Last Updated on 1st November 2023 As more and more people relocate across borders and choose to settle in alternative destinations, the world of cross-border banking and investment has greatly expanded – but the choices you make will impact your wealth for years to come.
A considered approach is necessary to transfer assets from one country to another, select advantageous investment structures, and control your tax exposure.
There are multiple safety considerations in terms of income and wealth declarations, legalities, regulatory rules and your residency status, all of which feed into a comprehensive expat investment plan that supports your financial goals.
Opening Investment and Bank Accounts Overseas
The first step in establishing the right approach to investing is to evaluate your tax status, which will depend on your country of citizenship and where you now reside.
For example, British expats living in the United States will be either:
- A non-resident alien (NRA); a person who is not a US citizen.
- A resident alien (RA), if you have a green card or meet substantial presence tests.
Why is this important? Because in this scenario, your tax liabilities will depend on which classification applies.
An NRA is taxed on income arising from a US business or trade, and to an extent on investment income received from domestic sources, and will typically remain a taxpayer locally against earnings received in another country.
Before choosing a cross-border banking provider or deciding how to manage your transactions, you need to know how that will affect your taxation obligations.
Accessing Wealth in a Different Country
The next consideration is how you access your wealth, which currency you hold assets in, and the costs of currency fluctuations or international transfers. Many expats need to send money back home from time to time or transfer funds into a domestic account, either for general costs or to deposit cash in a stable currency.
There are thousands of account options varying from global banking providers to digital fintech companies – but you should research the authenticity of any online banking service before creating an account or depositing money.
Most expatriates choose to invest a proportion of their wealth and retain a defined balance to cover living expenses, but the costs of making a transfer from one currency to another can be steep.
Therefore, we generally advise expats to hold their open funds in an account in the same currency as they spend and receive income in to reduce the risks of exchange rate variances.
Understanding International Consumer Protections
In the UK, account holders benefit from Financial Services Compensation Scheme (FSCS) protection, with cover automatically applied up to £85,000 per person, per institution. While this scheme is limited to the UK, there are similar initiatives in most jurisdictions, although the cover available may differ.
Likewise, insurance and investment are not subject to the same Financial Conduct Authority oversight, so a wealth management adviser can explain how the regulatory system works in your new home country and how that influences the products you select.
We recommend all expats take the time to research banking products or investment opportunities to recognise which regulations apply and whether their accounts have the safety net of a consumer deposit protection scheme. You can find out more about Global Consumer Protection Schemes in an earlier article.
Viable Investment Structures for Global Expatriates
The next phase is to determine the optimal investment structures – particularly if you may wish to move back to the UK in the future or relocate to a different country. Some investments exist beyond borders and are available to investors in any country.
Still, it is equally important to look at the tax owing on your gains and factors such as the Common Reporting Standard to ensure you remain compliant with all applicable tax laws.
Common errors in picking the right international investment portfolio include:
- Selecting products with a different lifespan than your expectations – a longer-term investment is normally a safer bet with more modest returns but is unsuitable if you expect to draw on your investment gains in the next five years.
- Failing to diversify. While you may be familiar with particular asset classes or industries, investing wholly in one place can be disastrous if the economy pivots or your investment value falls.
- Choosing high-risk investment products without a low-risk balance. There are no guarantees in investing, but creating a risk profile is essential to ensure your portfolio complies with your appetite.
- Assuming that investment returns will be sufficient. If you haven’t drawn up a retirement plan or budgeted for significant costs, your investment portfolio may not deliver adequate gains to provide for a comfortable lifestyle.
- Forgetting about tax declarations. Even simple offshore savings accounts must be declared, and rules will vary depending on whether you are a tax paying resident or a non-resident declaring and paying taxes in your home country.
As an expat, developing an investment plan is about much more than choosing products with attractive potential returns – but about creating a well-developed strategy to ensure your choices reflect your expectations.
Choosing the Right Cross-Border Investment Strategy
As an experienced international expat wealth adviser, Chase Buchanan consults with clients around the world looking to streamline their cross-border portfolios, improve returns, mitigate investment risk, and determine the most tax-efficient approaches.
There is no one-size-fits-all solution since the right investments for you will depend on numerous variables, such as:
- Double taxation treaties and your residency position.
- What assets you currently hold, and whether you intend to transfer them abroad.
- The types of pension products you have, and where they are located.
- Whether you have already moved or are planning to relocate.
- The currency in your home country, and conversion risks or opportunities.
- Your risk appetite, retirement plans, family circumstances and income.
The best way to manage expat investment risk is to collate all of these factors into your strategy, considering the types of products you choose, the regulatory framework, your tax exposure and long-term plans.
For more information about cross-border investing and the vast range of available products, please download our Offshore Investment Guide as a starting point. If you would like bespoke guidance and support from an accomplished team of wealth management consultants, please contact your nearest Chase Buchanan office at your convenience.