Expats need to engage with the concept of long-term financial planning to a greater degree than their friends and family ‘back home’ – but there are some major financial advantages of being an expat, says an expatriate wealth management expert.
Mike Coady, director of the deVere Group, comments: “Ensuring that your finances are in order so you and your family can enjoy a fulfilling life is a priority for anyone. But when you’re living and/or working overseas, which for most people is a very rewarding experience, there are some added complexities and challenges. This makes the need for expats to embrace long-term financial planning even more crucial.”
He continues: “Expats have always required specialist financial advice to safeguard and maximise their wealth – and even more so during these economically challenging times – meaning when it comes to a strategy to plan their finances they need to ask some specific questions that those who reside in their own countries perhaps might not.”
These questions are, according to Mr Coady, not necessary exclusively due to their expat status but also because financial systems and structures vary from country to country.
The financial expert, who himself has lived a global lifestyle since childhood and as a result shares the mindset and aspirations of the expatriate community, says expats’ financial planning should focus on several key areas: Tax planning which extends to savings and investments, retirement planning, international education planning, and overseas health care.
Expat tax planning, savings and investments
“Expatriates often find that their tax affairs become more complicated as they need to tackle their obligations at home and abroad. For example, unlike UK citizens who live and work only in Britain, an expat needs to resolve quickly if their tax position has altered and find out where they need to pay tax – in their adopted country of residence or the country in which they where born – and how double taxation agreements between nations can affect their tax liabilities.
“Similarly, you will need to assess if local inheritance tax laws will override those of your native country and how this could adversely impact how much of your estate will be handed to your loved ones; and then what can be done to mitigate this.” says Mr Coady.
“Fortunately, most people who live abroad can use their expat status to benefit from various ‘vehicles’, such as offshore bonds, to become significantly more tax efficient than their friends and family ‘back home’ and their counterparts in the ‘overseas’ country.
This tax efficiency will, of course, assist in all areas of savings and investments too and there are, says Mike Coady, a number of “attractive, expat-exclusive deposit and investment opportunities that allow those who live abroad to get the most from their money.”
Expat retirement planning
“One of the biggest mistakes to avoid is not to have a retirement plan. As an expat you should devise an effective strategy with your financial adviser to address crucial points such as where you want to retire, how much you will need in the country you want to retire in, and what to do with your pension from ‘back home’ and/or other countries you’ve lived in,” asserts Mr Coady.
“Many people who choose to live abroad when they retire decide to move their UK pension into an HMRC-recognised ‘Qualifying Recognised Overseas Pension Scheme’, known as a QROPS, for instance.”
A QROPS, sometimes referred to as an ‘international pension’, is often considered beneficial as it has important tax advantages – including funds being passed onto beneficiaries in full on death – plus the ability to take 30 per cent of your pension pot as a lump sum and currency flexibility.
The deVere Group’s director adds: “Perhaps one of the most alarming trends I have seen continue to grow throughout my 15-year career is that expats, more than those who live and work exclusively in their home countries, develop a worrying ‘live for today’ attitude.
“It’s a great outlook to ‘seize the day’, but you’ll be severely restricted in what you can do if you ONLY ‘live for today’. Careful consideration must be given to ‘tomorrow’ too, that’s to say your retirement, or your options will be limited. It’s worth remembering that there are only 120 pay days in 10 years.
“It’s worth remembering that there are only 120 pay days in 10 years, so itt’s vital that we all think about, and plan and save for our retirement – especially as we’re all living longer, meaning the money has to go further, and because there is a clear trend that State support for the older people is in steady decline.”
International education and healthcare
Studies show that regardless of whether you opt for a private international day or boarding school or a local state school, educating a child overseas can be considerably more expensive than if you were doing so in your home country and, as such, careful financial planning is required.
“Our research shows that three quarters of expat parents under-estimate the true cost of schooling their children abroad. And as school and higher education fees rise and with demand on international school places continuing to soar, I’d highly recommend parents work on a plan with an adviser, to use their expat financial advantage to build-up an education pot that will sufficiently cover all their needs,” confirms Mike Coady.
One popular way of acquiring funds for both education and healthcare provision in a tax efficient manner is, says the expat wealth expert, to deposit a lump sum in an offshore bond.
“In many popular expat destinations, local healthcare is not always free and/or available, so it is wise to get up-to-date on the options and, of course, have your own funds as back-up.”
Choosing an expat adviser
If the case has been made for expats to seek financial advice as the best way of securing their long-term financial aims, how do you go about choosing an adviser?
“If you’re thinking of moving abroad, or you currently are living overseas, it’s a good idea to choose an advisory firm, which has a proven track record of helping expats. Choose a company that will be with you before, during and after The Big Move – and, where possible, opt for a firm which has offices in the country you’re moving to.
“I would also choose an adviser who is independent, who you feel totally comfortable with, and to whom you won’t be afraid to ask the awkward questions,” concludes Mr Coady.