US-UK Tax

Are ISAs tax-free for US citizens in the UK?

Answered by Jordan Onraet-Wells, Founder & Chartered Tax Adviser (CTA). Published 18 July 2026. Last reviewed 18 July 2026.

The short answer

No. An ISA is only tax-free in the UK: the United States does not recognise the wrapper, so the interest, dividends and gains inside it remain reportable and taxable on a US citizen's return. The US taxes its citizens on worldwide income wherever they live, and the saving clause in the US-UK treaty preserves that right. A stocks and shares ISA is worst affected, because the funds it usually holds are PFICs, attracting punitive US tax and extra filings.

The UK charges no Income Tax or Capital Gains Tax on ISAs (2026/27 allowance £20,000), but that shelter exists only in UK law.
The US taxes citizens and green card holders on worldwide income wherever they live, so ISA interest, dividends and gains belong on the US return.
The treaty's saving clause lets the US tax its own citizens largely as if the treaty did not exist, so the treaty does not rescue the ISA.
Funds inside a stocks and shares ISA (unit trusts, OEICs, most UK and European ETFs) are usually PFICs for US purposes, taxed punitively with a separate Form 8621 for each fund.
A cash ISA avoids the PFIC problem, but its interest is still taxable in the US.
An ISA also counts towards the FBAR and FATCA reporting thresholds as a foreign financial account.

Tax-free in the UK, taxable in the US

HMRC charges no UK tax on anything held inside an ISA, and you can pay in up to £20,000 in 2026/27. The IRS is not bound by any of that. The US taxes its citizens and green card holders on worldwide income wherever they live, and the saving clause in Article 1(4) of the US-UK treaty preserves that right almost as if the treaty did not exist. To the IRS an ISA is just an ordinary account, so the income and gains inside it are reportable and taxable in the normal way. Our guide to tax for Americans living in the UK covers the saving clause and the dual-filing system in full.

Stocks and shares ISAs carry the extra PFIC sting

A cash ISA produces taxable US interest, which is unwelcome but simple. A stocks and shares ISA is usually worse, because the UK funds inside it count as Passive Foreign Investment Companies (PFICs) in US eyes. The default PFIC regime taxes distributions and gains at the highest US rate with an interest charge added, and each fund needs its own Form 8621. Many Americans in the UK hold US-domiciled funds or individual shares instead; that is common practice, not a recommendation. Our guide to PFIC and ISA traps for Americans in the UK explains the regime and the elections in detail.

Who handles which return

The UK side, including Self Assessment and residence, is Chartered Tax Adviser work, which is what Horizon does. The US return, FBAR and any Form 8621s are handled by our US partners (Enrolled Agents and CPAs), whom we coordinate for you, so both returns work from the same figures. If you already hold an ISA, have both sides reviewed before you change anything: the right approach depends on what it holds and on your wider UK and US position.

Go deeper

Sources and further reading

This is general information for the 2026/27 UK tax year, not personal tax advice; speak to a Chartered Tax Adviser about your own position.

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