Will I Have to Pay US Taxes on an Investment Account That Is Tax-Free in the UK?

Yes. While certain UK investment accounts—like ISAs (Individual Savings Accounts) and GIAs (General Investment Accounts)—may be tax-free under UK law, they do not receive the same tax-free treatment from the IRS.

As a US citizen or Green Card holder living in the UK, you are still required to report worldwide income on your US tax return, including any:

• Interest
• Dividends
• Capital gains
• Distributions from tax-advantaged UK accounts

This income must be reported to the IRS each year it’s earned, regardless of its UK tax status.

Why Are These Accounts Taxed in the US?

The US does not recognize ISAs or GIAs as tax-exempt accounts. That means even if they’re tax-sheltered or tax-free in the UK, you must still report the income to the IRS.

Additionally, many UK-based investments—especially mutual funds or ETFs inside ISAs—may be considered Passive Foreign Investment Companies (PFICs) under US tax law. These come with complex reporting requirements (Form 8621) and higher tax rates.

Learn more about PFICs and expat investment tax issues

How Can I Minimize US Tax Complexity on UK Investments?

To avoid unnecessary complications and costly reporting:

• Avoid UK mutual funds or pooled investment products inside ISAs
• Consider investing in individual stocks or bonds, where you’re the direct owner of the asset
• If your ISA is held through a UK financial institution and consists of individual investments, it won’t be treated as a foreign trust, simplifying your filing

What About Capital Gains Tax Rates?

Capital gains on UK investments are taxed by the IRS at the same rates as US-based investments:

• Long-term capital gains (held over 1 year): Up to 20%, depending on your income bracket
• Short-term capital gains (held 1 year or less): Taxed at your ordinary income tax rate

Your Greenback accountant will help you report your investment income properly and explore available foreign tax credits to reduce double taxation.

Explore how we help expats with investment-related tax reporting

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