In this article, I will aim to review what is an ISA, and the different ISAs that you have. The options as an expat with an ISA and the current restrictions and expats without a U.K. address.
What is an ISA?
An ISA is an Individual Saving Allowance that allows you to save up to 20,000 pounds each year with any gains being tax-free.
Some technicalities are that you are not allowed to roll forward your ISA allowance or add over the ISA limit in one or more ISAs.
What are the different ISAs?
Cash ISAs
A cash ISA is very similar to a bank account but the only difference is that any savings are tax-free including any gains.
In this ISA you have fixed rate ISAs, which gives you a fixed rate over a set period of time. Any withdrawal of cash during this time may have a penalty.
- A variable ISA is one where you can access money at any time.
- A regular saving ISA is where you can opt to pay monthly.
One note is that it’s not the only viable tax wrapper in the U.K. as of 2016, you have a personal saving allowance that allows you to earn 1000 pounds tax-free of interest for lower-rate taxpayers and 500 pounds for higher-rate taxpayers.
Stocks and Shares ISA
This allows you to invest in a range of stocks, shares, funds, bonds, and many other financial instruments. This is usually done through a broker such as Hargreaves Lansdown (there are many others) however, sometimes you can go directly to an investment company if you only want that single investment.
Lifetime ISA
Some of the newer forms of ISAs that have been introduced to help young people get on the property ladder or start saving are lifetime ISAs.
This allows you to contribute to your 50th birthday and can save in cash, stocks, shares, or a mixture of both ISAs. The government adds 25% up to 4000 pounds on whatever you put into your lifetime ISA.
You are locked in till your 60th birthday with these funds but can only access’s before penalty-free is when buying a first time house or some extenuating circumstances, such as a terminal illness.
Other than this if you withdraw early you will not be eligible for the government bonus and occur some losses.
Junior ISAs
This is allowed to be opened at birth and able to contribute until 16, the current limit on this is 9,000 pounds.
Innovative ISA
This allows those looking for peer-to-peer lending to lend to others. This is for the more adventurous investors who don’t mind lending money!
Is it possible for a U.K expat to have an ISA?
No, if you don’t have a U.K address or a resident you can not open an ISA or contribute to one.
if you have an ISA that you took out when living in the U.K you can keep hold of it but you are not permitted to pay into it if your current address is outside the U.K.
If you have contributed and left the U.K the ISA still remains tax efficient and has the same advantages, you simply just cannot contribute more in a tax-efficient manner.
I am an expat living in the U.K can I contribute to an ISA?
Yes, I would check if your country has any double tax laws with the U.K to see if this can impact you.
Also, for U.S expats the way the ISA is structured may make it hard to file tax returns to the IRS.
If I can’t contribute as an expat what options do I have?
One of the main reasons why the majority of people opt for an ISA is the tax efficiency that it provides for UK citizens. As a U.K expat you have many options that are tax-efficient including
- Offshore bonds for those above the NIL band rate which is currently at 325,000 pounds.
- QNUPs for those offshore that want to contribute to a pension but don’t know where they want to settle down.
- QROPs and International SIPPs for U.K pension transfers.
- Offshore Investment platforms can offer what you have in a stocks and shares ISA in a tax-efficient manner mitigating income, capital gains tax, and dividend tax.
I have had an influx of daily emails about what are my options as a U.K expat wanting to invest overseas as the U.K platforms are not letting you invest due to you not having a U.K address.
In this article, I will write about what options you have offshore and how they compare to the U.K platforms for cost, funds, and tax, aiming to give you an overview of some of the options.
History of U.K Expats Account
It was once possible to invest in U.K. accounts if you were a U.K citizen (passport holder) living outside the U.K. But, with tighter regulations and Brexit, it is now the case that many Investment companies will not accept you if you do not give a legitimate address.
https://www.moneysavingexpert.com/news/2020/09/thousands-of-british-expats-face-uk-account-closures/
With articles like the above. I do not see this changing and in fact, see it getting harder and possibly seeing an American-style expat tax being enforced to facilitate the present government spending.
ISA Accounts or Offshore Accounts
ISA accounts are government saving schemes that allow you to save a certain amount in a tax-efficient manner. For a full list read my article on ISAs this will explain what ISAs are available and what options you have for ISAs.In short, the government set it up with the aim of a tax-efficient option(s) to aim to promote saving.
This has been by all accounts a popular scheme. However, for expats living outside the U.K, you don’t need to be invested in an ISA to have tax-efficient savings. Offshore investing can just as easily mitigate your tax.
