Introduction

Every year the government gives you a tax-free allowance in the form of an Individual Savings Account (ISA). For the 2017 tax year this will be 20k GBP.

What are the tax benefits of an ISA?

ISAs are great for dividends

For higher-rate and additional-rate taxpayers, dividends earned from non-ISA investments incur tax of 32.5% to 37.5%. However, if you’re investing via an ISA, you don’t pay this tax.

ISAs are great for bonds

If you use your Stocks and Shares ISA for interest-bearing investments, such as corporate bonds and gilts, the interest is entirely tax-free. £10,000 invested in bonds paying an average interest coupon of 4% would grow to £21,911 over 20 years, assuming no fall in capital values and coupons are re-invested. The same amount held outside an ISA, and subject to additional tax payers rate of 45% tax, would be worth £15,453.

ISA means no capital gains

Any gains made by investments within your ISA are not subject to capital gains tax.

Things to consider

– If you are a non UK resident you are not allowed to open a new account, you can however retain existing holdings and also transfer to a different provider if you feel it is more suited to your needs.

– You can transfer ISAs as often as you like – transfers don’t technically count as paying in, so if you notice a better rate or investment option elsewhere you can make a transfer whenever you wish (provided you only pay into one active ISA per year and you’re not locked into a fixed account).

– You can transfer the current year’s ISA subscriptions and/or all or part of the previous year’s subscriptions to the new account – transfers aren’t governed by the usual paying-in limit so you can transfer as much as you like.

– Don’t just withdraw the money, close the account and reinvest in another ISA – transferring is key. Withdrawing rather than transferring will mean you lose the tax-free advantages of that savings pot, and if you have several years’ worth of ISA savings in cash, you can’t automatically put it all into a new ISA, unless you transfer the account itself.

Summary

You can only subscribe to an ISA if you are resident or ordinary resident in Britain for tax purposes.  So, if you’re an expatriate and you’ve moved to live and work overseas and are now tax resident elsewhere, you cannot apply for a new ISA.  If you already have ISAs in place you can keep them going, but you can’t contribute any more to them.  Fortunately you will still be entitled to the tax benefits on your investments held in the ISA at the current time, as an expat it is important to ensure you are obtaining the best returns possible – make contact with us to ensure you are maximising returns.

If you’re an expat and you want to benefit from almost exactly the same tax-proof jacket effects that an ISA can offer you, there are alternative options that are equally as tax effective here in HK. A financial adviser will help to assess your status and eligibility for certain products.

Clearly you need to take tax and financial advice from a professional financial adviser – but in theory it is possible to find products and policies offshore that will give you similar tax benefits to those you lose when you are no longer eligible for an ISA.

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