Best Investments for Expats in 2022
If you are looking to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me ([email protected]) or use WhatsApp (+44-7393-450-837).
Introduction
Investing can be terrifying, but it can also be very fun and fulfilling. This article will focus on the best investments for expats for whatever purpose, such as rainy day fund, establishment of a business, inheritance, or retirement.
Before we get to that though, it’s important to first lay out your financial goals as it would aid you in coming up with and executing decisions that are informed and weren’t driven by spur of the moment thinking. Knowing where to put your money is a good start.
Investment alternatives itself can take on many different forms, and for expats, they can be either onshore or offshore. However, due to the tax advantages, the offshore investment option is thought to be more advantageous for them.
Best Investments for Expats: Offshore Investment Bonds
Offshore investment does by no means imply making a financial commitment to a tiny, sketchy, partially legal island state where the laws, at best, are ad hoc and may change at any time. The best practices in global wealth management are currently found in offshore centers:
- Comprehensive consumer protection provided by law.
- No matter where you are from or where you move to, your investments are managed and portable globally.
- Offer many investment options and a much greater variety of investment funds.
An offshore investment bond is basically a life insurance policy that serves as a tax wrapper and houses a number of investment funds. While UK citizens can access onshore bonds, expats and those who don’t live in the UK can access offshore bonds, which are frequently based in investment centers like the Isle of Man, Channel Islands, as well as member states of the European Union, such as Ireland and Luxembourg.
The governments in each of these nations are solidly in place, and there are safeguards in place to protect policyholders and maintain tight regulatory oversight, which makes them one of the best investments for expats.
For expat investors, offshore bonds offer a tax-efficient investment choice because they are free of capital gains tax and income tax deferral. This implies that the investment grows tax-free, greatly raising the investment’s intrinsic worth.
Additionally, the tax efficacy of the international investment centers is frequently viewed as a plus by those who use them as investment hubs.
Depending on the tax laws in effect in the investor’s country of residence, any income derived from the bond could be taxable.
Investment bonds may have some very good benefits, but it’s crucial to be aware of the costs, including any charges for fees or commissions that may be levied. The fees related to investment bonds are probably incurred at the time the investment is made, and there probably will also be a recurring annual fee.
The providers’ requirements will have a big impact on the offshore bond’s minimum investment. The recommended provider will be determined by a variety of variables, such as the necessary level of control and diversification, as well as the acceptable amount of risk associated with an investment. Before choosing a provider or the size of an investment, it is crucial to seek out independent advice in every situation.
Advantages of Offshore Investments
A lot of expats wish to avoid dispersing their capital across the globe, which is a major factor in the growth of offshore investment. When they try to access or manage the investment after leaving that specific location, they usually run into logistical hurdles and lose sight of what is invested where.
Unintended political developments, currency depreciation, such as that brought on by Brexit, or swift economic shift could potentially have an impact on you. A lot of these concerns are eliminated by offshore investing.
Best Investments for Expats: Expats and ISAs
An Individual Savings Account (ISA) is one of the best investments for expats and a common investment choice for residents in the UK since it is convenient, generally safe, and tax efficient.
Opening a new ISA or making additional contributions to an existing ISA are only available to UK residents, though. Meaning, if you live and work outside of the UK and are not considered to be a UK resident, you will not be able to do either of these things.
Naturally, it is feasible for a person to have an ISA before leaving the UK. However, it’s crucial to know whether the ISA would still be tax effective in the new country of residence depending on where the individual moves. All expats with ISAs would be well to look at options that might be more tax efficient both in the long and near term.
Best Investments for Expats: Pensions and QROPS
A pension scheme is a tax-advantaged savings plan that frequently serves as a cornerstone of an investment portfolio and is created to provide a person with income in their later years. The actual pensions themselves exist in a variety of formats and can be administered by either the employer or the investor.
A QROPS (Qualifying Recognized Overseas Pension Scheme), a wrapper that permits a non-resident to transfer a UK pension out of the UK and take advantage of a wide array of benefits, is one of the best investments for expats that serves as an alternative not only to them but also to those with substantial UK pensions.
A QROPS must function like a UK pension for investors who have lived in the UK for the past five tax years in order to be considered. If you go back to the UK, the QROPS will be governed by UK pension laws.
