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How do you invest in Europe? For British expats living in the EU, this may be particularly interesting. There may be companies or indices in Germany, Spain and other countries that you want to invest in, but you are unsure how.
What are your options for investing in Europe as a British national, and what issues should you consider beforehand? In this guide, our financial advisers offer some insights.
Can I invest in Europe?
As a British expat, investing in Europe depends on several factors, including your residency status, tax obligations and the type of investments you’re interested in.
If you live in the UK, things are often more straightforward. A UK resident can open a regulated brokerage account, browse a list of European stocks and make a selection for their portfolio in accordance with their unique goals, risk tolerance and needs.
For an expat, your options may be more limited, depending on your circumstances. Since Brexit, some financial institutions have imposed restrictions on UK citizens residing in the EU.
Some investment platforms have restricted services for UK nationals post-Brexit due to regulatory changes, and local banks may require a local tax ID before allowing investments.
Some UK-based platforms may no longer serve UK expats in the EU. Since Brexit, UK-based financial firms no longer have automatic access to EU markets under MiFID II passporting rules. UK investors residing in the EU may need to use an EU-regulated broker to access certain investments
A financial adviser who specialises in expats can help you navigate this area and find a broker in your country.
What can I invest in?
Brexit has impacted some UK investors’ ability to access certain European funds due to the loss of “passporting” for UK regulatory license and authorisation (e.g., cross-border payments).
If you relocate to an EU country and gain residency there, you may be required to close your UK-based brokerage accounts and open new ones in your new country.
Assuming you meet all requirements, there are several options for investing in Europe. These include ETFs and mutual funds that track European indices (the Stoxx Europe 600 is the main index used to measure the European equity market).
Other options include buying bonds (government or corporate bonds from EU countries), buying property in Europe as an investment, and investing in European early-stage companies through venture capital or angel investing.
What about tax?
When you invest, your returns might be subject to tax. These include capital gains after you sell assets for more than the original purchase price, and dividends (shares of company profits – e.g. from European shares).
Some countries might even tax you on the total net value of your assets. As a British expat, it is vital to check your tax obligations to avoid fines and other penalties.
Tax treaties between the UK and EU countries often help mitigate double taxation, though planning is still required to avoid unexpected liabilities. For British expats, the rules around “non-resident capital gains tax” can be especially complicated, catching people out.
This rule stipulates that a British national living overseas must pay UK capital gains tax (CGT) on certain UK assets if they move back to the UK within five years. In that timeframe, the expat might have paid CGT on these assets to their host country – e.g. if they were considered a tax resident and needed to declare capital gains worldwide.
The situations can get complex and are best addressed with some careful forward planning. A financial adviser and a tax adviser can assist you here, especially one with experience working with expats.
How do I build a good portfolio?
Building a strong portfolio as an expat involves applying the timeless principles of investing – with some extra planning to account for factors like cross-border tax and currency fluctuations.
Diversification is one such principle. This stipulates that investors can better manage risk and improve stability by spreading investments across different asset classes, industries and regions. For those interested in investing in Europe, for instance, consider investing in multiple global markets – not just local ones.
Another principle is to align your asset allocation with your risk tolerance. If you are unprepared for the volatility of a 100% equity portfolio, consider seeking financial advice about designing a more “stable” portfolio (e.g. using bonds).
A third principle is to take a long-term view with your investments. If you are investing for retirement, wealth-building or financial independence, you likely need to think in terms of 7+ years before needing the money. A long-term view may help you ride out market volatility and benefit from compound growth.
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If you’d like to make sure you’re taking the right steps to safeguard your financial future, please get in touch.