This article will discuss investment options for UK expats living overseas, rather than non-British expats living in the UK, although there will be some commonalities in the analysis.
In particular, I will focus on three options you have whilst living abroad:
- Local investments in your country of residence
- Investing back in the UK
- Investing in a third country meaning not in the UK or your country of residence.
Whilst it is impossible to speak about every country in the world, given the 180+ places where British expats reside, I will generalise. For those that are interested in investing as a British expat, or have questions more broadly, you can contact me via info@investmentsforexpats.com or on the chat function below.
Local investments in your country of residence
Regardless of whether you live in Spain, Dubai, Hong Kong or Singapore, you can do local investments in that country. These options include local stock market investments, real estate, and bank deposits. This section will go through each option:
Local stock market investments
If you are living in a place with a quality stock market, which has had 100-200 years of great performance, like the US Stock Markets, it makes sense to invest with a local brokerage firm.
Likewise, some countries, make it very difficult from a tax point of view to invest overseas. Again this is especially the case in the US where they make overseas investing tax-inefficient for American tax residents. If you are a British tax resident in the United States, it almost always makes sense to invest locally, from a tax point of view.
In comparison, if you live in a place like China, Colombia or any other place with a stock market that is quite unstable, you are taking a lot more risks investing locally. I have met so many British expats whilst I lived in China, that got caught up with the whole “China growth story”, forgetting that GDP and stock market growth aren’t connected.
It is, of course, possible to have a brokerage account in country A, and it is focused on investing in stocks in country B.
For example, you can open up an investment account in most countries, which allows you to trade on the US, UK, and Mainland European stock markets. The problem with this is if the investment platform or brokerage is too localised, it might not allow you to continue to invest if you leave that country.
As an expat, especially if you are moving from country to country, it makes sense to have a portable option, which can ensure that your accounts continue to function if you leave the country. Not only that but unless you are living in a 0% capital gains environment, you can be hit by very high taxes, if you automatically invest in your country of residence.
Local Real Estate
Another option is local real estate in your country of residence. In general, this makes sense if you plan to stay in that location long-term. In effect, this means using the house as a home, rather than as a pure investment.
In terms of pure rental properties, there are obvious risks involved with buying an illiquid asset that can be hard to sell, in a non-English language environment. This is the case for British expats, unless you are living in a native English language environment.
In addition to that, valuations have moved upwards in the last 10-15 years in most emerging markets, relative to the UK housing market. Before 2007-2010, you got huge discounts buying in emerging markets, to compensate you for that risk. These days, some emerging market property is more expensive than back home in the UK. Some of the more developed markets overseas have also increased in value relative to back home.
Bank deposits
We all need to bank for daily needs, so having a local bank account can make sense, and indeed is often automatically set up by HR departments if you get a job overseas. Again though, there are considerable benefits of banking with third-country solutions. These include greater choice in terms of currency and ease in getting money out of countries.
Many expats in China, Vietnam and other places where sending money overseas can be difficult, are well served if they can get a proportion of their money paid to a bank account in Hong Kong or elsewhere. In general, bank deposits aren’t an investment though. In almost every country in the world, bank deposits either pay below inflation or if they pay more, you are taking a big risk keeping your money in that currency.
It is true that you can get 10% or more banking locally in some emerging markets, but the currency and inflation risks are huge.
Investing back in the UK – UK stock market investments and ISAs
You can send money home to the UK, and indeed this makes sense if you are only on a short-term assignment lasting a few months. However, if you are a permanent expat, there are several disadvantages to this.
The main drawbacks are that there aren’t the same tax benefits for UK residents. ISAs are not allowed for expats, so your gains can get taxed considerably. Added to that, it can complicate your tax situation in extreme cases. The UK tax authorities HMRC now has a “ties” test.
In effect, the more ties you have to the UK (family, businesses, real estate, pensions etc) and the more days you stay in the UK, you could be considered tax resident in the UK, even if you don’t live locally. In other words, the days of being automatically considered a non-resident for UK tax purposes because you spend less than 90 days a year locally, is gone.
