Expat ISA Must Read Guide

This is a must read guide for any expats interested in opening an ISA account.

But let’s get the elephant out of the room right away. Expats can’t usually open an ISA. They are limited to UK residents only.

Expats that have ISAs have usually either told some fibs to open an account or kept an existing ISA they already had.

I’m sure it goes without saying that the first of these isn’t recommended (even through people do it).

On the other hand, there’s nothing wrong with keeping one when you move abroad.

In fact, if you haven’t yet made the move, then opening an ISA before you leave probably makes sense for a lump sum. You won’t usually be able to add new money, though.

But what about if are already living overseas?

The good news is there’s an alternative.

And for many expats this alternative might be better than the real thing. Let me explain.

ISA alternative

The thing is, the reason people invest in ISAs is to shelter their savings and investments from tax levied by HMRC. Wanting this is understandable if you are a British resident, but not so much if you an expatriate.

Where you live will make a difference but here’s the thing. HMRC treats taxes associated with savings and investments for residents and expats differently.

When you think savings and investments, three taxes instantly come to mind. These are capital gains tax, income tax and dividend tax.

Capital gains tax is where you are taxed on profits you make from selling something for more than you bought it. Income tax is applicable on all forms of income. Salaries, rental income and savings account interest are three big examples. Then there is dividend tax which you pay on dividends.

tax advantages for non residents

There are some advantages to being a non UK resident which expats can take advantage of.

First up, capital gains tax doesn’t apply to non residents on anything but property. This means you can sell shares after large gains and not pay tax to HMRC.

Not only that, after five years you don’t pay other taxes either (apart from on UK property).

And though non residents are subject to income tax if they were British resident within the last five years, anybody with a British passport is eligible for the personal allowance, which essentially is a tax free threshold. Below this threshold you don’t pay tax.

Personal allowance

Right now the personal allowance is £12,500 per person or £25,000 for a couple. That’s a lot of income from savings and investments in the current financial climate!

Not only that, but as an expat you get a major advantage over British residents ISA accounts.

Where as they are limited to a maximum annual contribution of £20,000, you can invest as much as you want.

Of course, up until now, I’ve only covered UK tax. There are also going to be tax rules that apply wherever you live. But here’s the thing. In many cases, you’ll pay less tax than you would if you lived in the UK if not zero.

You read that right. Many expats pay zero tax on their investment portfolios.

And that’s because many of the top expat destinations are low tax jurisdictions. There are two many to list here, but we’ve gone into a bit more detail about this here. The bottom line being, many places either charge no tax or low tax on expats investment portfolios.

Fancy a bit of DIY?

So in many cases, all you have to do is open a brokerage account that accepts British expats and get investing. By taking this approach, you may be getting the equivalent of an expat ISA anyway.

These days you can easily build wealth by opening a brokerage account and investing in stocks and bonds. (I’ve compared a few brokers that accept expats here if you don’t already have an account).

Exchange traded funds (ETFs) mean you can easily build a strong investment portfolio diversified across different assets, geographies and companies both cheaply and tax efficiently.

Most investors requirements can be fulfilled with a couple of ETFs.