Expat ISA – Your Guide

According to HMRC, expats can keep any ISA they have before they move overseas. Even better, you still get UK tax relief on your savings and investments.

Not only that, but you can even transfer your ISA to another provider no matter where you live.

What you can’t do is add any fresh money or open a new account from abroad.

So what if you don’t have an ISA and you already live overseas?

Don’t worry. The good news is there’s an excellent alternative.

ISA alternative

If you take a look under the hood, an individual savings account or ISA is simply tax sheltered savings and investments.

Savings just like in a banck account and investments just like an investment account. But with tax savings.

And whilst any way to pay less tax is welcome, don’t forget that ISAs usually come with fees attached. Sometimes these are low. Sometimes not so much. In fact, according to analysis from the Lang Cat you can pay up to 2.41% annually for your ISA.

Bearing in mind that as I write this, decent savings accounts are paying around 5%. That’s nearly have your return gone in one fell swoop. And that matters.

Think about this:

• £100K compounding at 5% a year for 20 years gets you £265K,
• Whereas £100K compounding at (5% – 2.41% =) 2.59% a year gets you £167K.

Those fees cost you nearly £100K. Ouch! It means you have to save over £100K in tax to make the numbers crunch out in your favour.

Now, I’m not saying everybody charges that, but everybody does charge something and you need to be sure whatever fees you do pay are worth any tax savings you might get.

In many cases, even smaller fees won’t be worth it for some because tax liability won’t be high. Many British expatriates don’t know their current tax situation. They then mistakenly hand their money over for risky offshore investment products with insanely high fees. If they don’t loose all their money, they definitely don’t make enough to justify the risk.

The media is full of articles about expats getting taken to the cleaners by dodgy offshore advisors. Here’s a recent take on it from Bloomberg.

That’s not to mention the fact that many expats live in what are commonly described as low tax destinations.

If you aren’t clear about your tax situation it maybe worth taking a trip over to PwC. They have an excellent tool that provides an overview of the tax situation in different countries.

But even if you do have to pay tax. You may not have to pay as much as you think. And in many cases your tax liability won’t mean investing or saving isn’t worth it.

These days, anybody with an investment account can put together a strong investment portfolio with a couple of index tracking exchange traded funds (ETFs).

ETFs are available to anybody anywhere. You can use them to invest in stocks, shares and money market funds in a low cost and tax efficient manner.

To all intents and purposes, you can invest in the same things as you would do in an ISA.

If you go for a money market fund, you’ll get something along similar lines as you would get with a savings ISA and if you pick an equity tracker you’ll get the same kind of thing you’d have with a stocks and shares ISA.

And here’s the important bit. Choose the most broadly diversified index tracker you can get your hands on, and you’ll more than likely beat the professionals anyway. Did you know index trackers beat 9 out of 10 UK pension funds?

And just in case you are thinking it must be difficult to pick index funds, investment author and former hedge fund manager Lars Kroijer puts it best when he says:

You should absolutely diversify, and a global equity index tracker is the most diversified investment, in terms of equities, that you can possibly get your hands on.

Source: The Evidence Based Investor

Did you know that over the 10-year period ending June 2023, 98% of funds underperformed a global index tracker?

Here’s a few global index tracker examples you can choose from wherever you are.

Invesco FTSE All-World UCITS ETF (FWRG) (OCF 0.15%)

SPDR MSCI ACWI IMI ETF (IMID) (OCF 0.17%)

iShares MSCI ACWI ETF (SSAC) (OCF 0.20%)

Vanguard FTSE All-World ETF (VWRP) (OCF 0.22%)

The OCF or ongoing charges figure is the main cost you will pay with these funds. All can be considered low. The highest 0.22% equates to £22 on a £10K balance for one year.

They are all available from the London Stock Exchange. I’m pretty sure all investment platforms provide access to the London stock exchange so all are easy to invest in no matter where you live.

Not only that but they are all domiciled in Ireland and its usually the case that this is the most tax efficient place for British expat investors funds to be domiciled. (More on that here if you are interested).

Now, depending on how young you are, and your risk tolerance, you may want to pair your index tracker with some cash, a money market fund or a fixed income (bond) fund. We’ve gone into more detail on choosing bonds when you live overseas here.

You also need to think about your how much of your money you allocate to cash/bonds and how much to your index tracker. We’ve written more on that here.