This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, it is subject to change and we are not responsible for any errors or omissions.
As a British expat, it is vital to have a financial plan to help you progress towards your long-term goals. With a strong plan whilst living overseas, you could take advantage of a special chance to grow wealth and maximise financial freedom – especially in retirement.
Yet, financial planning for expats is often different from financial planning for people based in the UK. There are unique challenges and opportunities to consider.
In this guide, our team here at Scottsdale identifies the key areas to be aware of as a non-UK resident and how to navigate them confidently.
Investment Planning
When a British citizen lives overseas, it can affect their investment options. For instance, as a non-UK resident, you cannot continue contributing to an ISA (individual savings account) and receive tax-free interest, dividends and capital gains.
The main exception is if you are a Crown Servant (e.g. serving in the British Armed Forces). However, all expats are allowed to keep their ISAs whilst living overseas.
Moreover, any savings and investments already held in your ISAs (before you left the UK) will continue to provide tax-free growth and income. You just cannot add further funds to them.
If you want to open (or keep contributing) to a UK-based general investment account, then it is wise to check whether your provider will allow you to keep using it whilst living overseas.
These are some of the restrictions on expats. However, being a non-UK resident can also open up new investment opportunities – e.g. investing in local property.
To explore your options carefully, consider getting help from a financial adviser who specialises in helping British expats in your specific location.
Pension Planning
When a British expat moves abroad, they keep the National Insurance (NI) record they have built up throughout their career.
This is important for their State Pension, which can be claimed (even from overseas) once an individual reaches their State Pension Age (66 in 2024).
With that said, if you have not yet built up at least 35 “qualifying years” on your NI record (which is required to get the full new State Pension), it is a good idea to consider how you will complete your NI record whilst living overseas.
After all, if you start working for a company in another country (e.g. Spain), then you will likely be put into the local social security system. In this case, you will no longer automatically build up your NI record in the UK from your salary.
A financial adviser can help you explore the best options. One idea is to look at your NI record and identify any “gaps” (incomplete years). In which case, voluntary NI contributions could fill these up and help ensure you get a better future State Pension income.
Expats also need to think about their wider pension planning options. For instance, UK-based pension providers may be reluctant to let you open (or keep contributing) to their scheme if you live overseas.
However, depending on your circumstances, there could be viable alternatives open to you, such as international SIPPS (self-invested personal pensions).
Currency & Exchange
As someone who lives overseas, you may need to deal with multiple currencies.
For instance, someone might receive a small amount of interest from UK-based savings accounts in GBP. They may simultaneously be employed by a local firm in an EU member state, receiving a salary in euros. Many of their global investments could also be denominated in USD!
As an expat, currency exchange often has a “hidden” effect on your finances and wealth. Maybe your US shares grow in value in a given year, but at the same time, USD fell against the euro’s value (which you plan to convert the investments to).
In this case, it appears that your wealth has grown. However, unless you plan to sell the shares and keep the money in USD, the investments may have grown very little (perhaps not at all) in real terms when exchange rates are factored in.
Again, a financial adviser can help build an effective financial plan to hedge against currency risk (e.g. using exchange-traded funds, or ETFs, which deal in multiple currencies).
Tax Planning
When you live in the UK as a British citizen, your primary tax liability is to the British State (and the Scottish government, if you live there). Income tax, capital gains tax (CGT), dividend tax, inheritance tax (IHT), National Insurance and other taxes are primarily domestically based.
As an expat, your tax position may be more complicated. This is due to your residency status. If you are deemed a resident of the UK (despite spending time overseas in a given UK tax year), then you will likely still be liability to certain taxes in the UK.
However, if your tax residency changes (e.g. you become a resident of Spain), then this has important implications on your tax responsibilities. For instance, if you are receiving income from a UK pension whilst retired in Spain, then this income becomes taxable in Spain – not the UK.
These rules often get very complicated. They vary depending on different expat circumstances and the countries involved. For instance, certain jurisdictions may have a “double taxation agreement” with the UK which affects how UK sourced income is taxed.
The best course is to speak with a financial adviser who understands your unique goals and financial position. They can offer you accurate, up-to-date information to ensure you pay the right taxes – and, in an efficient manner.
If you’d like to make sure you’re taking the right steps to safeguard your financial future, please get in touch.
Sources
https://www.gov.uk/individual-savings-accounts/if-you-move-abroad
https://www.ageuk.org.uk/information-advice/money-legal/pensions/state-pension/
https://www.fca.org.uk/news/news-stories/transferring-switching-uk-pensions-international-sipps