The Lemon Fool

Apologies if this has been asked before. I did scroll back two years' worth of subject lines on this Taxes board and didn't spot anything similar.

IF Mrs C and I retire abroad, what happens to our UK ISAs and SIPPs (I'll leave DB pensions and state pensions out of this for simplicity, although if the answer is similar to ISAs/SIPPs then please just tell me)?

I'm trying to work out if we should take SIPP pensions' tax-free lump sums when they become available at age 55 and move those monies into ISAs to be tax-efficient, or leave them in the SIPPs until after moving abroad.

I realise each country has both its own tax regime, and may (or may not) have its own double tax treaty with the UK. I'm not looking for specific country tax advice, more a general direction of travel.

ISAs
In the UK : built up using 'taxed' funds, but then capital growth and income both tax free when taken out of the ISA.

Retired abroad : presume the income and capital will be subject to the tax regime of our new country. Even if there's a double tax treaty, there'll be no deemed tax payment offset from the UK because ISA withdrawls are tax free.

However : can a non-resident retain the ISA account (cash/ss)? Even if retained, does it keep its tax free status for the UK authorities or will HMRC start taxing withdrawls too?

SIPPS
In the UK : built up using 'non-taxed' funds, but then withdrawl is taxed as income (other than the 25% tax-free lump sum).

Retired abroad : pretty simple that withdrawls are taxed as income by our new country's tax regime (or capital! depending on new country's tax rules).

However : the tax-free lump sums might not be tax-free in our new country (depending on its tax rules), and it is perhaps highly likely NOT to be treated as tax-free. Also, will any tax be incurred on withdrawls with the UK authorities, for having been built up tax-free here for years, or does any tax flow only into the coffers of our new country's tax office?

TIA
JC

JohnnyCyclops wrote:ISAs
In the UK : built up using 'taxed' funds, but then capital growth and income both tax free when taken out of the ISA.

Retired abroad : presume the income and capital will be subject to the tax regime of our new country. Even if there's a double tax treaty, there'll be no deemed tax payment offset from the UK because ISA withdrawls are tax free.

However : can a non-resident retain the ISA account (cash/ss)? Even if retained, does it keep its tax free status for the UK authorities or will HMRC start taxing withdrawls too?

Basic answers: Yes, a non-resident can retain the ISA account, but not pay any further subscriptions into it until and unless they become resident again, and yes, it retains its UK tax-free status, but it won't generally be tax-free as far as the taxman in the country they're now tax-resident is concerned.

Source for those answers and a few further details about exceptions: https://www.gov.uk/individual-savings-a ... ove-abroad

Edit: for stocks & shares ISAs, there may well be restrictions imposed by the foreign country on what you may do about corporate actions, or even on what you may be told about them - practically every shareholder circular about corporate actions I see contains quite extensive text about such restrictions. There might even be restrictions on holding some investments at all.

Gengulphus

Gengulphus wrote:

JohnnyCyclops wrote:ISAs
In the UK : built up using 'taxed' funds, but then capital growth and income both tax free when taken out of the ISA.

Retired abroad : presume the income and capital will be subject to the tax regime of our new country. Even if there's a double tax treaty, there'll be no deemed tax payment offset from the UK because ISA withdrawls are tax free.

However : can a non-resident retain the ISA account (cash/ss)? Even if retained, does it keep its tax free status for the UK authorities or will HMRC start taxing withdrawls too?

Basic answers: Yes, a non-resident can retain the ISA account, but not pay any further subscriptions into it until and unless they become resident again, and yes, it retains its UK tax-free status, but it won't generally be tax-free as far as the taxman in the country they're now tax-resident is concerned.

Source for those answers and a few further details about exceptions: https://www.gov.uk/individual-savings-a ... ove-abroad

In practice it would be difficult to report ISA gains and dividends to any foreign tax authority because no tax reporting is done by the ISA provider. Even if the ISA did provide that, it is most likely that the tax year for the adopted country would be different from the UK, further complicating matters. Moreover an investor is unlikely to have kept the kind of records that he/she typically would for a taxable account, such as cost basis, the effects of past corporate actions, and so on.

So I find myself wondering how expats handle this. I suspect in one of four ways:

1) Do all the work as above and take the risk of getting it wrong. Although I guess the good news is that it is unlikely any foreign tax authority would know it was wrong.

2) Greatly simplify what is in the ISA before becoming tax resident elsewhere. For instance sell all holdings and just buy one global ETF or similar.

3) Keep quiet about it and hope to get away with it.

4) Cash out the ISA before becoming tax resident elsewhere.

For me I would choose between 2 and 4.

Good ISA insights from both Gengulphus and Lootman (thanks, both).

I'll just re-emphasis the part of the OP about whether it makes sense (while still in the UK) to take pension TFLS and shove it inside the ISAs, but then risk that the ISA becomes taxable overseas if we move abroad. I suppose some of that would hinge on the other country's tax treatment vs the UK marginal income tax at the time the TFLS was accessed.

Hi,

ISAs there’s another issue too. Not only do they present all the reporting problems suggested by lootman, but in addition to this SOME brokers will not let foreign tax residents keep ISAs with them. Some will. Different brokers have different policies. Although the UK govt rules say you are allowed to continue to hold an ISA whilst abroad, your broker isn’t obliged to let you do so. Read the Ts&Cs. Cheaper brokers are usually least flexible. They’re worried they’ll be held liable for taxes by foreign governments. Especially if the US IRS is involved, most brokers will boot you straight out.

Again, there’s the option of simply not telling them. If you can keep a UK address (parents, siblings, children?). As long as you declare the income locally, you’d only be breaking the broker’s own rules, not the law.

I know. That still doesn’t answer your question as to which is best. As you say, I think it depends where you’re going and whether you plan on ever coming back.

Gryff