If you intend to build the foundations of long-term wealth, and ultimately generational wealth that can be passed to your children and beyond, then you’ll need a prudent investing strategy behind you. This can become a little more complicated when living overseas, with different tax jurisdictions and product options muddying the waters. This short article will focus on making sense of this picture as an expat, and how you can invest with confidence.
The plan and the purpose
Goal setting is a key step before embarking on any investment. This should be separated out into your medium-term goals (eg. buying a house) and long-term goals (eg. retirement). Doing this allows us to set quantifiable targets and financial milestones that we will work towards, and the investment portfolio should be set up accordingly. As an expat, particular care should also be given to the vehicle chosen for the investment to ensure tax efficiency.
What are my investment options?
An Individual Savings Account (ISA) is usually the go-to savings option for people looking to invest whilst tax resident in the UK. This product is easy to understand, reliable and with clear tax benefits for UK residents. However, this eases to be the case when you move abroad.
Not only are ISAs unavailable to non-UK residents, but any gains or income you make from them will no longer be tax-free. This is because ISAs are only afforded tax-free status by the UK’s HMRC, and you may now be paying tax in Spain, Portugal, France etc. where the tax-efficient vehicles that should be used are specific to the local jurisdiction. Visit the individual country pages on this website for more information about European tax-compliant investment solutions.
In the remainder of this article, we will look at the generic options to look at as an expat. For tax-efficient solutions for your own country of residence, it is better to seek advice. Book a consultation using the button below for a no-obligations conversation with Jonathan.
Pensions
Pensions are similar to ISAs in that they are a tax-efficient way of saving. The fundamental difference here is the way in which you access the funds, as they are usually locked away until at least the age of 55. This is because these funds should constitute a part of your retirement plan, and as a result they avoid income tax until they are taken.
The pension options for expats are diverse, and it can be a confusing landscape. The main scheme types to be aware of are QROPS and SIPPs.
A Qualifying Recognised Overseas Pension Scheme (QROPS) is a type of pension that is approved by the UK’s HMRC but based overseas. These were designed with UK expats in mind, giving them an option to transfer their pension assets overseas with them when they move abroad. This carries several advantages, such as escaping the UK’s lifetime allowance on pension funds and avoiding currency risk.
Self-Invested Personal Pensions (SIPPs) are similar to QROPS but are designed for those who want to have more involvement in their investment strategy. With a SIPP, you make investment decisions yourself and have full control over where your funds are invested.
Pensions are a complicated topic, and seeking advice is recommended before taking any action. You can watch our dedicated pensions webinar for more on this topic.
Property investing
The traditional view is that property is a secure and stable asset in your portfolio. The UK property market remains on an upward trajectory, a pattern that has been established over many decades. Last year, the nationwide property market returned over 10% in capital appreciation alone, before considering rental yields. That’s quite a compelling investment case.
There are other benefits to an investment in property. It is an income-producing asset, with steady and dependable returns. If you use a mortgage, you can also benefit from the effects of leveraged capital returns. Last but not least, a property asset also gives you a place to live if you need to return to the UK at the drop of a hat.
Investing in stocks and shares
Investing in the stock market is the classic way to build wealth. Doing so with a diversified approach, and by using expert advice, has been shown to be the fastest way to generate wealth over the long term for most proven. To find out more about getting started with stock market investments, read our dedicated article on this subject here.
Tax
Care should be exercised when building a cross-border financial plan, and this is particularly true with regards to taxation. Navigating the tax systems of multiple countries can feel intimidating, and there are certainly many pitfalls to avoid, but there are also many opportunities to be found as well. Double taxation agreements will usually be in place between your country of origin and your new country of residence, and these exist to ensure that you do not pay the same tax twice. It’s recommended that your check on a government website to understand if a double taxation agreement exists between your country of origin and your country of residence.
Tax is a complicated area, and financial advice from an expert is strongly advised if you are not sure about your obligations and opportunities.
Get started with investing as an expat
Expats often have more complicated requirements than people that choose to stay in their home country. This can lead to more complex investment and financial planning needs. As with most areas of life, the more complex the need, the greater the benefit from seeking professional advice.
My team specialises in providing financial advice to the expat market. Our value and commitment to excellence has forged a reputation as one of the most trustworthy names in our industry. The awards we have won and our 5-star Trustpilot rating are testament to this.
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