The U.K is a diversified place with many expats living and working in the country. Many are drawn into cities such as London as being one of the world’s top-tier cities (rated Alpha ++ alongside only New York). But, also it has a stable legal system, a business-friendly and sound education system are reasons why people like to work in the U.K. It will likely remain one of Europe’s top destinations for expats despite the recent turmoil of leaving the E.U.
In this article, I want to go over what investments expats in the UK have and what situations you might use them or benefit you most. Please be aware that this is not personal financial advice and if you need personal financial advice, please seek a competent and qualified advisor.
What local options do I have to invest in?
For those looking to stay in the U.K long term, you do have a few options that you can invest in that work out to be tax efficient.
ISA – These come in different forms. ISA stands for Individual Savings Account and these are useful because they can be a tax shelter for savings and investments. However, there are limits which you can put in per year depending on the scheme you choose.
- Cash ISAs
- Stocks and shares ISAs
- Innovative finance ISAs
- Lifetime ISAs
This will focus mainly on the Stocks/Cash/Lifetime investment ISA vehicles and not the innovative ones as they are less well-known and used.
Cash ISA is a very simple solution where you can open up a bank/platform account and save up ₤20,000 each year.
The stocks a shares ISA works in a very similar way but with the option to invest in stocks and shares instead of leaving in cash. Most investment platforms where you can open an ISA have a wide range of stock and shares so it shouldn’t be too hard to set a standard portfolio of diverse assets for your aspirations.
I have written articles on what are some of the best platforms to use for ISAs in the U.K. and it does depend on what you are looking for, personally, I like AJ Bell with 0.25% (although not the cheapest) for the service and fund range while being competitive. Other options might include Vanguard. Below is a table from money saving expert going over some of the costs of ISA platforms.
Table 1: Source: Money Saving expert- ISA platform costs
My thoughts on Robo-advisors: these are not a bad option but I personally think you can get better deals by just investing in a low-cost platform such as Vanguard and then for the long-term investor going into something as simple as Vanguard lifestyle 80% or even a target fund and dollar cost average it (this is not specific advice if you need advice please seek a qualified and competent advisor).
LISA – I get often get asked, if should I contribute to my LISA this is of course very subjective. But, will first go over what is a LISA.
How a Lifetime ISA works
If you’re buying a home with someone else, you can both take advantage of separate Lifetime ISAs.
- You can put a maximum of £4,000 into a Lifetime ISA each tax year.
- You’re paid a 25% bonus from the government. The bonus will be paid monthly.
- The maximum bonus you can earn in a tax year is £1,000.
- The amount you pay in is linked to your annual ISA allowance (£20,000 for 2022/23). For example, if you pay £1,000 into your Lifetime ISA, you can still pay £19,000 into other ISA products.
- Any bonus you earn doesn’t count towards your ISA allowance.
- You can open a Lifetime ISA, a Cash ISA, a Stocks and Shares ISA and an Innovative Finance ISA in each tax year.
Example
If you put £1,000 into your Lifetime ISA, the government will add an extra £250. This would leave you with £1,250 at the end of the tax year.
If you deposit £200 into your Lifetime ISA, the government will add an extra £50. This would leave you with £250 at the end of the tax year.
When can you access your money?
You can access money in your Lifetime ISA, including the government bonus and without paying any tax, if:
- you reach the age of 60
- you’re diagnosed with a terminal illness
- you’re buying your first home and your account has been open for 12 months.
As can be shown from the example above LISA can be a good use for those either looking to get on the property ladder or saving long term and due to the 25% extra, it can really add up over time with compound interest. But, might not be an option for those that are looking to leave the U.K or need liquidly.
Can I contribute to my ISA when I leave the U.K?
This is an important factor and no you can’t you will need to be a resident if you are looking to contribute to your ISA/LISA and in most cases SIPPs.
Although, if you have accumulated a SIPP/ISA when you have been in the U.K. most platforms will let you keep it open (some might ask to close depending on where you move to and the platform). Some might restrict you even from trading the account so make sure to ask the provider before moving.
SIPPs (Self Invested Personal Pensions)
The other scheme that offers tax-free growth in the U.K is SIPPs with this option you can contribute up to ₤40,000 a year into a pension plan. Your employer may also contribute (usually unlikely if they have set pension providers) to this amount and can be used as a tax-lowering option by reducing your income tax bracket to a lower level which can be a good option.
Points to remember are that you will not be able to access your SIPPs until you are 55 years old, and then you can withdraw 25% tax-free (referred to as PCLS) after this it gets complicated on topping up your SIPPs and limits. Don’t worry too much about this for any one in this position I have written blogs on withdrawing SIPPs and I will link them at the bottom of the article.
In terms of platforms you do have a number of platforms, I have written a number of blogs on some of the best platforms in the U.K for SIPPs and they emulate very much what the table above is for ISAs and would stick with low-cost platforms from large companies.
Which is better ISA or SIPPs?
This is completely subjective as an expat, an ISA would offer you more flexibility if you are looking to move outside the U.K as with SIPPs you will have to wait until 55 to withdraw up to 25% tax-free. Meanwhile, an ISA does have a lesser limit per year of ₤20,000. It would be best to speak to an IFA about your options if you are unclear as a number of aspects can factor in.
SIPPs when you leave the U.K?
If you have got a SIPP when you leave the U.K you can keep your SIPPs open for most cases but you may be able to contribute due to no longer being a resident of the UK. You can transfer to an International SIPP (this might cost more) or QROPs depending on where you are moving. QROPs would only be worth transferring under certain circumstances due to the laws and amounts usually over £250,000.
For high-earning expats that are maximising their SIPPs and ISA
I frequently get emails about what are the options if you don’t have any use of your tax deferrals investment options such as ISA or SIPPs.
Again, this can be very subjective and you can have a number of options some of which might be individual to your situation I.E U.S persons in the U.K could look at IRA options.
However, some options are to look at QNUPS or certain trusts that allow for tax-free growth and with these options, there are limitations such as, the cost can be high to set up a trust you can be looking at $1000+ a year and many are not that liquid, for example, a QNUPs takes the format of SIPPs (some might have a higher PCLS or lower age where you can access your capital) meaning that you can not access until 55. So this does need some thought and planning.
Also, you have the option to look at an offshore platform and these will still be taxed if you are residing in the U.K. but can be structured accordingly to reduce income tax if you are looking to move to a lower-income jurisdiction when withdrawing the capital.
Conclusion
For expats living in the U.K, you do have some good local options to use as tax deferral that the government aims to encourage to use. However, for those wanting to leave or high earners, it can become more complex to what options are best as they are subjective and would be best to speak o IFA in this area as there may be other factors that you may want to consider.
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