Nevertheless, for investors who haven’t lived in the UK for a minimum of five tax years, the QROPS then turns to be governed by the rules of the country where it is based. As a result, there are no restrictions on how much money you can take in and no source-based tax deductions (though taxation will be valid based on your current country of residence).
Advantages of a QROPS
Tax Benefits
Taxes are levied on the income derived by UK pension systems. There is no exemption for foreign nationals, and it is collected as a withholding tax at the rate of 20% on any pension income received from the UK, regardless of where the recipient resides.
No Max Lifetime Allowance
Any increase in the QROPS’ value above the UK Lifetime Allowance worth 1,073,100 pounds received as a pension will not be subject to the 25% Lifetime Allowance excess tax. In the absence of this levy, any pension paid from a UK-registered pension scheme to individuals who have been residents or non-residents of the country for less than five years would be subject to the charge if the value of the pension surpasses the Lifetime Allowance.
Currency Alternatives
An important safety net for expats is offered by QROPS and other overseas pension plans that provide the payment of pensions in currencies other than sterling.
Investment Autonomy
As an expat, you are permitted to transfer your pension assets “in specie” into a QROPS so that you can use them for tax sheltering purposes under the QROPS’ aegis. As an alternative, you can invest in practically any mutual fund, shares, ETFs, and gold, silver, or bond funds of your choice.
Inheritance
By transferring your wealth to a QROPS, you are protected from UK inheritance tax even though your heirs may be subject to local inheritance tax regulations. This is because a QROPS is not subject to UK jurisdiction or tax legislation, which is why it is indeed one of the best investments for expats.
In contrast to the UK, overseas pension plans typically make sure that residual pension funds move to the intended recipients far more quickly and easily.
The pension fund is not considered part of the pension holder’s estate for the purposes of UK inheritance tax due to the nature of the scheme, thus as long as the recipients receiving any unused funds are not tax residents of Britain, they are allowed to keep the money. Of course, the country where they are tax residents may have inheritance tax laws that apply.
Do note that while they still offer an extremely advantageous investment opportunity, the overall advantages of a QROPS have recently decreased. This was brought about and aggravated by the actions of unregulated consultants. While QROPS have received terrible notoriety in recent years, they should never be disregarded as a viable alternative, especially if you do not intend to return to the UK.
Best Investments for Expats: Structured Notes
Structured note investments are often sold by investment banks and have a fixed term of 4 to 6 years. They are typically not offered on the high street. It is composed of two or more derivatives, including stocks, shares, and indexes – such as the FTSE 100. It can also pay out money during the term as well as make a payment of up to 100% at the conclusion of the specified period.
The terms offered at the beginning of the fixed term that are directly tied to the lowest performing derivative will determine the amount of money paid out by a structured note. The performance of each derivative will be evaluated at regular intervals throughout the life of the structured note, and if the lowest performing derivative bests a particular metric, for instance by 5% more than the original value, then it will be paid out.
Structured notes are typically only available to sophisticated or high-net-worth investors due to their complexity; however, financial advisers typically fall into one of these categories and can therefore offer them to their clients, so long as they fully explain and make sure that the investor completely knows the risks and benefits of investing in structured notes.
Structured notes typically make up roughly 10% of an investment’s total amount; it is uncommon for a whole investment portfolio to be built out of them. Still it’s one of the best investments for expats.
Advantages of Structured Notes
Performance and payments
During positive market conditions and times of robust economic growth, structured notes are excellent and one of the best investments for expats. During such times, most investors will not only receive their whole investment back at maturity but are also very likely to receive consistent income distributions during the course of the set term. Because of this, structured notes are deemed high reward and relatively low risk.
The investor may not earn income during the fixed term even in neutral markets, but they are still likely to receive their investment back because the poorest performance is unlikely to go below the lower bar.
Costs
Structured notes do not have any management fees attached to them because of how they are marketed and sold. As a result, the advisory firm may decide not to charge additional fees besides the investment even if the notes are bought through them.
Best Investments for Expats: Property
Property investment is a typical component of an investment portfolio, similar to a pension plan. This frequently includes both the home residence and any secondary properties used to produce a consistent rental income for expats.
