Many of our pension transfer clients also have Individual Savings Accounts (ISAs) in the UK – as they are a popular way to save tax-free while living there. But once you’re in New Zealand the tax treatment of UK ISAs depends on several factors. While ISAs are tax-free in the UK, these exemptions do not extend to New Zealand. Here’s how the tax treatment is structured:
1. Criteria for Paying Tax on UK ISAs in New Zealand
You will be subject to tax on your UK ISAs if you are considered a New Zealand tax resident. Key criteria include:
- Tax Residency: You are a New Zealand tax resident, including recent arrivals after the four-year transitional period.
- Transitional Residents: If you have been in New Zealand for less than four years and meet the transitional resident criteria, you are exempt from paying tax on foreign income, including income from ISAs.
- Foreign Investment Threshold: If the total cost of your overseas investments, including ISAs, exceeds NZD 50,000, the Foreign Investment Fund (FIF) rules may apply.
2. What Income from ISAs Must Be Taxed?
If the total value of your foreign investments, excluding pensions but including UK ISAs, is less than NZD 50,000, the Foreign Investment Fund (FIF) rules do not apply. In this case, you only need to declare actual income earned, such as interest from cash ISAs or dividends from Stocks and Shares ISAs. Capital gains are not taxed if FIF rules do not apply. In this case, you only need to declare actual income earned, such as interest from cash ISAs or dividends from Stocks and Shares ISAs.
If your total foreign investments exceed NZD 50,000, the FIF rules apply and you must calculate and report deemed income based on prescribed methods, such as the Fair Dividend Rate (FDR) or Comparative Value (CV) methods.
3. How to Declare UK ISA Income to Inland Revenue (IRD)
- Identify the Income: Determine whether your UK ISA income falls under the FIF rules or is considered ordinary foreign income.
- Calculate Income: For cash ISAs, declare interest earned. For Stocks and Shares ISAs, use the appropriate FIF calculation method.
- Complete the Tax Return: Report your ISA income in your annual tax return under the foreign income section. Use the IRD’s guidelines to complete the necessary fields and attach supporting documentation if required.
- Seek Professional Advice: If you are uncertain about the application of the FIF rules or the calculation of foreign income, consult a tax advisor experienced in UK-New Zealand cross-border taxation.
Ensuring correct reporting of UK ISA income will help you remain compliant with New Zealand tax laws while optimising your tax position effectively. Talk to us, the experts, today if you have an ISA or UK pension and need advice on what to do.
