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How to invest 100k as a non-resident or British expat

When you have a significant financial lump sum, there are many options and decisions to be considered – especially if you are not used to having such money. In this article we identify what you need to think about if you have £100k to invest

Written by Lauren Ross on 1 June 2020

When you have a significant financial lump sum, there are many options and decisions to be considered – especially if you are not used to having such money. While £100,000 may to many people seem like a life-changing amount, it is very easy to spend or squander, rather than making that money work for you.

Initially you may feel confusion on how to appropriately manage such a large amount especially if you are living abroad and not being clear on your options or how it could affect your tax and other financial matters.

Below are some avenues that we recommend considering when choosing what to do with such a substantial amount of money.

Please be aware that nothing in this article constitutes advice. You must always seek formal tax or financial advice before making any decisions regarding your finances.

Decide what is most important and establish your priorities

There are plenty of options when it comes to investing a lump-sum as a non-resident. However, you should always circle back to the most important questions before making any investment decisions, such as:

  • What are your financial goals?
  • Have you paid off any existing debts – and which are your most expensive debts?
  • Before investing, do you have the money needed in an accessible account for emergencies?
  • Have you received the appropriate formal advice before making such a big decision?

Knowing and understanding your main goals will help you and any advisor understand what you want to achieve by investing your money.

If you have existing debts and the opportunity has shown itself to pay these off, it is always recommended to at least consider doing so, starting with your most expensive debts. You may wish to make a spreadsheet that collates all of your debts so you can easily compare and contrast which are the most expensive.

Having money behind you in an accessible cash account is also crucial. It is recommended that an individual has at least three months of their outgoings in case of any emergencies or unprecedented times (such as a global pandemic...).

Whenever you are unsure of your financials, you should always seek advice from an expert and avoid making rash decisions or simply putting the money in a bank account and letting it fritter away.

This will discourage any rash decisions and ensure that you avoid mistakes that could cost you greatly in the future. Whether it is lucky winnings, an inheritance or otherwise, substantial lump-sums of cash tend to be once (or maybe twice) in a lifetime, and it is crucial that you have the support you need to manage it all correctly.

Establish your financial risk profile

Evaluating the different risks of how you invest your money is crucial. There are pros and cons to every avenue, but seeking professional advice is always advised as an advisor is qualified to evaluate your risk profile to be able to guide you towards sensible investment options.

You need to find a way of investing it that is right for you, because everyone is different. Some will feel comfortable with simple cash accounts, where your money is right where you can see it and is not subject to the ups and downs of an unpredictable financial market. This does minimize some risk, however, leaves you vulnerable to overlooking the threat of general inflation. This threat is not as fast acting as a crash in the market, but can wear down the value of your money overtime.

Returns on cash savings accounts are generally low and are therefore rarely the best option available.

Furthermore, if you live in the UK but are currently moving abroad or you are a non-resident, cash ISA savings accounts become much more complex.

If you came into the large lump-sum while in the UK and invested into ISA savings accounts, although you can maintain access abroad, you will not be able to contribute new money to an existing ISA. You will also not be able to open new ISA’s or transfer any existing funds to another account. This means that you need to make a decision whether it is best for you personally to keep your savings and any investments you hold within the UK, or to move them overseas, based on future plans and if you are planning to eventually return to the UK.

Existing ISA’s may also not be treated favourably in your country of residence, so you should check with both an advisor and a local tax specialist to ensure you are not exposing yourself to unnecessary tax.

There is potential for more growth and return when investing in the financial markets and as mentioned, clearly comes with its own risks. Its about understanding and managing your expectations.

It is worth remembering that no matter what method you chose in the management of your money, slow and progressive growth of your financial investment is always the best outcome. Positive short-term results can arise when you chose to invest your money into land, property and company, but is known for the encouragement of split-decision making of people panicking to make a quick profit if the markets go south.

When done correctly, investing sensibly and knowledgeably can provide you with stronger long-term results.

Understand your tax obligations when receiving the £100k

As a non-resident, the tax you pay is one of the main things to consider when deciding how to properly invest your money. This widely varies dependent on how the large sum was obtained.

Firstly, depending on how you received the money, you may find that you are subject to income tax both from the country that the money came from and also your country of residence.

While inheriting money in the UK is not classed as taxable income, some will be taxable if it came from gross income items of the deceased such as instalment obligations, partnership income, employee compensations, property sale gains, benefit plan obligations and royalties.

If the lump sum is obtained through the selling of shares and other investments, you may have to pay Capital Gains Tax if the disposal of these makes a profit (which applies to any profit/ gain made within the UK despite being a non-resident), unless you have been a non-resident for five years or more.

