British Expat Money

UK Investment Options for Non Residents

james@britishexpatmoney

In this guide we take a deep dive in to some of the most popular UK investment options for non residents and answer some common questions related to pensions and investments.

Let’s get into it.

Can I invest in the UK if I live abroad?

If you live abroad you should be able to invest in the UK. In some cases a British passport may make things easier. But this isn’t a requirement for many types of investment.

In fact, most UK investments are open to non residents. It’s the usual investment channels that may be closed.

As an example, you can’t usually invest in shares using a UK investment platform, but that’s a platform issue rather than an investment issue.

There are plenty of investment platforms open to expats and non residents that let you invest in UK shares if you want to.

Am I classed as non resident?

For most people this is clear. If you don’t live in the UK, you won’t usually be classed as UK resident.

There are some exceptions of course, but these typically apply to unusual situations. Essentially, people who spend part of their time in the UK and part of their time elsewhere.

This could apply to an expat in the year they leave or return to the UK. It could also apply to other nationalities in the year they move to the UK. The easiest way to find out your status if you are unsure is by taking the HMRC statuary resident test.

And don’t worry, it’s not a formal exam. You just answer a few simple questions anonymously and HMRC will give you an answer. You can do it online here. It doesn’t take long.

But just to be clear, if you’ve never lived in the UK or have lived overseas for years then you will almost definitely be classed as non resident.

Can a non residents invest in ISAs?

Here’s the number one question we get asked at British Expat Money. And here’s the answer straight from HMRC:

Non UK residents cannot normally open an ISA. Expats may be able to keep their ISA, but they cannot add any more funds to it or open a new one, as long as they are not resident in the UK. We cannot advise you with regards what to do with your existing ISA. You may need to speak to an financial adviser.

In practice you should be able to contribute to an ISA in the year you move abroad ie before you are officially classed as non resident but the minute the new tax year begins and you are classed as non resident your chance of adding more money ceases to exist.

But don’t worry. Non residents have plenty of options instead.

What are my main investment options?

In practice you have the same options available no matter where you live. However, there are some options that suit overseas investment more and vice versa.

Here’s a list:

And its worth going into each of these in a bit more detail?

What are offshore bonds?

Not to confused with bonds, which we’ll be coming to shortly. An offshore bond is a tax efficient wrapper that can contain various types of investment assets. Most commonly stocks, shares and funds.

They are usually based in places with favourable tax regimes such as Ireland, Luxembourg, The Channel Islands and the Isle of Man. Locating them here, essentially means your investment portfolio is wrapped in a life insurance policy which has both legal and tax advantages.

The key disadvantages are high fees and being invested in risky things you don’t understand. Both of which can severely undermine any tax savings you garner.

So I’m sure it goes without saying that you should usually seek good financial advice that you trust before pulling the trigger with these. You need to know the costs. You need to know what you are invested in and why it is right for you.

Credit Suisse explain things in more detail here if you are interested.

What are structured notes?

I’m not sure why structured notes are often touted as good options for those of us who live overseas but they are.

But from my point of view they break the first rule of investment ie only invest in things you fully understand.

Here’s how Credit Suisse describe structured notes:

Structured products are investment solutions that combine one or more underlying assets (e.g. shares, bonds, stock indexes) with a derivative component. They can be used to bank on different market scenarios. That way, you can earn a positive return even when the markets trend sideways.

And that’s one of the simplest explanations I can find by the way.

I’m pretty sure for most people who invest, its that last sentence that clinches it. The idea that you can earn a positive return even when markets trend sideways.

But for me, that’s warning number 2. ie if it sounds too good to be true……..

I have no doubt, that in some situations, these could be suitable for some people. However, for most people most of the time, they won’t be.

If this is something that has been recommended to you by a financial advisor you trust then it may be worth a look but do ensure your own research.

Here’s a couple of interesting takes from Investopedia & The U.S. Securities and Exchange Commission (SEC)

Can a non resident have a UK pension?

Non residents with British passports do have some options for UK pensions.

If you already had a UK pension then moved overseas, you maybe able to keep that pension. Not only that, but in many cases, you can still contribute tax free for a period of time and should be able to withdraw from it in retirement.

In some cases, the fees and taxes associated with this, can make it beneficial to take your pension with you via a Recognized Overseas Pension Scheme (ROPS). Up until recently these were named QROPS (Qualified Recognized Overseas Pensions Scheme).

Another alternative is an international SIPP (self invested personal pension). This is something along the same lines as a ROPS (Recognized Overseas Pension Scheme) but domiciled in the UK.