Whilst this is a small risk, many UK expats have also said that countless British banks and stockbrokers have also questioned why they are continually sending money back to the UK, despite living overseas.
Often, they have been asked for anti-money laundering documents, like payslips, to prove where the money has come from. These brokers and banks are in turn, sometimes legally required to inform HMRC of these money movements as well, if the transfers exceed a certain amount.
That doesn’t mean you are doing anything wrong, legally speaking, by sending considerably amounts of money to a UK bank or stocks and shares account as an expat, but merely that it can make your life more complicated.
UK Real Estate
Many British expats are interested in rental properties in the UK. This has become significantly more difficult as the years have gone on as I have mentioned previously. The issues are now that the UK government has progressively made it more tax-inefficient for a non-resident, including a UK expat, to buy property.
Only a matter of months ago, the Conservative and Labour Party both went into the 2019 election, pledging more taxes on overseas buyers. Added to that, you have the issue of more mortgage lenders refusing to give mortgages to expats. It is still possible to get an expat mortgage, it simply depends on your circumstances:
With that being said, valuations in the UK are better these days, relative to other markets, this is especially the case in the North and Midlands, where property prices remain lower than 15 years ago, adjusted for inflation.
UK property prices apart from London, are still lower than the peak of 2007-2008, so if you can find an excellent buy, buying a UK property isn’t the worst option. It is merely just much more difficult compared to the past, to do it profitably.
UK Bank Deposits
As per the section on UK stockbrokers, it doesn’t usually make sense to send large amounts of money to a UK bank account. Small amounts of money to pay bills is a different matter of course. It also makes sense to at least keep a UK bank account open, with small balances, in case you ever return to the UK.
important;ly also allows you to keep a UK “correspondent address” whilst living overseas.
Investing in a third country
Examples of third countries could include Luxembourg, Isle of Man (technically part of the UK but with different regulatory environments), Bermuda and any other 0% capital gains country.
International stock market investing from a third country
There are many advantages to expats investing with a third country solution. The main one is having an expat focused account in the Isle of Man, Bermuda, Luxembourg or another popular jurisdiction for people living overseas, it is tax-efficient and more likely to be portable to where you ever you live.
By portable, I mean that as many international providers are specialised in the expat market, they allow customers to simply update their details online if they move from country A to country B.
The only exceptions tend to be if you move to the US or a country that is under US-sanctions, like Iran or Venezuela, which isn’t the case for 99% of British expats.
From a tax point of view, it is quite essential to be invested in a 0% capital gains environment as well. Taxes on capital gains can be hundreds of thousands or more, especially if you are a long-term investor.
Many people don’t consider how important taxes are to the cost equation, especially if they are only starting with a small investment. Small monthly investments soon add up over the years though.
International real estate
Buying property in a third country does have some of the same risks as investing in property in your country of residence. It is still an illiquid asset, and you may be operating in a non-English language legal environment.
The increasingly high valuations in countless places, also make this an increasingly risky option, unless you pick very wisely. There are several benefits to buying in a third country. The main ones are you can “shop around” for the best deals.
You don’t need to pick America, Australia, Canada, Bulgaria, Romania or any other country. You can merely speak to a property expat, look objectively at valuations and rental yields, and make your decisions, based on those factors.
In addition to that, there are many residences by property schemes. In other words, you can get a second residency, in return for property ownership. This is especially popular for expats that have finished their work assignments but still want to live abroad.
Expat offshore bank account
Whilst it should be mentioned again that bank accounts shouldn’t be used as investments, having an expat bank account in a third country makes a lot of sense. There is a simple reason for this.
If your banking provider knows that you are an expat, moving from country to country, you are less likely to have issues with account closures when you move on.
Conclusion
In general, it makes sense for expats to focus on “third country” options when it comes to investing and even banking. This is especially the case for expats moving from country to country every few years.
The reasons are simple enough. It is usually more tax-efficient and specialises in the expat niche.
The main exceptions to this rule are if you live in the United States, and/or you are only on a short-term expat assignment.
If you are short-term, you are often still considered a UK tax resident in any case.