Due to the complexities around tax and financial regulations, expats and non-residents will have limited options when it comes to choosing between investment platforms and by working with an adviser you are likely to increase the options available.

Understand that tax implications of your investment decisions

When you receive lump sums of money in the UK, your investment options are normally relatively straight forward with regards to the tax. Some financial products, such as ISAs, will be tax free while others may be subject to tax on the gains both in the form of income tax and capital gains tax.

When living abroad, the rules change somewhat as you will have access to financial products that you may not have previously had access to – while traditional options (including ISAs) may no longer be available. This means that the treatment of tax on your investment becomes far more complex as you are required to understand the tax implications where the money is invested as well as your country of residence and potentially back in the UK.

Don’t just transfer the money to your local bank account: consider foreign exchange exposure and bank charges

When dealing with significant sums of money, transferring into different currencies can have a significant impact on the lump sum you have available.

The most important initial factor to consider is where are you going to receive the money. If the money is in a different currency to where you live (for example, £100k GBP and you live in the Eurozone) you should consider keeping it in your local currency and having it paid into a UK account.

Having it sent automatically into a different currency is going to automatically attract bank charges and also potentially expose you to a poor exchange rate. When dealing with £100k or more, even a 1% shift and 1% bank charge would see you lose £2k before you have even seen the money – and there is simply no need.

With the current economic turmoil, especially in the UK with both Coronavirus and Brexit causing massive uncertainty, it is not uncommon for there to be 1%-5% swings in the exchange rate over the course of a few days (or even potentially within 24 hours).

Before converting the money to a different currency, you should speak to a foreign exchange specialist to discuss the best times to transfer the money and also ways to keep any fees or charges to an absolute minimum.

Is property a viable investment option as an expat?

There are several different investment options as an expat/non-resident and it ultimately comes down to what suits your individual situation and needs.

Investment in property is very common and often for expats/non-residents this may include their primary residence as well as additional properties which are predominantly used to generate regular rental income.

In the wake of the global pandemic Covid-19, investment in the property market may become less appealing in the short term as we are now considering the strong likelihood of a looming recession. This could mean declining house prices which will ultimately be leaving investors at a loss, effecting more than just UK residents.

This may be countered in the UK by a destabilised pound because of the continuing economic uncertainty caused by Brexit leading to the value of property to drop for people buying with non-GBP currencies. However, rental yields will also be lower and will be subject to increased UK taxes which are likely to follow for non-UK based investors.

Should you seek formal financial and/or tax advice?

Financial advice

If you are not used to managing investments or creating a financial plan, it is important that you at least consider engaging an independent financial advisor on a fee-based basis.

Making good financial decisions is difficult if you do not understand the full implications of different types of investment, including exposing yourself to unnecessary risk, getting stung by unseen tax penalties or simply not considering your future decisions.

Creating a financial plan is the first step to making good financial decisions and an independent financial advisor will be able to help you establish this, as well as help you make the best decisions for your own personal situation.

Tax advice

While financial advisors will be able to assist you with financial decisions, they will not necessarily be able to assist with you with tax reporting in your country of residence or your home country. Therefore to ensure you are correctly declaring and paying your tax in the correct jurisdictions, you should always engage a specialist tax advisor that will be able to help you establish your tax obligations specific to your situation.

Failing to do so could see you face significant tax bills or tax penalties.

The importance of choosing the right financial advisor

It is vitally important that you find the financial advisor that is right for you.

This will be someone that provides you with advice on exactly how to manage your money. Some advisors work on fee-based introductions and others work on a commission basis. One of the most common complaints regarding financial advisors in the expat community is that they are often paid based on commissions meaning they will offer or sell financial products that are not in the client’s best interest, but instead provide themselves with the maximum income result.

This is a vital difference between UK based financial advice where the FCA has outlawed commission based financial advice.

Typically, a fee-based advisor’s main focus is to tailor you with suitable and sensible advice, at no change or cost to their end income.

If a financial adviser contacts you via telephone out of the blue, it is worth knowing that this is the standard trait of a typical ‘salesperson’, which are driven primarily by the commission that they end up earning, rather than the long-term objective of assisting you and supporting you with the advice you need going forward.

If you are looking for independent financial advice and not sure which firm has your best interests in mind, request a free consultation with an independent financial adviser from our network by entering your details using our form.

Once we have received your details we will evaluate the information provided and hand-pick an independent adviser from our network who we will then ask to contact you to arrange a suitable time to discuss your affairs.

The advisers we work with offer a wide range of financial services and are also well connected with other consultants meaning they can offer a wider range of services much larger than your normal financial adviser.

So whether you are looking for your first piece of financial advice, looking for a second opinion, or are even an experienced investor, the advisers we work with have many years experience and are all qualified to provide genuinely independent advice.

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