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How UK Investment Platforms can benefit British expats and non-residents

UK investment platforms are often overlooked by expats and offshore financial advisers, but they can offer excellent investment and tax advantages for expats and non-residents. This article breaks down how, combined with fee-based professional advice, they can benefit expats.

Written by Stewart Massey on 18 October 2018

Many people become expats because the opportunity to earn higher salaries, often in a far more tax-friendly jurisdiction, provides significant opportunity to plan for future financial security.

Future needs can include providing for a secure retirement, building a fund to provide for university costs for children, repaying mortgage borrowing faster and even allowing a future main residence to be purchased outright.

For many British expats it can be difficult to find useful, cost effective planning solutions as most overseas advisers are product sellers, with sizeable commissions being taken from the portfolio bonds and contractual savings plans being sold on behalf of the life insurance companies that provide these solutions.

The same often applies to advice on QROPS and SIPPS with the overseas sales companies. Most investors do not have the opaque charging structures correctly explained and often face a nasty surprise in terms of exit penalties when they wish to access their assets.

These exit charges often apply for a ten-year period, or in the case of the contractual savings plans, these penalties can apply for the full term at outset. When you take a closer look at these solutions it is often the case that an investor needs to achieve 3%+ per annum growth just to cover the running costs / commission loan built into the products.

Many of the fund recommendations within the products will be expensive as kick-backs are often paid to the selling brokerage and the life insurance company, resulting in high fund entry / exit costs and high running costs in terms of fund management fees.

Evidence-based investing shows that the only thing an investor can guarantee is the cost base of their financial planning, so this is the first part to get right. If the cost base is higher than it should be then this is having a negative effect on the end result for the investor and could be detrimental to achieving their goals.

Benefits of UK investment platforms for expats

It is possible for British expats to access UK investment platforms these days.

The benefits to the investor include much lower costs, investment funds that are clean share class (so do not pay kick-backs or feature entry / exit charges), 100% liquidity of their assets and some very useful tax-planning opportunities for those that plan to return to the UK in future.

Investors that are in the wealth build up phase can use UK platforms for low-cost regular saving, without any commitment to a minimum contribution period.

Tax planning benefits of using UK investment platforms

The tax planning benefits are interesting. While permanently expatriated from the UK the investor will typically not be subject to UK personal income tax or UK personal capital gains tax on investments held on a UK investment platform.

On returning to the UK the investor(s) will have UK personal capital gains tax allowances that can be used to manage gains. The 2018/2019 UK tax year provides a capital gains tax allowance of £11,700 per person, so £23,400 for a couple.

Advice should be sought from your adviser before returning to the UK to ensure that a plan is in place that suits your circumstances and the prevailing tax rules. Investors living in tax-free jurisdictions such as the Middle East will note that they are also not subject to local taxes on investment gains while living in the Middle East so may sensibly question the need for the expensive tax wrappers sold in the overseas market.

Investors that reside in jurisdictions where investment gains are taxable will be able to make the necessary declaration via their local tax return, seeking the advice of a local tax adviser if necessary. Investments held on a UK platform can be ISA wrapped once UK-resident again to ensure that ongoing tax planning allowances are utilized.

Cost benefits of using UK investment platforms

This was touched on earlier and is a major player in terms of the investor outcome.

UK investment platforms will typically charge around 0.3% per annum, based on the assets under management. Larger portfolios often benefit from lower percentages as economies of scale are passed on to the investor.

The platform costs are typically less than a quarter of the cost of the traditional offshore life insurance company products.

The UK platform should also be able to provide the trustee arrangement for UK personal pensions / SIPPS for a quarterly administration charge of £25 or less, being vastly cheaper than £400-£500 per year charged by the international SIPP providers. Investors with QROPS can also house their assets on a UK platform with the QROPS jurisdiction unaffected by the platform jurisdiction.

For QROPS investors this represents a significant cost saving compared to the unnecessary investment bond / portfolio bond solutions used to house QROPS assets. The UK platform should provide aggregation of assets for the investor so that the holdings across all assets are aggregated to determine the platform annual fee. Investors can transfer existing UK defined contribution / money purchase pension arrangements onto the platform easily. In many cases it makes sense to have these various assets in one place for ease of focus and ongoing advice.

