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Expat Investments: An overview of investment options available for expats

In a challenging economic environment, understanding all of your investment options and working with a wealth manager or financial advisor who understands the array of options available for people living abroad is essential.

Last updated 11 November 2022 at 15:05

Challenging economic times, fluctuating exchange rates, increasing interest rates and increased cost of living are just four of the global challenges facing investors, and in particular expat investors.

With some more traditional investment options (such as ISAs in the UK) not being available for non-residents it can be difficult for expats to fully understand what the best options are for them without seeking advice. In addition some options aren't available directly to expats and have to be accessed through qualified wealth managers or financial advisors.

In most situations, an investment portfolio consisting of a combination of different investment options managed by a financial adviser or wealth manager is the most sensible approach. However, it is still important for expats to have a clear understanding of what investments options they have available and which might be suitable for them.

We have created this overview of expat investment options to provide core information about the various products which your wealth manager or financial advisor may suggest as suitable for you - depending on your risk profile. However, please do not rely on this article for making a decision, it has been designed as a guide only and your personal circumstances will affect which investment options are best for you.

If you would like to discuss your options with a trusted wealth manager or financial advisor, we provide a free introduction service and an initial, no obligation consultation.

Expats and ISAs

For many UK residents, an ISA represents a relatively safe, convenient and tax efficient investment option.

Unfortunately, ISAs are only available for UK residents which means that if you live and work outside of the UK, and are not regarded as a UK resident you will be unable to open a new ISA or contribute any more to existing an ISA.

It is, of course, possible for an individual to hold an ISA before leaving the UK and, depending on the new country of residence, it is important to understand if the ISA would still be tax efficient in the new jurisdiction. For all expats holding ISAs it is sensible to explore potential options which could be more tax efficient in both the short and longer term.

Expat investments: Offshore investment bonds

An offshore investment bond is essentially a life insurance policy which acts as a tax wrapper containing a number of investment funds. While onshore bonds are available to UK residents, expats and non-UK residents have access to offshore bonds which are typically based on the Isle of Man, Jersey, Gibraltar and Guernsey - among others.

Offshore bonds provide a tax efficient investment option for expats as the bond will not be subject to capital gains tax and income tax deferred. This means that the investment grows free of tax, substantially increasing the value of the investment itself.

Even if the investor returns to the UK, the investment will continue to grow free of tax, providing the correct offshore bond is in place.  For example, some highly personalised bonds can incur income tax as high as 45% on drawdown when the investor returns to the UK. For this reason it is vital to seek independent advice from someone who can analyse your full situation, including where you are likely to live in the future.

Any income taken from the bond will be subject to income tax according to the rules of the country of residence of the investor.

While investment bonds can offer some excellent advantages, it is important to understand the charges, fees and, potentially, commissions which will be charged.

The minimum investment for an offshore bond will depend greatly on the providers. The recommended provider will depend on a number of factors, including the level of control and diversification required, as well as the level of acceptable risk against an investment. In all cases, it is important to seek independent advice before making any decision on provider and investment amount.

The costs associated with investment bonds are likely to occur when the investment is originally made, while there is also likely to be an ongoing annual fee. You may also be charged a management fee by the adviser, which may be fixed or a percentage of the investment amount under management.

For more information about offshore bonds, including the benefits they offer and guidance on how to spot if you are being ripped off, please read our Offshore Investment Bonds article.

Expat investments: Pensions and QROPS

A pension scheme is a tax efficient savings plan which often forms a fundamental part of an investment portfolio and are designed to provide an income for an individual in later life.

Pensions themselves come in a number of forms and may be managed by an employer or the investor themselves. For expats and those with large UK pensions there is the additional option of a QROPS (Qualifying Recognised Overseas Pension Scheme) which is a wrapper that enables a non-resident to transfer a UK pension out of the UK and take advantage of a number of benefits. In recent years the overall benefits of a QROPS have diminished, although they can still provide a very beneficial investment option.

QROPS have also attracted negative press in recent years due to the behaviour of unregulated advisers, but they should never be discounted as a viable option, particularly if you do not intend to return to the UK.

We’ve created a detailed overview which looks at all aspects of QROPS, including the QROPS fees and charges as well as the QROPS transfer process itself.

Structured notes

A structured note investment is a fixed term, normally around 4 to 6 years, product normally sold by investment banks and is generally not available on the high street. It is made up of two or more derivatives (such as stocks, shares and indexes, eg. the FTSE100) and can pay money during the term while also provides a payment at the end of the fixed period of up to 100%.

The amount of money paid out by a structured note will depend on the conditions offered at the start of the fixed term that are related directly to the lowest performing derivative. During the life of the structured note, there will be regular reviews at which point the performance of each derivative will be reviewed and if the lowest performing derivative is outperforming a specific measure (eg. 5% above the original value) then it will pay out.

