While ISAs are a valued savings arrangement in the UK, they lose their essential tax advantages when you move abroad. Here we look at the tax implications in Spain, France, Portugal and Cyprus, as well as other considerations.
ISAs (individual savings accounts) were introduced in 1999 to replace PEPs (personal equity plans) and TESSAs (tax-exempt special savings accounts) to encourage more people to save or invest, with the tax-free returns offering a strong incentive.
Today around 22 million people have ISAs, with a total market value of £725 billion. While there is a limit to how much you can contribute annually, the value can grow over time thanks to compound interest on cash ISAs or dividends and capital gains made in stocks and shares accounts. Over 250,000 people hold at least £250,000 in their ISA, with over 3,000 of them worth £1 million or more.
It’s likely that you have at least one ISA, you may even have a large portfolio spread over different accounts. While you may be satisfied with their management and returns, what happens when you leave the UK and take up residence elsewhere? Can you keep your UK ISAs abroad – and should you?
Owning ISAs as an expatriate
You are not obliged to sell your ISAs when leaving the UK, and you can continue to own them as a non-UK resident.
However, you cannot contribute any more funds into them or set up new accounts. Only UK residents with a UK address can do that.
Tax implications of keeping UK ISAs abroad
The tax-free income and growth ISAs offer in the UK is very welcome, but once you move abroad the tax-free status no longer applies and you lose the tax advantages.
The interest, capital gains and dividends will be subject to tax in your new country of residence, according to its regulations. In addition, they could go towards a potential wealth tax liability, if applicable.
If you haven’t yet left the UK and want to close your ISAs to reinvest the capital in your new property, for example, or in tax-advantageous investment arrangements for your new country, it is beneficial to close your ISAs before you depart. You will not have to pay tax on the gains if you sell while still a UK resident. In contrast, if you keep your ISAs you will need to pay tax on them in your new country each year.
The tax regimes and rates vary from country to country.
Spain
As a tax resident of Spain, any income generated from your UK ISA must be declared t/here. Your interest, capital gains and dividends will be taxed as ‘savings income’ at progressive rates:
- Up to €6,000 – 19%
- €6,000.00 to €50,000 – 21%
- €50,000 to €200,000 – 23%
- €200,000 to €300,000 – 27%
- Over €300,000 – 30%
Additionally, the value of your ISAs will be included when your worldwide wealth is assessed for Spain’s annual wealth taxes.
Spain applies succession and gift tax on worldwide assets when either the beneficiary is resident in Spain, or the asset is located in Spain. Rates and allowances vary across Spanish regions, though some communities now virtually exempt spouses, children and parents.
Residents of Spain are also obliged to declare overseas assets on the form Modelo 720 each year if assets in one of three categories (bank accounts, investments, property) amount to over €50,000. This can be a tricky form to complete if you own many different investments, but be careful as penalties are imposed for incomplete submissions.
Download our free Spain tax guide now.
France
In France, investment income (interest, dividends, capital gains, gains from life insurance policies etc) is taxed at a fixed rate of 30% – a major difference from the UK’s treatment of ISAs. If you have form S1, social charges are reduced to 7.5% (which also means the 30% fixed rate reduces to 20.3%).
Interest and dividends received from the UK must be declared within 15 days of the month’s end, with the 30% tax paid in full. Low-income households can avoid this advance payment.
French succession tax applies to worldwide assets. The rates and allowances vary depending on the level of kinship. Spouses/civil partners are exempt on inheritances and children pay rates up to 45% with a €100,000 annual allowance. At the other end of the scale, unmarried partners, stepchildren and non-relatives pay 60% with virtually no deduction.
Besides declaring interest and gains on your annual French tax return, you are obliged to declare all your foreign bank accounts, non-French life insurance policies etc. on form Cerfa 3916. There are penalties for non-compliance and undeclared accounts.
Download our free France tax guide now.
Portugal
Interest income, capital gains and dividends are generally taxed at a fixed rate of 28% in Portugal. You have the option to use the scale rates of income tax, which would then apply to all your investment income.
There is no ‘inheritance tax’ as such in Portugal. While stamp duty is applied when assets pass on death, it only applies to Portuguese assets, and spouses, descendants and ascendants are exempt.
Download our free Portugal tax guide now.
Cyprus
Cyprus applies a ‘defence contribution’ tax on interest earnings and dividends, instead of income tax. The rate is 17%. However, it only applies to individuals who are both resident and domiciled in Cyprus, and UK nationals would not normally become a Cyprus domicile until they have lived t/here for 17 years.
Cyprus does not levy a capital gains tax on shares, and there is no local inheritance tax either.
Download our free Cyprus tax guide now.
Declaring the interest and gains
Spain, France, Portugal and Cyprus all tax residents on a worldwide basis. In most cases you need to declare all your income, wherever it is generated and even if it taxed in the source country. Some British expatriates mistakenly think that since ISAs are tax free in the UK, they don’t need to be declared in their new country of residence, but that it is not the case. Remember that the global exchange of information under the Common Reporting Standard means that your local tax authority is informed about your overseas assets and income each year.
If your share ISAs are managed portfolios, it may be difficult for you to determine all the gains realised within them each year. The investment manager may not be able to supply much data since the gains are not taxed in the UK. Any information they give you will be based on the UK rules and not on your local regulations. You need to establish how to calculate gains made on shares bought and sold on different dates, ensuring you comply with tax regulations in your country of residence.
The more different assets you have – for example, if you own many different ISAs as well as shares owned directly and/or other investment funds, the more complicated it is to submit your annual tax returns. The same goes for completing Modelo 720 in Spain and Cerfa 3916 in France.
Retaining UK ISAs abroad – Tax planning
If you are assessing whether to continue holding your ISAs or to reinvest the capital elsewhere, it is a good opportunity to consider consolidating your investment capital. You can, for example, hold a wide range of investment funds within a life assurance policy (assurance-vie in France). This will make it much easier for you to keep track of your investments and to fulfil your tax declaration obligations.
These arrangements can also provide significant tax benefits in Spain, France, Portugal and Cyprus, as well as estate planning and probate advantages.
If you have not left the UK yet, it usually makes sense to sell your share ISAs before you change your tax residence to avoid capital gains tax. (Care needs to be taken, though, if you are only temporarily moving outside of the UK and specialist advice should be sought.)
With offices in the UK, Spain, France, Portugal, Cyprus, Malta and Monaco, and five decades of experience, Blevins Franks is highly knowledgeable and skilled at cross-border tax and wealth management advice and solutions.
We will help you weigh up whether or not to retain your UK ISA as an expatriate, and guide you through the saving and investment arrangements offering tax advantages in your new country. We provide an integrated service covering residence, taxation, estate planning, investing and pensions, and our recommendations are highly personalised for your situation and goals.
If you are still planning to leave the UK, we can guide you through the process and advise you on timing when to sell UK assets based on which country will tax you least.
Contact Blevins Franks today
