In this guide, we look at the important points for investing as an expat. Choosing where to invest your money is difficult enough wherever you live, but making money grow and keeping it safe is challenging for expatriates.
Table of contents
- What Type Of Investing Expat Are You?
- Start Thinking About The Long-Term
- Managing Currency Risk
- Investing With A Bank
- Switching To A QROPS
- Bonds, Stocks And Savings
- How To Invest As An Expat FAQ
- Related Articles, Guides and Insights
- Questions or Comments?
In Britain, consumer law and financial watchdogs protect investors, but investing abroad comes with few safeguards.
How to invest depends on what type of expat you are.
Mobile international workers need to consider more issues about managing their money than expats who have moved countries and intend to stay put.
What Type Of Investing Expat Are You?
Expats come in two flavours – the international mobile worker and change-of-life expat who has moved countries and does not intend to return to the UK.
Both want to invest but often don’t know the best way to proceed.
Investing for international mobile workers
These people often consider themselves expats, but they often aren’t – and that can be a good thing for some investors.
The issue for these expats is tax residence.
You can live in another country for months or even years but keep your UK tax residence.
For expats temporarily working overseas, keeping tax residence means keeping your UK tax status.
That allows you to pick up all the perks of saving into an ISA or pension while enjoying the lifestyle benefits of an expat.
Yes, you will pay UK tax on your earning, but you also gain UK tax relief on the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS), pensions and ISAs.
Change-of-life expats are people who have decided to leave the UK to live permanently overseas.
Many are unsure about investing, not because they distrust local banks and advisers but more likely because they don’t understand their choices. After all, they don’t speak the language or are confused by the products.
Expats who are tax residents and investing outside the UK pay tax on income or gains according to local rules.
As non-residents, these expats do not qualify for UK tax breaks on pensions and investments, so they must look offshore for the best strategy.
Start Thinking About The Long-Term
Where to invest depends upon your long-term plans.
If you are working and living in Abu Dhabi, for example, but plan to go back home within five years, then consider buying let property or a business investment that could give cash flow on your return.
Investing as an expat means not tying your investment to one country, so you have to stop and start accounts or pay steep set-up and exit fees as you move around.
The aim is to invest offshore so your money stays under management when you move.
Financial specialists are out there to help expats manage their money offshore.
International financial advisers have access to their products and services and the skills and experience to give sound advice to expats.
Managing Currency Risk
Expats have two factors to consider that do not apply to Brits investing at home.
How to access your money and deal with foreign exchange fluctuations are both big issues for expats.
Many foreign countries have less than reliable governments and banks. In the past, foreign governments have frozen or limited access to cash in banks as a way of controlling their economies.
Many expats keep the bulk of their money in a financially stable country and just day-to-day cash in a local bank to counter that risk.
This precaution means money is always available should an economic or natural disaster strike.
The other worry for expats is foreign currency exchange rate fluctuations.
Sometimes, sudden rises or falls in the pound or the expat’s local currency value can significantly affect their spending power.
Expats have several methods of dealing with foreign currency fluctuations:
- Set up an offshore account as a halfway house – send your money to the account but only drawdown when rates are favourable, or you need the money and have to take an exchange hit
- Set up a local bank to receive your spending cash
- Consider switching your UK pensions to an offshore QROPS set up in your local currency
- Strike a fixed exchange rate deal with a foreign exchange service
Investing With A Bank
However, investing money with an offshore bank will not give the same return as self-investing or working with an IFA.
However, going through a fact find with an expat bank, like HSBC, will end with a report on investing in mainstream markets that you can take away and adapt.
Banks are fussy about their customers and set a minimum investment level – for HSBC; it’s £25,000.
Investing with a bank carries the same risk as investing elsewhere, and you can lose money.
Some banks will offer better rates or discounts to investors who already have current or savings accounts with them.
Switching To A QROPS
The Qualifying Recognised Overseas Pension Scheme (QROPS) is a bit of a mouthful but well worth checking out.
A QROPS follows the way a UK SIPP or personal pension works, except the pension is offshore.
More than 130,000 expats have transferred £12 billion to QROPS since they were set up in April 2006.
QROPS can offer tax and investment boosts to a pension and come with the same early-access freedoms as a UK pension.
These freedoms allow anyone over 55 years old to manage their retirement funds as they wish.
You can also use an international SIPP to achieve similar benefits as a QROPS.
Bonds, Stocks And Savings
Taking your money offshore opens the door to a broader range of markets, currencies and commodities.
Bonds are popular with expats because of the tax breaks that come with them and their versatility as standalone investments or wrappers for QROPS pensions.
Offshore investing also leads to opportunities to make money on world stock markets from stocks and shares.
Commodities include cryptocurrencies, such as Bitcoin, Ethereum and Litecoin.
Expats are also in control of their investments, choosing a DIY approach, working with a wealth manager or simply handing their portfolio to an investment professional.
Savings are an essential part of any portfolio. It will help if you need some ready cash to jump in on an opportunity or as a reserve.
Expat savings rates are no better than those you can receive onshore, but a string of trustworthy banks and building societies have offshore branches happy to deal with Brits abroad.
Many are also happy to offer homes and buy to let mortgages on UK property to expats.
How To Invest As An Expat FAQ
The tax authority decides if you are a tax resident by following a checklist. The main box to prove tax residency is that an expat spent a certain number of days in the country at their main home.
Home means the place where you have moved your life, so your personal belongings are there, and that’s the address you give to your bank and other official bodies.
For the UK, you can take the Statutory Residence Test. The result can show you are not a UK tax resident as an expat.
Many expats find an international IFA by recommendation from friends or colleagues.
You can try a web search, but some of the results are companies that have gone out of business or only work within the UK.
Expats pay tax on offshore investments, but the amount depends on the tax rules where you live.
For instance, expats in Dubai pay no income or capital gains taxes on offshore investments, while those in most European countries will pay at a rate of 40% or more.
Part of the work of an international IFA is matching your investments with your local tax rules for tax efficiency.
Moneyfacts is a website that tracks banking deals for offshore investors.
You can compare nine offshore current bank accounts and more than 50 offshore savings accounts and click through to set up an account.
The first step for an investing expat is to confirm your tax residence. This is because the rest of your planning depends on your tax residence, and getting it wrong can be expensive if you have set up investments, pensions and savings plans under the wrong rules.
Related Articles, Guides and Insights
Below is a list of some related articles, guides and insights that you may find of interest.
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