How the US taxes your UK ISA

An ISA is a UK creation, and the US has no matching concept. To the IRS an ISA is just an ordinary foreign account that happens to be tax-free under another country's law. That UK tax-free status carries no weight on a US return, so everything inside is taxed by the US as if the wrapper were not there.

Cash ISAs

The simplest case. Interest in a cash ISA is tax-free to HMRC but taxable to the IRS as ordinary income in the year it is earned. You still benefit from the UK break, so a cash ISA is not harmful for a US person; it just does not deliver the tax-free result a UK-only saver gets. Report the interest on your US return and, if balances are high enough, on the FBAR and Form 8938.

Stocks and shares ISAs

Here the wrapper can actively hurt. Gains and dividends are taxable to the US, and the deeper problem is the holdings: UK funds inside the ISA are almost all PFICs, which the US taxes at punitive rates with heavy annual filing. An ISA full of UK funds combines a US tax bill with a US filing burden and gives nothing back on the US side.

Will you get a 1099 for it?

A 1099 is the form a US broker sends each year, with a copy to the IRS. A UK ISA provider normally meets its US duty through FATCA instead, reporting the account to HMRC, which passes it to the IRS. Nothing from that report comes to you, so for most ISAs the interest, dividends and gains on your return come from the provider's annual statement, converted to dollars.

Interactive Brokers (IBKR) is the exception. Its tax pages, published on its UK site, say it issues US persons a consolidated 1099, which includes the 1099-DIV for dividends and the 1099-B for sales. Its ISA pages say nothing either way, and its support desk has told at least one customer the ISA gets no 1099. Holders of its ISA report otherwise: for the 2022 tax year the ISA produced only a dividend report, but since 2023 a consolidated 1099 has arrived for the ISA as well as the general account. Look in Client Portal's tax documents with the ISA chosen in the account selector, because IBKR produces its forms account by account.

A 1099 makes the return easier without changing what is on it. IBKR sends the same figures to the IRS, so your return needs to agree with them. It does nothing for PFIC reporting, so a fund held in the ISA still needs its own Form 8621. Nor does it settle whether the ISA belongs on your FBAR and Form 8938, which turns on whether it is a foreign account. The ISA is run by Interactive Brokers (U.K.) Limited, the group's London firm, under its HMRC approval as an ISA manager, so take that question to a cross-border specialist rather than reading the 1099 as the answer.

What this means in practice

A cash ISA is usually harmless and occasionally worth holding for the UK break alone. A stocks and shares ISA holding UK funds is the one to think hard about, because the PFIC treatment can outweigh any UK saving. Individual shares inside a stocks ISA avoid the PFIC issue but still lose the US tax shelter.

See the PFIC rules for the fund problem, and the cash ISA and stocks and shares ISA pages for who opens them.