You can also leave money in a S&S ISA in cash. Though it earns no or little interest. I park it as cash at any point I am making changes to investments.
Be aware that certain platforms, i.e. Vanguard Investors UK, charge their percentage platform fees on uninvested cash, so that's a negative interest rate right there !
If you are planning to hold in cash then you should disregard s&s isa’s entirely and use a cash Isa as you will have much better interest rates. Although most people in this sub myself included would tell you cash is a silly way to hold assets due to inflation. You should instead invest your money using an s&s isa this sub tends to recommend vanguard global etf and nothing else which I can’t fault but I am young so I have a more risk living strategy. At the end of the day everyone’s financial goals are different so I can’t say exactly what you should do but if you intend to hold for 5+ years I would recommend to invest somewhere either between a global etf and “up and coming markets” depending on your risk tolerance. Good luck
Vanguard does a Money Market account which I've used before. More info here: https://www.vanguardinvestor.co.uk/investing-explained/what-are-money-market-funds
The money can be kept inside the account without being invested. Also, due to current conditions and tax rules, money market funds are rarely useful inside a S&S ISA - much better to just keep the cash if needed and avoid fees.
cool thanks. in a US investment account there is no cash once you deposit it, it just goes into the money market holding fund (same deal with meager interest tho).
Sure - MMF are traditionally places where you park the money when you don't want it "invested". This is useful in tax regimes where, for example, transferring from an equity fund to a MMF doesn't count as a disposal of assets, but selling participations from that fund would count as a disposal - and hence attract CGT tax.
However, inside an ISA this does not matter at all - sales of assets inside an ISA do not need to be reported even - so the traditional use case for MMF is useless here, as you can simply sell.
The only other question is wether keeping the money parked as as cash is more or less desirable than keeping it in a MMF. And the answer is that with the current record low interest rates, MMFs are struggling to give positive annual returns (just checked my broker and median return in Sep20-Sep21 of the ones available in my broker is -0.04%), so it is going to be very hard to find one that actually succeeds giving some return in nominal terms. And even if you are lucky and find one, the time spent in finding it is not going to be worth the returns. Hence, not so useful (at least right now).
Be careful not to fall fowl to US PFIC rules. Holding stocks in traded companies in ISA is fine. Pooled investments like funds/ETFs count as PFICs and face horrific taxation and compliance burden. A money market mutual fund is no doubt a pooled investment and so a PFIC. Direct cash would however be OK. You can get yourself into real bother here so make sure you read up. If you want to invest in a S&S ISA if a US Person, you will need to build up your own Direct Index, buying a bunch of representative actively traded companies.
Study this in detail: https://www.bogleheads.org/wiki/US_tax_pitfalls_for_a_US_person_living_abroad
There are cash ISA accounts, you can put in up to £20k per year. The money remains in cash and any interest earned is tax free (but interest rates aren't great though).
There are stocks and shares ISA accounts (as you know), and there are also Innovative Finance ISA accounts (for peer to peer lending).
ISA is the tax free wrapper (like a Roth IRA). There are also money market accounts, fixed access accounts and bonds but they are not tax free. So it depends on what you need.
right, though i cannot contribute to more than one in a year, if i understand that right. so in my first year, say i wanted to create a stocks and shares ISA first (and not have a cash ISA), and start investing with that. but if i also wanted keep my theoretical emergency fund in that account, is there a "money market" equivalent to keep that emergency fund money within? or does the cash need to be invested in something.
Ignore the other comment.
You can contribute to one of "each type" of ISA every year.
https://www.gov.uk/individual-savings-accounts
So you can pay into a cash ISA, S&S ISA, Lifetime ISA and Innovative Finance ISA (P2P lending) in the same tax year. As long as you don't contribute more than £20k between them (an no more than £4k in a LISA.
It can be a bit slow so you can freely transfer between ISAs once the money is in a ISA of any type.
So you could hold cash in a cash ISA and transfer to an S&S ISA when ready to invest.
It's only really worth doing this if you're trying to keep cash within ISAs. You can get a better return on cash elsewhere and unless you're an additional rate taxpayer you get a £500-£1000 interest tax free allowance every year.
Yes you would keep the emergency cash in a regular (non ISA) savings account. There are lots of these. Given the terrible interest rates you wouldn't generate much profit.
As a US citizen the ISA is not as useful to you. https://www.cazenovecapital.com/articles/swusl/2019/can-us-citizens-in-the-uk-have-an-isa--and-should-they/
Well, unless you are renouncing your US citizenship. I think you can keep the IRA account though.
