Moving to the US? What Happens to Your ISA and What to Do Before You Leave

For UK savers, an ISA is the simplest tax-free home for money there is. For anyone moving to the United States, it is also one of the assets most worth thinking about before departure - because the day you become a US tax resident, the ISA's defining benefit disappears in US eyes, and some of the best options for dealing with it are only available while you are still purely a UK taxpayer.

This article is for UK nationals, and UK-resident US persons, who hold ISAs and are relocating to the US. It complements the separate guidance on whether a US person should open an ISA in the first place.

What happens to your ISA when you become US-resident

Becoming a US tax resident changes the ISA's status overnight from the US side. The US does not recognise the ISA shelter, so the interest, dividends, and capital gains inside become fully US-taxable and reportable on your US return. If the ISA is a stocks-and-shares ISA holding UK funds, those funds are PFICs, bringing punitive US tax treatment and an annual Form 8621 for each. And the ISA joins your US reporting picture: FBAR once foreign accounts pass $10,000, Form 8938 above the FATCA thresholds, and Form 8621 for the PFICs. The UK still treats the ISA as tax-free; the US does not - and once you are US-resident, the US view applies to you.

Why the pre-departure window matters

The period before you become US-resident is valuable precisely because, during it, you are still taxed only in the UK. Decisions about an ISA are far less constrained then than they are once US rules apply. This is the window in which to take stock of what the ISA holds, to gather the records the US will later expect, and to take advice on whether any action is sensible before the US tax net closes. Once you are US-resident, the same steps carry US tax consequences they would not have carried a few weeks earlier.

Pre-departure considerations

Without straying into specific advice,several educational themes belong in a pre-departure review.

Take stock of what the ISA holds

A cash ISA and a fund-based stocks-and-shares ISA raise very different US issues, because of the PFIC question. Knowing exactly what is inside is the starting point.

Records and cost basis

The US taxes gains by reference to cost basis, which UK ISAs do not track in the US sense. Assembling purchase records and values before you leave is far easier than reconstructing them later, and the US will eventually need them.

Whether to act on holdings before US residence

Because the US will tax gains a rising once you are resident, there can be a case - depending entirely on circumstances - for reviewing fund holdings while still outside the US tax net. This is a decision to take with advice, not a default, but it is a decision that is only fully available before departure.

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Once you are US-resident: the narrower choices

After the move, the realistic options reduce to three educational categories. You can hold the ISA, accepting the US tax and reporting (and the PFIC treatment of any funds). You can restructure what it holds, for instance moving away from PFIC-laden funds, mindful of the US tax consequences of doing so once resident. Or you can unwind it. None of these is a recommendation, and each interacts with your wider US position; the point is that the menu is shorter and the consequences larger than they were before you left the UK.

Coordinating with the wider move

An ISA is one item on a longer UK-to-US checklist that also includes your pension, your investments, and your estate position. Handling the ISA in isolation risks missing how it fits the whole picture, which is why it belongs inside the broader pre-departure planning covered in the US-inbound pillar for this series.

An illustrative example

Consider a hypothetical UK national, age 48, moving to the US with a stocks-and-shares ISA built up over a decade. Before leaving, she reviews what it holds, gathers cost-basis records, and takes advice on her fund positions while still UK-only-taxed. Had she waited until after the move, the same review would have meant US-taxable decisions on a basket of PFICs, with records harder to assemble. Acting in the pre-departure window kept her options open. This example is hypothetical and for illustration only.