Having an Individual Savings Account (ISA) no matter where you reside is an excellent way to grow your income. Whether saving in cash or investing in securities, the ISA account has several benefits that one can make use of. It provides you with several saving incentives, including tax savings.
However, ISA accounts are mostly used and designed for British citizens and residents. This means moving abroad may have some effect on operating these accounts. So, have you ever wondered what happens to your Individual Savings Account if you move abroad?
Our article will discuss everything about ISA’s for expats in-depth and provide you with the required information regarding the same.
What benefits do Individual Savings Accounts come with?
- The ISA account earns interest on the amount in the account
- Provides a tax-efficient way to enhance your wealth
- All returns paid from the ISA account is free from capital gains tax and income tax
- The account is extremely easy to access
- You never pay a tax on the ISA account
- It can be opened with a number of securities like cash, stocks, shares and more
- It comes in several shapes and sizes for people with different requirements
- Provides an annual allowance of up to £20,000
- Even children can hold a tax account from the age of 16 and more
- Different ISA’s are used for different purposes like saving for children, home, retirement and more
How much can you contribute to your ISA account?
Certain tax limits come with an Individual Savings Account. These thresholds help you save effectively and efficiently. Because ISA’s are extremely tax efficient, the UK government limits the maximum amount you can contribute to the account. This limit is called the ISA allowance, which is fixed at £20,000 every year. This limit applies to all the ISA accounts under your name, not just one. The tax allowance does not roll over, so if you have not used the entire amount in one tax year, the next tax year will always start afresh.
Types of ISAs available in the UK
1- Cash ISA
A Cash ISA account holds your wealth/income in cash, just like any other savings account. It is very liquid, and you can withdraw the sum from this account at any time. All income earned on this amount is completely tax-free. However, the interest on a cash Individual Savings Account is the lowest compared to others.
2- Lifetime ISAs
The lifetime ISA account is one of the most popular, which anybody between the age of 18 to 39 can open. The lifetime ISA helps young people get into the savings and investment routine early in their lives and build wealth for retirement.
A maximum of £4,000 is allowed to be put in this Individual Savings Account until you turn 50 years of age. It counts towards the total £20,000 allowed as the ISA allowance in the given tax year.
The main benefit of the lifetime ISA account is that it is a government product that tops up your contributions by 25% when you put any money in the account, providing you with an extra incentive. You can hold a lifetime ISA account with a cash ISA account and diversify your wealth in more than one type of ISA account. However, only 25% of the bonus can be claimed in one account if you plan to hold more than one ISA account.
If you use the lifetime ISA and save for your retirement, the contributions are not exempted from taxes.
3- Socks and Shares ISA
The stocks and shares ISA allows you to invest your wealth by buying a company’s bonds or shares. It is a tax-efficient way to invest because they do not have to pay any capital gains tax on it. This account offers the highest return amongst all in favourable markets. However, with high return also comes high risk during times of troubled markets.
Final Words: What happens with the Individual Savings Account when you move aboard?
Since an Individual Savings Account will mostly have tax benefits within the UK, some complexities exist when you move outside of the country and still want the ISA to exist. Only a U.K. citizen, crown employee or resident of the U.K. can open and maintain an ISA. Hence, if you are no longer a resident of the U.K, you cannot fund your existing ISA. Though, you can hold onto the funds in the account for as long as you would want and receive the tax benefits.
You cannot open a new ISA when you move abroad, either. This leads to sacrificing the yearly allowance and tax-efficient wealth growth. Only if you are a crown employee overseas can you still access your ISA, and so can your spouse.
Additionally, some countries require you to pay tax on returns gained through an Individual Savings Account. An ISA’s existence also depends on how long you are living in a foreign country. If you are going there temporarily, you can still use your ISA, but if you wish to move permanently, you lose the existing to continue funding the same.
If you want to learn more about your ISA as an expat, request a consultation today by clicking the link below.
