Will Israel tax my UK ISA if I move there?

A British saver who has spent years quietly building a tax-free ISA arrives in Israel assuming that shelter travels with them. It does not. Israel has never heard of an ISA, and the wrapper that makes it tax-free in Britain means nothing on the Israeli side. What actually protects you for a while is a completely different rule, and it has an expiry date.

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Detailed Explanation

Start with the position while you are still a UK resident and merely a non-resident of Israel. Israel taxes non-residents only on Israeli-source income. An ISA holding UK and global investments is foreign-source, so Israel does not tax it at all until you become an Israeli tax resident. The question only bites once you move and your centre of life shifts to Israel.

When you do become resident, the ISA wrapper offers you nothing under Israeli law. Israel taxes the components inside it: dividends, interest, and capital gains, as if the wrapper were not there. On its own that would be a nasty surprise for a British immigrant. The rescue is Section 14 of the Income Tax Ordinance 1961, which gives new immigrants (olim) and qualifying returning residents a ten-year exemption on foreign-source income and gains. Because ISA income is foreign-source, it falls squarely inside that exemption. For your first decade in Israel, the ISA is effectively untaxed on both sides of the water. The mechanics of that exemption are set out in our answer on the ten-year tax exemption for new immigrants.

The cliff comes at year ten. Once the Section 14 window closes, the foreign-source shelter is gone, and the ISA's income becomes fully taxable in Israel. Israeli rates on investment income are generally 25% on dividends and most capital gains, and 30% where you are a material shareholder, with interest taxed similarly. The UK, meanwhile, still treats the same account as tax-free, so you can find yourself paying Israeli tax on income that carries no UK tax at all. There is no UK tax to credit against the Israeli charge in that situation, because the ISA produced none, which removes the usual double-tax relief and leaves the Israeli bill standing in full.

A second point often missed: becoming non-UK-resident usually stops you contributing new money to the ISA under UK rules, even though the existing holdings remain. So the account gradually becomes a legacy pot that is tax-free in Britain, sheltered in Israel only until year ten, and then squarely within the Israeli tax net. Many British olim use the ten-year runway to restructure, realising gains inside the exemption or reorganising the portfolio before the shelter lapses.

In Practice: Under Section 14 of the Income Tax Ordinance 1961, a new immigrant's UK ISA income is exempt in Israel for ten years from the date of becoming resident. After that, the Israel Tax Authority (Rashut HaMisim) taxes ISA dividends and gains at 25% to 30%; on an ISA generating NIS 40,000 of annual dividends, that is roughly NIS 10,000 a year in Israeli tax once the exemption ends, with no UK tax available to offset it.

Key Considerations

• Israel does not recognise the ISA wrapper and taxes the income inside it.
• As a non-resident you are not taxed on the ISA at all; the issue starts when you become Israeli resident.
• Section 14 exempts the ISA's foreign income for your first ten years as an oleh or returning resident.
• After ten years the income is taxable in Israel at 25% to 30% with no ISA shelter.
• Because the UK levies no tax on an ISA, there is usually no foreign tax credit to offset the Israeli charge.

When to Consult a Lawyer

This question typically requires professional legal advice when:

• You are approaching the end of your ten-year Section 14 window and hold significant ISA assets.
• You want to restructure or realise gains inside the exemption period before the shelter lapses.
• You are unsure whether you qualify as a new immigrant or a returning resident for Section 14.

A qualified Israeli tax adviser should plan the treatment of your ISA well before year ten, because decisions made inside the exemption cannot be undone once it expires.

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Speak With an Israeli Attorney

We advise British immigrants on how the Section 14 exemption applies to ISAs and other UK investments, and on restructuring the portfolio before the ten-year shelter ends.

Contact us for a confidential initial consultation.