ISAs
The government has introduced other saving schemes but non as successful as this when Gordon Brown introduced them in 1999. I bet he couldn’t imagine how successful they would have become with a 2020 report by The Times saying they have saved 30 Billion in Income-tax.
An ISA only lets you save 20,000 GBP a year tax-free, with offshore you have the option to save more tax-free. Furthermore, if you are saving in an ISA the options and liquidity can be somewhat restrictive. What I mean by this is if you invest in a Lifetime ISA and want to access your cash before 50 or to buy a first-time house you will be hit with fees and lose the government 25% up to 4000 GBP they offer as a bonus.
The funds, although you have a range of funds and I’m personally in favour of the fund range and can make effectively a portfolio for each risk level, effectively the funds are not geared for expats, the funds are all domiciled in GBP. If you are living in Europe or the U.S you might want a different fund option.
Furthermore, the FCA restrict what can be invested in.
I do believe this to be beneficial for most investors as offers protection from what is regulated. But, I have had clients in the past who want to go into specific investment trusts, EM funds, or sector-specific funds to make use of market conditions that can not be bought in ISAs.
Protection
ISA themselves are pretty stable but the funds really drive the ISAs if you have your money in a stocks and share ISA account.
FSCS U.K protection limit is 85,000 GBP. This is the point I would like to make many go over and see this as an important factor. But, in reality, it only comes into play if one of a few situations happens.
- The banking system collapses or
- You have been ill-advised.
The likelihood that you will get ill-advised in the U.K is few and far between the present regulations the funds and the portfolio will be stable. I also don’t think the banking system collapsing is regular but it can happen.
Offshore, you do have investor protection as well, most jurisdictions such as the Isle of Man, Luxembourg, and Singapore not only have investor protection schemes but also a more stable banking system than the U.K.
https://bbcincorp.com/resources/countries-with-best-offshore-bank-accounts
I would be careful with two things if you are looking for offshore advisors, they have had a reputation of being sales and this is true, make sure they are well-regulated and have a good understanding of your situation.
The Funds and Platforms
The platforms, if in the offshore bonds such as RL360 or FPI can be highly expensive and offer a commission to the advisor, so ensure you are going into them for the right reasons and not just to pay the advisor.
The funds, if you want to be sure, make sure they are listed on the HL SIPPs platform, this will ensure that at least they are available in the U.K. If you want to double-check go to Morningstar or Trustnet for a non-bias rating agency. I would stay clear of low-risk profiles or anything that is below 3 stars. Do your research before you are invested in any funds.
The reality is if you are sticking with solid funds you will most likely never have to use any of these protection schemes.
How Do U.K Options Compare to Offshore Investments
I have written a number of articles on offshore options and U.K options. The ISA options in the U.K. are pretty competitive. Here is a summary of some of the most used U.K platforms.
| Platform Name | Charge One-off (GBP) | Fund range | Account closure fee (GBP) | Dealing fee (GBP) | Transfer out fee |
| Iweb | 25 | 2300+ | 0 | 5 | 125 |
| Interactive Investor | 9.99 per month | 3000+ | N/A | 7.99 | 0 |
| AJ Bell | 0.25 % under 250,000 + fund management fee 0.35% | 3000 | N/A | 1.25 | N/A |
| Vanguard | 0.15%+ Fund manager charge 0.22% | 73 | N/A | 0 | 0 |
| Nutmeg | Managed portfolio 0.75% +Fund management charge 0.22% | N/A | N/A | N/A | N/A |
- Note with the fund management charges it is done based on an average, some funds such as ethical investing will charge more.
- A.J bell does reduce their fees for accounts over 250,000 – 1 Million
Analysis of these platforms the U.K has done well in getting competitive fees with platforms. If you are looking for DIY platforms these are not bad options.
For managed funds, it is harder to gauge fees, the FT did an article on this with experienced financial professionals spending hours looking for fees for managed platforms the average was 1.2% with advisor fees and initial charges of 1%. This should be in the average for advisor fees
The FT has done an article on the Fees of SIPPs and I have included the link below.
Robo vs Actively managed funds
I have had a Nutmeg account and have come on some other Robo-advisors Wisdom tree. I believe for novice investors these are great in theory, the problem I have is that they just don’t perform. I had a Nutmeg at level 10 risk to try it out, its overall performance over that time was 2% (not a loss).
My other funds and portfolio were up 22% over the same time frame (mostly in global large-cap equities). I have also spoken to friends that have money invested at a lower level that has had less. It hasn’t been negative but is far behind a good portfolio.
This can be the same for other Robo advisors, they have failed to live up to their fund portfolio.
