ISAs, Premium Bonds & UK Savings: Are They Still Tax-Free in the U.S.?

If you're a British citizen now living in the United States, you may still be holding familiar UK savings tools such as ISAs, Premium Bonds, or NS&I products. Back home, these accounts were excellent for tax efficiency. But once you relocate to the U.S., the rules change, and often not in your favour.

At Skybound Wealth USA, we regularly meet British expats who unintentionally trigger U.S. tax liabilities because they assume these “tax-free” accounts work the same way abroad. Here’s how the IRS views these savings vehicles and what you can do to stay compliant.

ISAs Are Not Tax-Free in the U.S.

Whether it’s a Cash ISA, a Stocks & Shares ISA, or an Innovative Finance ISA, UK residents enjoy tax-free growth and withdrawals. In the U.S., however, the IRS does not recognise the ISA structure.

Dividends and interest must be reported as taxable income each year, while any capital gains are taxed on sale. There is no tax deferral or exemption under U.S. law. If your ISA holds UK-based funds, it may also trigger PFIC reporting, which carries additional filings and potential penalties. In practice, an ISA functions like a standard taxable brokerage account once you are resident in the U.S.

Premium Bonds: Tax-Free in the UK, Taxable in the U.S.

Premium Bonds issued by NS&I are another long-standing UK favourite. In the UK, prize winnings are exempt from tax. In the U.S., those same prizes are treated as ordinary income.

Even if you never receive interest in the traditional sense, any winnings must be reported to the IRS. Depending on your income bracket, tax may be due, and larger winnings can create extra reporting requirements. Many British expats keep Premium Bonds as a “safe” asset without realising that failure to declare income can attract IRS penalties.

Other UK Accounts to Keep Tabs On

Other NS&I and UK savings products are also fully taxable under U.S. law. Cash ISAs, Junior ISAs, and Direct Saver accounts are all treated as taxable income sources. Help to Buy and Lifetime ISAs lose their UK tax advantages once you are U.S. resident, and in some cases, withdrawals can even create additional penalties.

If these accounts hold UK mutual funds, OEICs, or ETFs, the situation becomes even more complicated because of PFIC rules. These rules result in annual filing obligations and punitive taxation, which can significantly reduce long-term growth.

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The IRS and FATCA: Why the U.S. Sees Everything

Under FATCA, UK banks and NS&I must report account balances and activity of U.S. persons directly to the IRS. This means you cannot keep UK accounts out of sight, and you may also have to report them yourself through FBAR and Form 8938.

The penalties for non-compliance are steep, with fines starting at $10,000 per violation. This makes proper reporting as important as tax efficiency when managing your UK savings from the U.S.

Smarter Alternatives for U.S. Residents

Living in the U.S. does not mean giving up on tax efficiency,  it means using the right structures. Rebalancing portfolios into U.S.-compliant investments that report via Form 1099 is a first step. Reducing PFIC exposure, planning an orderly exit from UK savings accounts, and ensuring all accounts are properly declared are equally important.

Working with advisers who understand both UK and U.S. systems ensures your strategy is tax-efficient without exposing you to unnecessary reporting or penalties.

How Skybound Wealth USA Can Help

Our role is to help British expats review their UK savings, identify which accounts remain efficient and which should be wound down, and replace them with U.S.-compliant solutions. We coordinate with tax professionals on both sides of the Atlantic, ensuring FATCA, FBAR, and PFIC rules are met while protecting long-term growth.

Don’t Let “Tax-Free” Cost You in the U.S.

Just because an account is tax-free in the UK does not mean the IRS agrees. ISAs, Premium Bonds, and other UK savings tools can all create unexpected liabilities once you are U.S. resident.

The best way to avoid nasty surprises is to act early. Contact Skybound Wealth USA today for a cross-border savings review and ensure your portfolio is structured for your residency, not just your passport.

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