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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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It is generally unwise for a US citizen to invest in an ISA or a unit trust unless s/he has earnings so low as to be below the US income tax threshold. This is because an ISA or any tax-free, tax-sparing or tax-postponed investment EXCEPT a retirement pension or similar product qualifying as a pension under article 18 of the US-UK tax treaty will be taxed currently by the IRS.
Furthermore, a unit trust does not qualify as a mutual fund under US tax laws (nor does a US mutual fund qualify as such under UK tax laws) and therefore the tax treatment is anomalous and horrendous.
Most UK financial advisors are incompetent to advise US citizens. If you don't believe me, read this case:
Grimm v. Newman
There may be a few accountants who don't charge too much and who can advise on US-UK cross-border issues and prepare tax returns. I know that many former City types whose returns were done at their employers' expense by the Big 4 are now unemployed or on much lower pay and looking for cheaper expertise. I would not, however, offer any names on a public forum, not even my own. I suggest you try for a personal referral.