Offshore Platforms
At a glance, tax-efficient saving seems a good option and would agree as I will cover the tax saving options later. However, platforms I would be inclined to look out for are offshore bonds as they do have a place for security and can be wrapped in trust, these are highly expensive options.
In this table, I will do a brief guide on the charges of some of the funds and the platforms this will vary significantly on the amount of commission the advisor takes the term, and fund charges.
Also, note that the advisors can also add a management fee for this.
| Platform Name | Charges P.A (these depend on the term of the plan the amount and the structure figuring out the fees can be challenging to say the least) | Hidden Charges |
| Friends Providence International reserve bond | 1.2-2% | Mirror Fund, initial advisor coms 5-7% admin charge. |
| Friends Providence International Summit bonds | 1.5%-2.5% | Dealing charges admin charges and initial fees advisor fee 5-7%. |
| Friends Providence International Zenith | 1.3%2.2% | Dealing mirror fund charges 2% admin fees advisor fee 5-7%. |
| Generali Vision professional portfolio bond | 1.2%-2% | Dealing charges 2% admin fees advisor fee 5-7.5%. |
| Hansard International Capital Bond | 1.6%-2.1% | Dealing charges 2% admin fees advisor fee 5-7.5% |
| Investor Trust Evolution plan | 1.2%-1.9% | 5-7% fees, admin charges. |
| Investment trust platinum fund | 1%-1.5% | 5-7% advisor fees admin charges. |
| OMI collective Investment bond | 1.2%-2.4% | Dealing mirror fund charges 2% admin fees advisor fee 5-7% |
| OMI executive Investment bond | 1.7%-2.4% | Dealing mirror fund charges 2% admin fees advisor fee 5-7 |
| Prudentantal International Bond | 1.5%-1.9% | Dealing mirror fund charges 2% admin fees advisor fee 5-7 |
| Royal London Pimms | 1.6%-1.8% | Dealing mirror fund charges 2% admin fees advisor fee 5-7 |
| Royal London Orical | 1.8%-2.1% | Dealing mirror fund charges 2% admin fees advisor fee 5-7 |
- Note that this is just a brief guide for more in-depth analysis please read some of my articles or full investments offshore guide.
My Thoughts on Offshore Bonds
I believe they do still have a place for a small minority of people, more so looking for estate planning if for example wanting a trust or over the NRB of 325,000 GBP in the U.K.
But, if you read my article on SIPPs and IHT planning you have better options.
If you have one of these or have been proposed one gets in touch on the form below and will review the charges and performance.
Offshore Platforms
More modern advisor platforms are a much better option for fees and give investors in the offshore market real options to the U.K advisors.
These have the option to move into a SIPPs if in the U.K or a QROPs or International SIPPs if outside. As well as this you can invest as a platform, these are portable for expats.
All of these are advisor platforms, so will have to speak to an advisor which might have an attached fee for management. However, if the advisor is good, the fee shouldn’t make a blind bit of difference providing it is around the average stated above of 1.2%
Here are a few of my top advised ones and the fees this is not an in-depth review, please read more on my blogs on U.K SIPPs international platforms with ratings or get in touch to see which is the best step for you.
| Platform Name | Fees | Dealing charges | Currency Options | Funds |
| Capital Platform | 0.4% | 0.2% | Yes | 2500+ |
| Ardan International | 0.4% | 45 USD | Yes | 2000+ |
| Custodian | 0.7% | 45 USD | Yes | 5000+ |
| Investor Trust Select | 1% | None | Yes | 2000+ |
Thoughts are that for U.K expats now they do offer good options offshore that you can take advantage of or attempt to keep an ISA in the UK. Personally, I favour the offshore market because taxes are lower with more investment options, such as Trusts and bonds etc.
The U.K Tax Levels
If you are to invest outside of an ISA or tax wrapper the current levels are 12,500 GBP for U.K income tax, Capital Gains tax on anything over 12,300 GBP, and dividend tax on anything over 2000 GBP.
It is worth keeping an eye on or seeing an advisor about your options on this.
Final thoughts, for those that are living abroad I would be more inclined to look at international SIPPs, ISA limits may be put on the radar and see the amount reduced due to a money-strapped government.
ISA’s are very popular with many UK citizens and does have a use, however, as an expat they can be hard to get and are likely to lose some of its tax freedoms.
Furthermore, if you are living abroad, you do now have feasible offshore funds and stocks and platforms which potentially offer better long-term tax advantages.
If you have any questions please feel free to email me at info@investmentsforexpats.com.
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