For US citizens living in the UK, the US tax system treats UK pension contribution and withdrawals pretty much like the UK does. Tax-free contributions, taxes due on withdrawals. Just like a traditional 401k or IRA.

But how does the US system treat UK ISAs? That is, how does a US citizen need to handle ISA contributions and withdrawals on their US tax returns? In the UK, contributions are post-tax money but no taxes are due on withdrawals. Is there an equivalent handling in the US?

1 Answer 1


This is quite a long one to paraphrase, but essentially it is taxed as income, and you will also have to pay capital gains, and there is a source.

Regardless of the fact that UK tax authorities say there is no tax due in the UK, if you are tax resident in the United States, this has no bearing. You have to file taxes just like it was any other investment account.

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    I'm not trying for tax avoidance here, I'm trying to understand US taxation of ISAs. Your source says right at the beginning "... this post is just me looking at the question and coming to a conclusion. The IRS may well come to a contrary conclusion." So doesn't seem too definitive to me. Instead, i'm looking for equivalent guidance in the taxation treaty as this for pension schemes: hmrc.gov.uk/manuals/dtmanual/dt19939h.htm. Do you have an equivalent source for treating it like a non-tax-advantaged investment account?
    – davmp
    Jan 29, 2016 at 9:58
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    Double taxation treaties aren't relevant to ISAs because you don't pay tax on them in the UK. From the information I can find it is treated differently dependent on the investments, but you will definitely be paying income tax on dividends and CGT on gains. This is definitely a question for a qualified tax specialist. Your ISA may also be closed if you move to the US because of FATCA obligations. Your best bet is most likely withdrawing from the ISA and transferring your account to the states, so it's easier for tax purposes.
    – Will
    Jan 29, 2016 at 10:09
  • Uh, don't tax treaties specify both what is taxed and what isn't? Not to say every situation has to be covered, but I'd think situations where the local country doesn't tax would be explicitly covered in such a document if the other country will tax. Oh, and this is research to determine whether to open and participate in an ISA. No part of the question was concerned about leaving the UK.
    – davmp
    Jan 29, 2016 at 10:35
  • Tax treaties normally prevent double taxation on income and allow you to use tax-credits to offset taxation in the receiving country. In this case there wouldn't be anything to offset besides the 10% dividend tax. There doesn't seem to be any definite information. The closest you will get is speaking to a qualified tax advisor in the United States. If you don't intent to leave the UK, and are not a US citizen/tax resident I'm not sure why you would be interested in this question.
    – Will
    Jan 29, 2016 at 10:38
  • The question is about US citizens (tax residents) living in the UK.
    – davmp
    Jan 29, 2016 at 11:07

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