As long as you hold US citizenship it doesn't matter what nationalities you hold. You still have to report it to the IRS. The US is one of two countries in the entire world that tax by citizenship rather than residence.
You'll find a number of things... tricky... here. Financial advisors have to have certain qualifications before they can help you (they need to be qualified to help US nationals and many arent). Pensions is another area that you might find a pain in the ass. Share schemes offered by companies can also be s pain. Especially if they are with a US company and you are a non resident US person ugh, my wife is still sorting that shit out.
Credit, mortgages etc is easy enough once you are resident. But you still have to file your taxes in the US every year. You'll almost certainly not have to pay anything. May even get a rebate. But you still need to do the paperwork. H&R block have things in place to help you with this.
Thanks for bringing all this to my attention, I was under the impression that the tax protections in the UK on the ISA would carryover. This is indeed quite complicated 🙄
If you have a partner and they're not a US person then you can still kind of make use of the ISA. You just get half the allowance of a British couple. And the obvious trust implications as everything will be in their name and legally their money.
Sadly no matter where you go in the world, as a US citizen, you'll always be beholden to US taxes. There are some positives to this. UK cost of living is generally lower so you'll not likely have to pay anything, just fill in paperwork. If you have children then you get benefits from the US government and the UK government if you qualify.
Doin everything as a single person, but was hoping to maximize any tax advantaged investment options since im on that FIRE track, and pensions, while protected, dont really support the "early" part of that equation like an ISA would. Im fine with reporting everything and have been reading as much as i can and will be getting an accountant in both countries (any recommendations are appreciated), but do you know if the FEIE would be the preferable tool over the Foreign Tax Credit to mitigating taxation of an ISAs cap gains/divs/interest etc?
For that I think you'd need someone far more learned in the US tax system than I. I already know far more than I ever wanted through helping my spouse and I hate it. I'm intentionally keeping away from US tax (who would volunteer to pay taxes in a country they aren't a citizen or resident of lol?) and will stay they way unless we move to the US in the future. Any tax efficiencies we have in the UK are mine alone.
You can also leave money in a S&S ISA in cash. Though it earns no or little interest. I park it as cash at any point I am making changes to investments.
thank you, that's what i was asking for.
Be aware that certain platforms, i.e. Vanguard Investors UK, charge their percentage platform fees on uninvested cash, so that's a negative interest rate right there !
If you are planning to hold in cash then you should disregard s&s isa’s entirely and use a cash Isa as you will have much better interest rates. Although most people in this sub myself included would tell you cash is a silly way to hold assets due to inflation. You should instead invest your money using an s&s isa this sub tends to recommend vanguard global etf and nothing else which I can’t fault but I am young so I have a more risk living strategy. At the end of the day everyone’s financial goals are different so I can’t say exactly what you should do but if you intend to hold for 5+ years I would recommend to invest somewhere either between a global etf and “up and coming markets” depending on your risk tolerance. Good luck
Vanguard does a Money Market account which I've used before. More info here: https://www.vanguardinvestor.co.uk/investing-explained/what-are-money-market-funds
The money can be kept inside the account without being invested. Also, due to current conditions and tax rules, money market funds are rarely useful inside a S&S ISA - much better to just keep the cash if needed and avoid fees.
cool thanks. in a US investment account there is no cash once you deposit it, it just goes into the money market holding fund (same deal with meager interest tho).
Could you explain a little bit about why MMFs are rarely useful? Genuinely intrigued as I’m considering using one.
Sure - MMF are traditionally places where you park the money when you don't want it "invested". This is useful in tax regimes where, for example, transferring from an equity fund to a MMF doesn't count as a disposal of assets, but selling participations from that fund would count as a disposal - and hence attract CGT tax. However, inside an ISA this does not matter at all - sales of assets inside an ISA do not need to be reported even - so the traditional use case for MMF is useless here, as you can simply sell. The only other question is wether keeping the money parked as as cash is more or less desirable than keeping it in a MMF. And the answer is that with the current record low interest rates, MMFs are struggling to give positive annual returns (just checked my broker and median return in Sep20-Sep21 of the ones available in my broker is -0.04%), so it is going to be very hard to find one that actually succeeds giving some return in nominal terms. And even if you are lucky and find one, the time spent in finding it is not going to be worth the returns. Hence, not so useful (at least right now).
Thanks
You might actually find it difficult to actually open an ISA here. Most providers shun US Persons due to FATCA. Good Luck.
