT on all the gains, not just from when you move. Best bet is to probably liquidate while in the UK and use a US tax efficient vehicle while you are a US tax payer.

If you are 100% sure being a US tax payer is temporary, then, yes move to more PFIC friendly funds. Is your ISA with Vanguard?

BarneyJing Nov 16th 2017 6:46 pm

Re: Tax efficient way to transfer ISA to USA
 

Originally Posted by Owen778 (Post 12383368)
I could be wrong, but I thought there were quite a few Vanguard Ireland ETFs that were HMRC-reporting funds, and therefore suitable? I don't know any of the details, because they are irrelevant to me, but I think nun has posted about this.

Yes, there are Vanguard funds that are dual reporting. However, what is confusing me is whether the funds that are dual reporting are all US based and therefore I don't think I can buy these easily with a UK ISA provider. I contacted Vanguard UK and they said that all the funds they sold for their ISA were UK based funds.

I don't know about Vanguard Ireland, but I assume the same issue would apply?

I am wondering if all the dual reporting funds are US based, then they will work for a US citizen resident in the UK holding funds back in the US, but not for UK citizen resident in the US with funds back in a UK ISA - because the reality is they can't buy them in a UK ISA (hope this makes some sense!)

BarneyJing Nov 16th 2017 6:51 pm

Re: Tax efficient way to transfer ISA to USA
 

Originally Posted by mrken30 (Post 12383715)
There is a published list that has been posted previously in another post. However if you ever liquidate the assets while being a US tax payer you will pay US CGT on all the gains, not just from when you move. Best bet is to probably liquidate while in the UK and use a US tax efficient vehicle while you are a US tax payer.

If you are 100% sure being a US tax payer is temporary, then, yes move to more PFIC friendly funds. Is your ISA with Vanguard?

Thanks for this (& if you could help with my other reply that would be great)

Forgive my ignorance, but what US tax efficient vehicles are there - are there the equivalent to ISAs?

Owen778 Nov 16th 2017 7:40 pm

Re: Tax efficient way to transfer ISA to USA
 

Originally Posted by BarneyJing (Post 12383723)
Thanks for this (& if you could help with my other reply that would be great)

Forgive my ignorance, but what US tax efficient vehicles are there - are there the equivalent to ISAs?

There are multiple tax-advantaged types of accounts, but generally they are either for retirement or education. There is no direct equivalent of an ISA that allows tax-free investment with no constraint on withdrawals.

For retirement, IRA and 401k (and traditional or Roth for each type) are the most common, plus several more rare options. IRA is available to everyone in some form, the others are only available through an employer, with 401ks being the most common.

For education, 529, and a few others that are more rare.

Mercury39 Nov 17th 2017 1:08 pm

Re: Tax efficient way to transfer ISA to USA
 

Originally Posted by Pulaski (Post 12383196)
Holding an ISA when you are tax resident in the US is at best pointless. Liquidate it before you relocate to the US and you will save yourself a lot of headaches.

:goodpost:

One piece of advice I wish I had understood before I moved. Ended up having to calculate the gain annually and report on US return, so agree was pointless having the ISA. I sold them and paid the captial gain since inception :-( . But on the plus side, no more complex reporting!

BarneyJing Nov 17th 2017 2:09 pm

Re: Tax efficient way to transfer ISA to USA
 

Originally Posted by Mercury39 (Post 12384199)
:goodpost:

One piece of advice I wish I had understood before I moved. Ended up having to calculate the gain annually and report on US return, so agree was pointless having the ISA. I sold them and paid the captial gain since inception :-( . But on the plus side, no more complex reporting!

Good advice thanks.

Does anyone have experience of Junior ISAs? I don't think I liquidate them until the kids reach 18, but then I'm worried about PFIC, so is the best I can do is leave them as cash ISAs?


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