Opening an ISA while living abroad

A question about : Opening an ISA while living abroad

I want to open an ISA but am currently living in Spain. I still have a UK bank account and UK address (parents house). The terms and conditions state that to open an ISA you must be a UK resident. Could I just open one anyway online while living in Spain? What are the risks?

Best answers:

• ISAs are a special category of account which have tax benefits but are only available to those people who can declare they are a UK resident.
  So, if you are not tax resident, but can prove your address in the UK so that the bank don't suspect, then yes theoretically you could 'just open one anyway online' while living in Spain, you would just be breaking the rules.
  So, let's say you open an ISA and fill in the form in February 2015 to certify that you are currently a UK resident. This information and your national insurance number will go to HMRC as part of the ISA provider's tax compliance obligations.
  When you get to the end of the tax year, having signed off that you are in fact UK tax resident as of February, HMRC may wonder why you have not paid UK tax on your worldwide income for this tax year.
  You can say "ah well don't worry Mr UK tax man, I am really tax resident in Spain paying tax on all my worldwide income there and not tax resident in the UK at all, I was only lying on the form to obtain tax advantages".
  Do you think that will go down well?
  In a nutshell the answers to 'what are the risks' include being chased for UK tax on income that you wouldn't otherwise need to pay UK tax on, or being investigated / chased for tax fraud.
  Also:
  It is worth being aware that the ISA status of an account is something that only gives you exemption from UK tax on income and gains made inside the ISA.
  Other countries do not care about whether the UK taxman wants to tax the account, and will still see it just like a regular account and want to tax it themselves just like they want to tax income from your other bank or investment accounts around the world. So, having a UK ISA doesn't necessarily help you avoid paying tax on the income from the account where you're currently living (depending on any tax treaties and agreements between the countries). It only helps you when you come back to the UK and start paying UK tax again.
• Thanks for the advice Bowlhead99, I'll give it a miss then to play it safe. I've had a windfall and am struggling to know what's best to do with it considering I live in Spain.
  I already have an ISA which I opened before I moved to Spain, as far as I'm aware I can use that, though the AER isn't great and I'm looking for something better. Not sure what to do.
• You are aware that cash ISA interest rates are rock bottom, and unlikely to rise anytime soon? The best rates are available in current accounts though you might find it difficult to open new current accounts if you are not a UK resident. Which bank is your existing UK account with?
• I have existing accounts with Halifax and Nationwide.
• Nationwide's 'flexdirect' account does at least pay a bit of interest on the first Ј2500 of balance in the account at a decent rate (5%) for the first year of having that type of account - but if you already have that account you'll have used up the intro period, and if you don't: in order to qualify for a new flexdirect account you need to be living in the UK.
  Unfortunately you'll find that all of the high interest paying current accounts are aimed at UK residents, if you read the T&Cs on them.
  Thing is though, if you're living in Spain you are presumably living your life in Euros. If you have Ј1000 in the UK, whether it goes up by Ј10 in a year at one bank's interest rate or Ј20 at another bank's interest rate, its value in Euros will change all the time, year by year, month by month, day by day, second by second. At the moment Ј1000 is worth about EUR 1350. Next year it might be worth EUR 1450 or EUR 1250 and you don't reliably know which.
  So, whether a UK savings account or investment account is most suitable for you, or perhaps a Spanish savings account or investment account, entirely depends on when you expect to use the money and what country you're likely to spend it in.
  You should not get too hung up on whether you can get 1% in UK and only 0.5% in Spain or whatever. I can remember the Euro rate being 1.6 to the pound and also it being 1.1 to the pound. The movement in exchange rates from month to month will dwarf whatever interest you get each month. So before you shop around for a good savings or investment opportunity, you have to be really really certain what it is you plan to eventually do with the money and whether it makes sense to keep it in pounds or euros or 50:50.
• Thanks for all of your advice guys, very helpful indeed. As you have correctly said, the crux is when and where I'll eventually use the money - and I can't answer that at the moment. It's money that I don't want to touch now (or for a while) and use one day for a deposit on a property I would imagine. I'll be staying in Spain for many more years I imagine, possibly forever.
• No. Both accounts are pretty much dormant. They get topped up with Xmas/birthday money and that's about it.