It’s fair to say expats have more financial opportunities than they would have had if they stayed at home, but higher risks come with this chance of better rewards.
Expats are likely to earn more, keep more of their money in countries with a lower cost of living and benefit from offshore tax efficiencies.
It’s easy to get carried away with a new life abroad as an expat, but no one can say how long the good times will last, so growing wealth while enjoying the time spent overseas is vital.
For expats, the problem is not having money to invest but how to find a trustworthy advisor and the best way to manage their finances.
To help, iExpats has put together some golden rules for expat investors.
Table of contents
Rule 1: Make A Financial Plan
Having a plan is important. A plan benchmarks current financial status and sets savings and investment goals.
Think about what you are saving for. This could be school or university fees, retirement or a major expense like a house. The point is visualising your objectives and determining how long you will take to reach your goal.
A financial plan involves calculating how much you need to save each month, setting a retirement date and poring over expenses to ensure any cash is well-spent.
Don’t forget to set up an emergency fund to pay the bills if you should fall ill or lose your job. The fund should amount to at least three months’ salary.
Rule 2: Check Your Expat Tax Status
Calling yourself an expat doesn’t change your tax status – where you live and for how long does.
If you plan to return home at the end of your assignment and stay in a second country for less than six months, you are probably still a tax resident where you were born.
Knowing your expat tax status makes a significant difference to your finances. Your residence and domicile will decide where you pay tax. With that decision comes your financial options, like the chance to switch to an expat offshore pension that’s part of the Qualifying Recognised Overseas Pension Scheme (QROPS).
To be clear – you do not decide your expat tax status – the residence rules of your home nation and the one to which you move do.
Double taxation agreements (DTA) will ensure expats do not pay tax on the same money twice to different authorities. DTA are a set of rules agreed between governments giving them a framework over which one has priority in charging tax.
Rule 3: Consider Offshore Saving And Investing
Living as an expat opens a new world of savings and investment. Contrary to the opinion of many, investing offshore is not illegal, provided you report any interest earned and capital gains to the relevant tax authorities.
The issues come with trying to keep your offshore finances secret.
Expats should remember that governments share information about their financial affairs with their home tax authorities through the US FATCA scheme (Financial Account Tax Compliance Act) and the global equivalent CRS (Common Reporting Standard).
Rule 4: Bank In A Third Country
Economic and political upsets are common for expats who may work in countries with turbulent governments.
It is a good idea to keep most of their money in an offshore bank in a more stable nation. If the government where expats live decides to freeze foreign assets or nationalise banks, you can still access your money.
Rule 5: Start A Pension
Expats have many pension options. Two of the most popular are:
- QROPS – An offshore pension with flexible investment options and tax efficiencies for many expats. A QROPS may not suit everyone, but more than 140,000 expats have switched £12.8 billion of pension savings from the UK into the scheme.
Find out more about QROPS expat offshore pensions.
- International SIPP – The offshore version of a UK Self-Invested Personal Pension favoured by many expats.
Other expat offshore pensions are available. Talk to an independent financial advisor about the options, as the market is complicated and moving to the wrong pension type can lead to fines and other penalties.
Rule 6: Make A Will
For many expats, one will is not enough. Inheritance and succession rules vary between countries; otherwise, expats may find foreign courts ignore their final wishes.
Lawyers will advise expats to have a will in each country where they have real estate or investments.
A will ensures the right beneficiary receives the correct bequest but helps pay the correct amount of wealth or inheritance taxes.
For example, some countries may tax your heirs or not recognise UK trust laws.
Rule 7: Find An IFA
Offshore finances for expats are complicated, and you will need the help of an international IFA to navigate the opportunities.
Avoid the one-man band. Expats need IFAs with experience in QROPS pension transfers, offshore investment and determining tax and residence status.
Rule 8: Update Your Tax Affairs
If you are British, HM Revenue & Customs requires completion of a Form P85 to finalise any UK tax obligations when you leave the country.
You may also need to file tax returns and other official documents related to QROPS pensions while you are abroad.
Other countries will also want your income figures for tax filings, and they may work to different tax dates than in your home country.
Rule 9: Research Before You Go
Find out as much as possible about your likely residence issues before you move to another country and find your finances don’t work out as planned.
Restructuring your finances and possibly facing an unexpected tax bill is a costly and unnecessary exercise.
Rule 10: Be realistic!
Don’t set unachievable goals, and don’t swallow all your income on savings or investments. You must also pay the bills and have some cash to enjoy your wealth and new country.
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