ISAs

My husband (British citizen) recently opened an ISA in his name alone. We have been discussing opening another ISA in my name, but before I did, I wanted to see if this would have any effect on my US taxes, or if there were any other issues that I should be aware of, being an American citizen.

Thanks in advance.

You can have an ISA if you want:

1. It would go on the TD F 90-22.1 as a foreign securities or bank account.
2. If it holds stocks & shares then the dividends go on your US return on Schedule B (and on a Passive Form 1116).
3. If it holds cash then the interest also goes on your US return on Schedule B (and on a Passive Form 1116).
4. If it holds unit trusts, investment trusts, UK REITs, ETFs or other collective investments then these get reported as Passive Foreign Investment Companies on Form 8621 as well on the return.  Generally speaking, holding these kind of investments make US tax really complicated!
5. Many readers of this forum could invest offshore or in the US without the limitations of an ISA because many are not domiciled within the UK so would not pay UK tax on interest, dividends & capital gains if the investment income was earned outside of the UK and not brought to the UK.

Thank you for the info Guya.

It would be a cash ISA (should have mentioned that), so I would avoid the complications of number 4.

Thank you for your insight regarding number 5. Unfortunately as we don't yet know our long-term plans, it's hard to say what would make the most sense. At this point, we have no immediate plans to leave the UK, so at some point I would probably need to bring whatever money I invested offshore into the UK. It would be so much easier if we knew where we would be in the future!