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Originally Posted by udon918
Dear all, I am new to this forum. Please forgive me if this is a common question, but I was unable to find any other reference to my questions among the archives.
I have been living here in the UK for 2 years now, and have some money in a couple of cash mini-ISAs. ISAs are like Roth IRAs and give tax-free interest earnings within the UK, but I do not know their status in the US (The US requires that we report all income from all sources world-wide) and whether these UK tax free earnings are taxable in the US.
The bigger part of my question, however, is that I am about to buy a flat in London. My financial advisor is setting up a stock ISA (that in vests in a unit trust, similar to a mutual fund) for the repayment portion of a mortgage, with the actual mortgage being an interest-only loan. I am reading now from an American Expat magazine that US does not respect the tax-free status of these ISA accounts, and that unit trusts are a "US tax unfriendly asset" so I am becoming worried about the potential tax liabilities of such an investment.
I cannot post the URL for this particular article I just read, but if you dig up the 2009 Summer edition of American in Britain magazine under "Taxing Issues" you should be able to find the article.
Also, if anyone can recommend a good (and inexpensive) accountant who has experience in US-UK tax issues, I would welcome any and all suggestions.
Thanks!
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Why use shares for the repayment of the capital? Specially if there is no tax advantage as somebody has explained already.
Here in the UK there were a lot of people left in negative equity due to poorly performing shares.
In the UK you have the offset mortgage in which the bank calculates the difference between your mortgage debt and your savings and then you pay interest on the difference only.
Lets say, your mortgage is £200000 and you have savings of £50000, then you pay interest for £150000 only and receive no interest payments at all.
Interest is higher of course, but the vital part here is that the interest you are saving (the one you would pay for those £50000 of mortgage offset by your savings) are not earnings (you never see that money) and thus, at least in the UK, there is nothing to declare (you will need to check the situation in the US, but I find unlikely that it can be claimed you are earning anything).