Whether you are based in the UK or living/working abroad it is still important to set up more than one revenue stream that can support you in the long term. Considering the uncertainty that currently defines the global economy, it would not make much sense to put all your eggs in one basket. The earlier you begin setting money aside for investment, the easier it will be to settle on an investment opportunity that works for you.
While this article will cover a good amount of information on investment options for expats, you should not use this information exclusively to arrive at a conclusive decision. Getting to understand all the options available can be a daunting task so it is advisable to seek independent advice from a qualified financial advisor.
A variety of investment options are available for expats depending on if you would prefer something onshore or offshore. Offshore investment for expats often takes preference because of the tax benefits attached. For example, one common investment option is an offshore bond, which is a life insurance product that is offered by a global insurance company.
Other options often contained in the bond include stocks, shares and mutual funds.
Expats and ISAs
An Individual Savings Account (ISA) is an account that does not attract any tax even on capital gains as long as you operate within the legal guidelines. A maximum annual ISA allowance of £20,000 is allowed on this account per year. You can open an ISA with a licensed financial entity such as a bank or a credit union. Most financial institutions will define it as a tax-efficient wrapper and give you the option of investing in a cash ISA or a stocks & shares ISA.
If you live/work in the UK, and you meet the minimum requirements stipulated by law, then you automatically have access to an ISA. However, if this situation changes and you move to a different country, then it would be important to find out from the financial service provider if you would still be eligible to hold an ISA.
Expat investment: Investment platforms
Investment platforms can be defined as online marketplaces that offer investors the opportunities to buy and sell different investment vehicles electronically. Such platforms are offered by accredited financial service providers such as forex brokers. Within the platform, an investor has access to stocks, currencies, commodities, futures and even crypto-assets. Some of these assets are highly volatile and require some level of expertise so it is advisable to engage a qualified financial professional to guide you. If you would like to do the research and find out which platforms are reliable please visit TradingGuide.co.uk.
Even though such investments are risky, the good thing about them is that you are in full control over where you choose to invest and administration fees are relatively low.
Expat investments – offshore bonds
As described earlier in this article, an offshore bond is a life insurance policy, which consists of a number of investment funds, provided by a global company to act as a tax-efficient wrapper. As you may have guessed, onshore investment bonds are available to residents of the UK and offshore bonds to those who live outside the UK.
The offshore bonds are usually subject to the tax laws of the jurisdiction in which the insurance company operates. For example, some well-established firms operate in Gibraltar, Jersey or the Isle of Man. Most financial advisors usually take the time to find countries where tax laws are attractive to investors. This is where your money is likely to grow without any tax related encumbrance. In most cases, your investment is subject to taxation only when you decide to withdraw funds from the bond. Income tax is also deferred.
Please remember that it is paramount to seek expert financial advice especially when setting up and winding up such offshore bonds as neglecting to do this may result in heavy taxation.
Expat investments: Pensions and QROPS
As the name suggests, pension schemes are mostly utilised by those who are planning to retire. For you to have a solid foundation, it would be ideal to set up such an investment long before your time to retire approaches. Luckily, most employers manage the pension schemes on behalf of the employees but it would also be prudent to seek a reliable pension management firm as an independent investor.
The Qualifying Recognized Overseas Pension Scheme (QROPS) was designed specifically for expats. It is a tax-efficient wrapper that allows UK non-residents to move their pensions out of the UK in order to take advantage of a number of benefits. One of these benefits is that if you have been a UK non-resident over the past 5 years, your pension is subjected to the tax laws of the jurisdiction in which it is based. This means that you can enjoy income gained from this pension without limitation of tax deduction at source. Taxation will only apply as per your country of residence.
A structured note refers to a fixed-term (normally 4-6 years) investment vehicle offered by investment banks. Due to their complex nature, they are not commonly available to the public and they generally consist of more than two derivatives such as indices, stocks and shares. They allow investors to receive payments during the term of the note and upon expiry of the term. Returns on this type of investments are provided only if certain predefined conditions are met during periodic reviews over the term of the note.
An example of a condition that needs to be met is that if the worst performing derivative is above a certain percentage every quarter, the investor receives 2% of their initial investment. If not, the investor does not receive any additional amount apart from the initial investment upon expiry of the predefined term.
Expat investments: Property
With the rising prices of property, this has naturally become one of the most commonly used investment vehicles both by UK residents and expats. Pension schemes often include property in their investment portfolios but you can also choose to pursue ownership of property as an individual investor. Here you have the option to own a property and rent it out for recurring income, or buy and sell a property for capital gains.
It might be a bit harder for expats to secure mortgages to purchase property in the UK but it is still achievable using a good investment advisor.
The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision.
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