You can grab the opportunity when housing prices swell. High-priced real estate makes it an appealing target both in the short and long term and of the best investments for expats. However, be sure to check the capital gains tax of the country you intend to sell property in. You might be required to disclose related information pertaining to the property investment and be subject to a certain levy (if applicable).
You must also be mindful of and prepared for the fees and costs you could incur once you invest in property like management fees as well as maintenance.
Best Investments for Expats: Ethical Investments
Sure, you don’t have to check all the boxes for moral uprightness. But money talks and investments doesn’t necessarily have to be dirty. This is where ethical investments will come in. Ethical investing is more than just putting money into organizations that are committed to improving society and the environment.
In a nutshell, ethical investing is making sure that your funds aren’t being used to pay for activities that would have a negative social or environmental effect or would have the opposite effect of what you want. That’s all it takes.
Best Investments for Expats: Investment Platforms
An online service known as an investing platform allows for the purchase of financial products by both clients and advisers. They are often able to offer a greater selection of investment possibilities than would typically be available to the regular investor because they are run by several financial organizations.
Because of this, it is wise to always seek out impartial advice before making any investing decisions to make sure you do not subject yourself to unwarranted risk.
Even though administration fees are typically charged by investing platforms, the costs of managing investments through a platform can typically be decreased while also broadening your range of investment possibilities.
When it comes to selecting between investment platforms, expats are typically presented with few choices due to the complexity of tax and financial restrictions; but, by working with an adviser, you could potentially boost the options that are accessible to you.
Best Investments for Expats: Alternative Investments
You can look at alternative investments as also one of the best investments for expats if you prefer them over conventional ones.
People are now seeking alternative investments for their cash on deposit or as a substitute to maintaining their money in their pensions in an increasing number of countries throughout the world. People invest in a variety of things, really, from bamboo trees, real estate, equity share crowdfunding schemes, commodities, collectibles, art, and other tangible and even intangible assets.
Buying luxury items that are anticipated to increase in value over time would also be considered an alternative investment. Usually, the items will be kept in a secured place where it won’t be easy to get to.
Despite the popularity of alternative investments growing recently, the fundamental ideas behind them frequently remain the same. In fact, they have been around for a while for the most part. In actuality, the fact that they are now more readily available to a larger audience has greatly contributed to their development in popularity as one of the best investments for expats.
Alternative investments, by their very nature, draw a lot of unwanted attention and may expose the investor to dishonest practices and scams. The investment opportunity may frequently seem too good to be true, and in many cases, it very well will be.
To guarantee that you are protected against dishonest, uncontrolled activities, it is imperative that you seek a complete independent examination of any offer before coming up with any final decision.
Best Investments for Expats: Investments Via an International Bank
For expats looking for investing possibilities, the majority of foreign banks now provide wealth management services. The services provided vary significantly depending on the amount of funds you can afford to invest.
The limited scope of the guidance offered by international banks is one of the most important considerations when deciding which ones to use for your investment alternatives. Wealth managers and financial advisors are typically thought of as being independent, but in order to qualify, an adviser must have access to the entire market.
Without a specific statement to the contrary, the majority of wealth managers and advisers who work for multinational banks are constrained to the products offered by the bank, which could result in you passing up the best investment opportunity that’s suited for you.
Best Investments for Expats: Tax Repercussions
Tax is a difficult subject matter and being an expat makes it even more challenging because there are several tax laws to take into account. Depending on where in the world you are, there can be double taxation agreements in effect.
Some countries also have specific tax treaties with other nations to make sure that a particular income of yours won’t be levied twice. You should check the particular tax deals the country you reside has signed with other territories (if it even has one). If you’re a US citizen, in particular, you can check out my article titled 24 Vital Things on American Expat Tax You Should Know to know more.
It could help to specifically seek the aid of a tax expert to avoid potential tax woes in the near future or in the long term.
Best Investments for Expats: Final Thoughts
There’s just so much you ought to know and take note of when making investment moves and choosing the best investments for expats. Always consider your financial goals, your risk appetite, your time frame, your capital, as well as what you can afford to lose in investing. Assess the implications of your choice – including both the risks and advantages – and make sure the pros outweigh the possible losses. Take your time to delve into the gritty details of each investment option and then choose which you think suits your needs and preferences best.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters with over 830million answer views on Quora, a widely sold book on Amazon, and a contributor on Forbes.
