As an expat, living abroad can introduce a number of financial opportunities and considerations. With higher incomes, a lower cost of living and potential tax efficiencies, it’s important to take advantage of these to grow and manage your wealth.
But where do you start? Where can you get expat investment advice? If you are living abroad, or planning a move, here are our 10 golden rules.
Rule #1 - Make a contingency plan
Before you start investing as an expat, it’s important to know if you can afford it with your current circumstances. This requires a close look into your goals, plans, and outgoings including:
A risk profile assessment to understand the relationship between risk and reward
Expenses such as property transactions or family events
Planned withdrawal dates to know your investment timeframes
Retirement plans – when you aim to retire and how much you want saved
Emergency funds you want to keep in liquid assets
Rule #2 - Hidden tax implications
Tax can be complicated. It can be even more complicated as an expat, where there are tax rules for multiple countries. It’s important to ensure you’re paying the right taxes to avoid fines and make the most of the financial opportunities available to you as an expat.
The most important factor is your residence and domicile status, as this will determine how your UK tax is calculated. Again, speak to an expert to work out the different types of UK tax. For example, you won’t need to pay UK income tax but could still face inheritance tax on your worldwide assets, such as overseas properties.
Rules #3 - Saving and investing
Saving and investing money in the UK isn’t that different from overseas. Often, you’ll find straightforward savings accounts similar to the UK, where you can search around for the best rates. Fixed-interest options can provide better returns than standard rates, though this means you’ll be tying your money up for an extended period.
When it comes to investments, one of the best ways to invest is through an online investment platform. The type of investments you can trade include:
Stocks and shares
Exchange-Traded Funds (ETFs)
Rule #4 - Offshore investment bonds
Offshore investment bonds are a tax-efficient solution if you’re choosing to invest in medium to long-term. It’s a particularly effective option if you are thinking of a five-year period or longer. Offshore bonds allow you to invest in a lump sum or regular payments and can help to grow your capital tax over time.
The rules on offshore bonds allow you to delay tax over the course of your investment and manage the eventual tax liability in line with your own situation. Once in place, the bond can be used to create a regular income to fund an early retirement and can also be left as part of your estate.
Rule #5 - Plan your Pension
Unfortunately, not all countries have a pension scheme as a statutory requirement like in the UK. Therefore, it’s vital to have a solid pension plan in place as an expat. Review your UK pensions and consider your options with an advisor. There are many expat pensions to choose from to give you the most control and flexibility over your funds.
For example, a QROPS (Qualifying Recognised Overseas Pension Scheme) allows you to move your UK pension into a permitted overseas scheme. These schemes can offer increased tax benefits, as you may only have to pay the tax that applies to your chosen country of residence.
Rule #6 - Ethical investing
Ethical investing is the practice of selecting investments based on your own ethical or moral principles. It’s become much more of a mainstream strategy, particularly as climate change and other global issues have become well-publicised. This type of approach enables you to choose investments that have a positive impact on the environment or society.
Rule #7 - Property investments
Owning property overseas has always been a common option for British expats, particularly in Spain. Many people, when moving abroad, choose to keep their family home to remain on the UK property ladder, usually in instances of returning home later in life. Doing so can offer an investment opportunity, especially if you plan to rent out your property to generate income.
Rule #8 - Currency cautiousness
Living abroad can leave you open to fluctuations in currency markets, especially if you are investing, planning to buy an overseas property or need to maintain payments back in the UK, which may involve regular payments being sent internationally. The same goes for receiving payments. Payments such as pensions or income from renting out a property in the UK could decrease in value due to changes in exchange rates.
To prevent losing money through fluctuating exchange rates, look at investing in a dedicated currency service, so you can plan your finances ahead and take advantage of forward contracts.
Rule #9 - Realistic target returns
Before you invest, make sure you’re setting realistic investment targets. As a rough indicator, the average return rate for cash savings is around 0.7%, which is a minimal amount to earn against your wealth. Other assets can have a CAGR of 3% to 12%, but continued gains rely on reinvestment.
Setting your targets correctly means working out how much you expect to earn and making a plan to achieve those targets.
Rule #10 - Expat-friendly financial advisors
It can be very helpful to work with a specialist financial adviser who deals with expats based on the top rules we’ve just listed. Living abroad can make your financials very complex, but with the right guidance, you use this to your advantage.
For example, you may need a Will both in the UK and in the country in which you are living to protect your assets properly. As a result, it’s important to consider a financial adviser who has a good understanding of the different tax and financial issues that can arise when working overseas.
Want to know more?
If you feel like you need more guidance on rules for living abroad, check out further expat investment advice to grow and manage your finances.