UK ISAs For US Residents | How To Be Compliant & Tax-Efficient
UK ISAs are often described as tax-efficient investment vehicles, but that description only applies while you remain a UK tax resident.
If you have moved to the United States and still hold a UK ISA, the account itself does not disappear. However, how it is taxed, reported, and managed can change materially once you become a US tax resident, and ignoring those changes can create unnecessary complexity over time.
This article is written specifically for US residents with existing UK ISAs and focuses on the considerations that tend to matter most in practice.
Your ISA In The USA | Learning objectives
By the end of this article, we will cover the following areas:
Whether a US resident can keep or transfer a UK ISA
How a UK ISA is treated for US tax purposes
Why PFIC exposure is a key risk for US taxpayers
How ISA provider rules can affect your options
Why some US residents review or restructure their ISA holdings
The high-level US reporting considerations that may apply
The difference between holding, contributing to, and restructuring a UK ISA
How the IRS views UK ISAs
Why many ISA investments are problematic for US residents
Practical considerations before taking action
Can a US resident keep a UK ISA?
Yes - a UK ISA does not automatically close when you become a US tax resident.
Once you are no longer UK tax resident:
You cannot make new ISA contributions
Existing ISA accounts can generally remain open
The investments inside the ISA continue to exist
Where confusion often arises is around what happens next.
Being unable to contribute does not necessarily mean the value of an ISA is trapped or unusable. In many cases, what is possible depends on provider rules and investment structure, rather than UK legislation alone.
Top tip: For US residents, the ISA wrapper itself is not an issue - the underlying investments are what matter and where they are domiciled.
How The US Tax System Treats UK ISAs
From a US perspective, a UK ISA is not recognised as a tax-advantaged account.
In practical terms, this means:
Income and gains generated within an ISA are generally taxable in the US
The ISA is treated similarly to a standard foreign investment account
Additional US reporting considerations may apply
While ISAs offer clear UK tax advantages, those benefits do not extend to the US tax system. Think of it as though the IRS ‘sees through’ the UK ISA wrapper.
PFIC And UK ISAs: Why This Matters For US Residents
Many UK ISAs hold investments such as:
UK-domiciled funds
Non-US ETFs
Collective investment schemes
For US taxpayers, these are often classified as Passive Foreign Investment Companies (PFICs).
PFIC exposure can result in:
Onerous reporting requirements
Unfavourable tax calculations
Interest charges applied to historic gains
A materially reduced after-tax return
Top tip: PFIC issues often remain unnoticed for years and only surface during a sale, re-balance, or US tax review, when options may already be more limited. The sooner they are identified and resolved, the better.
This is one of the most common and costly issues faced by US residents holding UK ISAs.
Reporting Considerations For US Residents
US residents are generally required to disclose foreign financial accounts and assets as part of their US tax compliance.
Depending on account values and individual circumstances, UK ISAs may fall within the scope of US foreign account reporting regimes. Failure to comply can result in significant penalties.
This is an area where clarity early on can prevent problems later.
Does Your ISA Provider Allow US Residents?
Another key consideration is whether your existing ISA provider permits US residents to continue holding the account.
In practice:
Some UK providers allow accounts to remain open after a move to the US
Others restrict trading activity once US residency is established
Certain providers may require assets to be transferred or holdings to be frozen
These rules are set at provider level, not by HMRC, and vary widely.
Top tip
Before making any changes, confirm whether your ISA provider allows US residents to continue holding and managing the account.
For many individuals, this is the point at which a broader review becomes necessary.
Why Some US residents Review Or Restructure Their ISA
While a UK ISA no longer offers US tax sheltering, its capital value still matters.
Some US-resident investors explore whether their ISA holdings can be:
Re-positioned into US-compliant investments
Structured to reduce or eliminate PFIC exposure
Aligned with US reporting and tax rules
Integrated into a wider cross-border investment strategy
This is not about exploiting loopholes. It is about ensuring investments remain fit for purpose after a change in tax residency.
Common Misconceptions
“ISAs are illegal for US residents.”
They are not illegal, they are simply not tax-advantaged under US law.
“I must close my ISA because I live in the US.”
Not necessarily. Closure is only one of several possible outcomes.
“The ISA wrapper is the main problem.”
The underlying investments are the potential issue, not the ISA wrapper.
FAQs | UK ISAs For US Residents
Can a US resident keep a UK ISA open?
Yes. A UK ISA does not automatically close when you become a US tax resident, although you can no longer contribute, and provider restrictions may apply.
Is a UK ISA taxable in the United States?
Yes. The IRS does not recognise the ISA wrapper as tax-advantaged, meaning income and gains are generally taxable in the US.
Why are PFICs an issue in UK ISAs?
Many UK funds and ETFs are treated as PFICs under US tax rules, which can lead to complex reporting and unfavourable tax outcomes.
Do all ISA providers allow US residents?
No. Provider policies vary. Some restrict or prohibit US residents from holding or trading ISA investments.
Should a US resident close their UK ISA?
Not automatically. In many cases, reviewing the structure and underlying investments is more appropriate than closing the account outright.
Final thoughts
If you are a US resident with a UK ISA, doing nothing is still a decision, and not always the most efficient one.
Understanding how ISAs are treated under US tax rules, recognising PFIC risk early, and being aware of provider restrictions can help avoid unnecessary complications later.