Expats, UK investment platforms and ISAs

Many expatriates hold ISAs from their days in the UK. It is prudent to investigate whether these assets should be transferred onto the platform arrangement in order to reduce the cost base further.

Please note that ISAs can be transferred (rather than closed down and capital moved across) so as to ensure that previous ISA allowances are not lost.

UK investment platforms are easily manageable for expats returning to the UK

One of the major advantages of using UK investment platforms is reserved for expats that intend to return to the UK at some point in later life.

Aside from the tax planning elements, any returning expat already using a UK investment platform will easily be able to use a UK based financial adviser to help them manage their investments – if they are unable to continue using their existing adviser.

However, in many cases, offshore professional advisers will have connections to the UK to help make the management of any investments virtually seamless.

How fee-based professional advisers work

We would always recommend a professional adviser rather than a product sales company.

A professional adviser should provide fee-only advice and not receive any form of remuneration from the platform provider or the investments used within the portfolios. This ensures that adviser and investor interests are aligned.

It is typical that a fee-only adviser will charge an initial advice and implementation fee of around 3% on new capital introductions to the platform.

The ongoing advice fee should not exceed 1% per annum, based on the assets under management. This fee-only approach is beneficial to both parties as the investor wants their capital to grow and so does the adviser.

The fee-only approach ensures that one investment is never recommended over another simply because of the commission available – a common issue with overseas product sales companies. UK investment platforms do not allow commission to be taken from the investments held, so this is a good peace of mind feature for investors on the transparency of this type of solution.

UK investment platform funds offering

UK investment platforms provide the investor with access to a full spectrum of investment fund solutions that often carry significantly lower ongoing costs than the investment funds available from overseas providers.

This is simply because they are all clean share classes with no undisclosed payments being made to brokers.

Dealing costs are also more favourable. Investors can access Exchange Traded Funds (ETF’s) which track the markets and a well-diversified portfolio often performs better than the actively managed ‘stock picker’ fund managers out there at a fraction of the cost. There is plenty of evidence out there to support this fact. Funds can be held in different currencies, with the headline platform reporting currency in GBP.

Given the high commissions available to the overseas product sellers, it is safe to assume that they will always tend to avoid UK investment platforms. Investors are becoming more aware that better investor outcomes are available by working with a professional, fee-only adviser.

Summary of the investor advantages of a UK Investment Platform and fee-only advice:

1)      Significantly lower cost base leading to better client outcomes.

2)      100% liquidity – no tie in period / no nasty surprises when accessing capital.

3)      The investment platform is UK-based, so adheres to the UK investment rules.

4)      Advisory fees can be deducted from the investment platform, but no other commissions or back-door incentives are paid to the advisory company.

5)      Advice offered is impartial and not affected by the temptation of commissions on offer.

6)      On returning to the UK in future it is easy to find a UK-based adviser that will provide ongoing advice and support as the majority of UK advice is platform-based. This is important as UK residents should be provided with UK terms of business by the UK-based adviser, allowing for the UK Ombudsman protection to be in place.

7)      It is typical that there is no contractual period to work with a professional adviser. This means that a change of adviser can be made without any issues, as required.

8)      Existing ISA and pension assets can be transferred onto the UK investment platform. This is a good way to access lower costs across the board.

9)      Working with a fee-only adviser allows for client and adviser interests to be aligned.

Request a free consultation to see if you could benefit from using UK investment platforms

If you are interested in learning more about UK investment platforms or would like to discuss the various options available to you, we can help.

Enter your details using the form and, once we have reviewed your details, we will select the most suitable fee-based professional adviser from our network and ask them to get in touch with you to arrange an initial free consultation.

The consultation will typically last between 15 and 30 minutes and will provide you with the opportunity to have your general questions answered. If you would then like to proceed with any additional services, the adviser will be able to clearly explain their fee structure and outline any additional costs that may be applicable enabling you to decide whether to go ahead.

What expats say about our experts

The referral by Experts for Expats led me to a couple of advisers that provided exactly what I required. The adviser clarified what would be best for me as an individual with limited understanding of pension transfer implications and confirmed that I was correct in stepping away from what had been put in front of me by previous cold-callers.

Mark S. North America, Pensions