At the end of the fixed term, if the lowest performing derivative is above a conditional marker (for example 80% of the original value) the investor will normally receive the full investment back.

Due to the complex nature of structured notes, they are normally only available for sophisticated or high-net worth investors, however financial advisers typically fall into one of these categories and therefore can offer them to their clients, providing they fully explain and ensure that the investor fully understands the structured note, including the risks and benefits.

It is uncommon for an entire investment portfolio to be constructed by structured notes and will normally account for around 10% of a total investment.

We have written a comprehensive guide to structured note investments, with specific reference to how they are offered to expats, including examples, explanations of fees, an overview of the risks and benefits and why you should always invest cautiously if they are being offered.

Expat investments: Property

Much the same as a pension scheme, investment in property is a common feature within an investment portfolio. Often for expats, this may include the primary residence as well as additional properties which are used to generate a regular rental income.

For expats, it can be difficult to secure a mortgage in the UK for additional properties and, while it is possible through specific mortgage advisers, it is recommended that only those who can afford to buy a property outright should do so.

Other fees and costs which should be taken into consideration when considering investing in UK property include management fees of any agency which is required to manage the tenants and maintenance and also income tax on any rental income.

It is important to remember that income arising from a rental income from property in the UK will be subject to UK income tax which will require a tax return to be completed, and potentially tax in the country of residence. In the UK, the personal tax allowance still applies for non-residents, but you will still need to complete a tax return which declares any income received.

When selling investment properties, depending on your situation, you are likely to be subject to capital gains tax.

Investment platforms

An investment platform is an online service the enables individuals and advisers to invest in financial products. Operated by a variety of financial institutions, they can typically offer a wider range of investment options than would normally be available for the average investor. Due to this, it is always sensible to seek independent advice before making any investment decisions to ensure that you do not expose yourself to unnecessary risk.

Even through investment platforms normally charge administration fees, the costs of managing investments through a platform can normally be reduced, while also increasing the flexibility of your investment options.

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.

Read our article which explains what is an investment platform for more information.

Ethical investments

Ethical investments are not necessarily investing strictly into organisations that are committed to having a positive impact on the society and the environment, but more about simply ensuring that your investments are not funding the opposite. In a nutshell, Ethical Investing is making sure your investments are not contributing to either something negative that you do not morally support as an individual, and/or that will cause a negative impact on the environment and socially.

Whilst doing this, you can then attempt to find the perfect balance between investing your money well and hopefully, to profit, while also being ethically responsible and in-the-know.

Please read our detailed overview of ethical investing and learn how to ensure that you can grow your assets without harming society or the environment.

Expat investments: Alternative investments

Alternative investments have risen in popularity in recent years as the development of apps and investments platforms have increased their accessibility.

Due to the nature of the investment, alternative investments can often be considered as riskier that traditional investments, especially around start ups and equity investments, while Crypto investing can potentially expose the investor to fraudulent activities.

Often the investment opportunity will sound too good to be true – and often may well be. It is vital that before making any decisions that full independent analysis of any opportunity is sought to ensure that you are protected from unscrupulous, unregulated activities.

Investing through an international bank

Most international banks now offer wealth management services for expats seeking investment options. Depending on the level of capital you have to invest, the services offered vary greatly.

One of the key factors when researching which international banks to consider for your investment options is the restricted nature of the advice on offer. Most people consider wealth managers and financial advisers to be “independent”, however, to be considered independent and adviser must be able to choose from the whole of the market.

Most wealth managers and advisers who work for international banks, unless stated otherwise, are restricted to the products available from the bank, which means you may be missing out on your most suitable investment option(s).

Complexities for US citizens or US connected people

In addition to the usual complexities surrounding expat investments, US citizens and US connected people face even more challenges due to the nature of US tax filing obligations.

These US tax and financial rules mean that many wealth managers and financial advisors will either be reluctant to assist US people at all, or if they are, only those with significant assets due to the increased costs, reporting and insurance requirements which they will be subject to.

Speak to a trusted, independent expat wealth management specialist

If you are interested in understanding more about expat investments, including your full range of options as an expat (including US expats), request a free introduction to one of our trusted specialist partners who will be able to discuss your situation and options.

All advisers in our network have extensive experience of providing sound investment advice to expats around the world, including British and US citizens living abroad.

At no point will you be obligated to take their advice, but you can be confident they are fully independent and able to offer options which cover the whole of the available market.

Share your experiences of the Cost of Living Crisis

The cost of living crisis is gripping people around the world, and among the most affected are expats who are exposed to significant currency exchange fluctuations, rising interest rates and unprecedented inflation.

We are conducting an anonymous Expat Cost of Living Survey and are seeking the views and experiences of expats around the world, especially those with connections to the UK. It takes no more than 3 minutes to complete.

As a thank you, we are offering all participants the opportunity to win one of three £100 Amazon vouchers.

Start the survey >

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