If you are a British expat but still pay tax at home, you are probably caught up in the constant battle raging between investment and pension firms.
The conundrum is what is the best way to save tax on investments – an ISA or a pension?
Both have their advantages and disadvantages, so the real question is which type of investment suits an expat best.
The first decision to make is if you need to access the cash and if so, what tax may be due on the proceeds.
Expat ISA options
Generally, unless an investor ties an ISA investment into a fixed term, the cash is available for withdrawal at any time with no tax due on the growth.
Cash in pensions is tied up until the saver reaches 55 years old. Any fund growth is tax free and contributions are tax-relieved. However, although a tax-free 25% lump sum is available on retirement, tax may be due on any benefits paid, depending on each saver’s personal financial circumstances.
If the plan is to go for an ISA, time is running out in this tax year – the deadline for investing is April 5. The ISA investment cap is £11,520, and half (£5,760) can be cash.
ISAs have three investment options –
- Investing the maximum cash allowance – Putting £5,760 into a cash ISA, leaving £5,760 available for shares
- Investing in shares – An ISA can hold £11,520 worth of shares
- Mixing and matching – Any amount under £5,760 can be saved in cash, then the rest can go in a shares ISA
Expat pension options
Pensions come in several different options –
- A personal pension, the provider typically manages the fund. The range of investments is often quite narrow and restricted to funds offered by the provider
- A self-invested personal pension (SiPP), where the retirement saver manages the fund or can ask a fund manager to do the job
- A small self-administered scheme (SSAS), which is often a group scheme similar to a SiPP but for up to 12 members
- A Qualifying Recognised Overseas Pension Schemes (QROPS) – expats should take care with a QROPS as they are only available to expats who are no longer British taxpayers
- A Qualifying Non-UK Pension Scheme (QNUPS) – a specialist pension that operates like a SiPP that can be useful to expats who are still British taxpayers
The list is not exhaustive, as several other pension options are open to expats depending on their residence and tax status.
The key to making the right investment is for expats to understand their tax and residence status, which is often complicated to work out.