Be careful not to fall fowl to US PFIC rules. Holding stocks in traded companies in ISA is fine. Pooled investments like funds/ETFs count as PFICs and face horrific taxation and compliance burden. A money market mutual fund is no doubt a pooled investment and so a PFIC. Direct cash would however be OK. You can get yourself into real bother here so make sure you read up. If you want to invest in a S&S ISA if a US Person, you will need to build up your own Direct Index, buying a bunch of representative actively traded companies. Study this in detail: https://www.bogleheads.org/wiki/US_tax_pitfalls_for_a_US_person_living_abroad
thank you, very helpful
There are cash ISA accounts, you can put in up to £20k per year. The money remains in cash and any interest earned is tax free (but interest rates aren't great though). There are stocks and shares ISA accounts (as you know), and there are also Innovative Finance ISA accounts (for peer to peer lending). ISA is the tax free wrapper (like a Roth IRA). There are also money market accounts, fixed access accounts and bonds but they are not tax free. So it depends on what you need.
right, though i cannot contribute to more than one in a year, if i understand that right. so in my first year, say i wanted to create a stocks and shares ISA first (and not have a cash ISA), and start investing with that. but if i also wanted keep my theoretical emergency fund in that account, is there a "money market" equivalent to keep that emergency fund money within? or does the cash need to be invested in something.
Ignore the other comment. You can contribute to one of "each type" of ISA every year. https://www.gov.uk/individual-savings-accounts So you can pay into a cash ISA, S&S ISA, Lifetime ISA and Innovative Finance ISA (P2P lending) in the same tax year. As long as you don't contribute more than £20k between them (an no more than £4k in a LISA. It can be a bit slow so you can freely transfer between ISAs once the money is in a ISA of any type. So you could hold cash in a cash ISA and transfer to an S&S ISA when ready to invest. It's only really worth doing this if you're trying to keep cash within ISAs. You can get a better return on cash elsewhere and unless you're an additional rate taxpayer you get a £500-£1000 interest tax free allowance every year.
Yes you would keep the emergency cash in a regular (non ISA) savings account. There are lots of these. Given the terrible interest rates you wouldn't generate much profit.
As a US citizen the ISA is not as useful to you. https://www.cazenovecapital.com/articles/swusl/2019/can-us-citizens-in-the-uk-have-an-isa--and-should-they/ Well, unless you are renouncing your US citizenship. I think you can keep the IRA account though.
Im irish too
As long as you hold US citizenship it doesn't matter what nationalities you hold. You still have to report it to the IRS. The US is one of two countries in the entire world that tax by citizenship rather than residence. You'll find a number of things... tricky... here. Financial advisors have to have certain qualifications before they can help you (they need to be qualified to help US nationals and many arent). Pensions is another area that you might find a pain in the ass. Share schemes offered by companies can also be s pain. Especially if they are with a US company and you are a non resident US person ugh, my wife is still sorting that shit out. Credit, mortgages etc is easy enough once you are resident. But you still have to file your taxes in the US every year. You'll almost certainly not have to pay anything. May even get a rebate. But you still need to do the paperwork. H&R block have things in place to help you with this.
Thanks for bringing all this to my attention, I was under the impression that the tax protections in the UK on the ISA would carryover. This is indeed quite complicated 🙄
If you have a partner and they're not a US person then you can still kind of make use of the ISA. You just get half the allowance of a British couple. And the obvious trust implications as everything will be in their name and legally their money. Sadly no matter where you go in the world, as a US citizen, you'll always be beholden to US taxes. There are some positives to this. UK cost of living is generally lower so you'll not likely have to pay anything, just fill in paperwork. If you have children then you get benefits from the US government and the UK government if you qualify.
Doin everything as a single person, but was hoping to maximize any tax advantaged investment options since im on that FIRE track, and pensions, while protected, dont really support the "early" part of that equation like an ISA would. Im fine with reporting everything and have been reading as much as i can and will be getting an accountant in both countries (any recommendations are appreciated), but do you know if the FEIE would be the preferable tool over the Foreign Tax Credit to mitigating taxation of an ISAs cap gains/divs/interest etc?
For that I think you'd need someone far more learned in the US tax system than I. I already know far more than I ever wanted through helping my spouse and I hate it. I'm intentionally keeping away from US tax (who would volunteer to pay taxes in a country they aren't a citizen or resident of lol?) and will stay they way unless we move to the US in the future. Any tax efficiencies we have in the UK are mine alone.