Shifting pensions about can have issues. Not all ROPS / international SIPP providers are equal. The benefits with these may not be worth it when costs are taken into account so make sure you seek financial advice.

And remember, both of these are for UK residents that have UK pensions that then move abroad. If you don’t already have an existing UK pension they aren’t going to be suitable for you.

There’s one final pension option worth mentioning and that’s the State Pension. This is open to non residents with UK passports. You can contribute and claim your pension from abroad.

We’ve gone into a lot more detail on pensions here.

Can I invest in UK shares (stocks)?

Anybody anywhere can buy UK shares as long as they have an investment account with access to the London Stock Exchange (LSE).

And as the LSE is one of the largest stock exchanges in the world, most, if not all, investment platforms do give you access to the London market.

You can also invest in UK funds through the LSE. Some types are restricted but ETFs and investment trusts should be available no matter your location.

Having said that, typical reasons for investing in UK shares such as familiarity with the companies, currency fluctuations and tax considerations don’t usually make sense for most overseas investors.

If I had a pound for every time somebody told me now was a great time to invest in a FTSE 100 tracker I’d be a very rich man.

Just the other day a friend of mine gave me a FTSE 100 companies breakdown. Explaining why each was now an undervalued bargain! Maybe he’s right. But at the same time, maybe he’s wrong.

I might be tempted if they got really cheap for a known reason I didn’t agree with, but then again, I’d be inclined to go with the more diversified FSTE350 or even FTSE All Share options.

Others try to get me into actively managed funds, the big ones being Lindsell Train Global Equity & Fundsmith Equity Fund, but here’s the thing. I know those funds have beaten the market up until now, but they all do until the day they don’t and you loose all your money. Woodford Income Focus and Woodford Equity Income come instantly to mind.

Anybody unfamiliar with the Woodford story might want to read this. The crux of the matter being, he was a UK’s greatest investment manager for quarter of a century until everybody invested in his funds lost all their money. I’m just saying………

The guys over at S&P Global have pretty much put to bed the idea that fund managers beat the market. Over the long term taking an index approach, usually beats something like 90% of them.

The consensus seems clear to me. Unless, you really know what you are doing: be as diversified as you can be via an index fund. In other words, don’t focus on UK shares.

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

And by the way, he is talking specifically to UK residents when he says this. I’m pretty sure he’d be saying the same thing to non residents (with bells on).

So that doesn’t mean you should avoid shares. It simply means avoiding putting all your eggs in one basket with UK shares unless you have a specific reason to do so.

In general shares are great for anybody, particularly non residents.

The advantages and disadvantages of shares
Easy to invest – Anybody with an investment account can invest in shares. And these days that means just about anybody. Risk – Share prices can go down in value. Fast on an individual level. And in fact, even going global doesn’t save you in the short term. Historically global stock prices seem to get cut in half every decade or so, but unlike individual shares global stocks have always recovered. The key risk with those is to avoid panic selling when prices are on the way down. 
Can be tax efficient – Tax is a tricky topic, but all things being equal index tracking Exchange Traded Funds are considered to be very tax efficient. Price fluctuation – Share prices do have a nasty habit of moving up and down. This can lead to people making silly decisions like buying more or selling some at the wrong time. The trick is to avoid looking at the daily price movements and focus on the long term. 
Grow your wealth in two ways – Typically the price of your shares will increase. But at the same time you will also receive dividend payments. This is particularly useful when the markets hit the skids as they inevitably do from time to time. Complexity – Some people are put off by the complexity of shares. Quite simply they don’t understand them so don’t want to invest.
Inexpensive to invest – Low cost investment platforms and large global funds that track indices mean it has never been cheaper to grow your wealth. Paper assets – There are a few out there who describe shares as paper assets, meaning you can’t physically interact with them. They argue, all you have for your money is paper. (These days you don’t even get paper! Its more likely to simply be an online digital account number!). They prefer ‘so called’ real assets like property, gold or artwork to store their wealth. 
Easy access to your money – It usually takes no more than a couple of days to get your money out if you need it. (Compare that to how long it would take to get your money back from a property investment!).Tax – In some cases, other investments can be more tax efficient than shares. This will depend on your exact situation. 
Small investment size – You can buy individual shares and fractional shares for as little as £1. 
Outsourcing – Your money is looked after by the best brains in the world – When you buy shares you buy ownership of a company. The boss of the company is making decisions so that you don’t have to. Think Richard Branson, Elon Musk and Tim Cooke (all working for you!). 
What investment fund options are there?

As touched on above, you can invest in UK funds from abroad.

Whilst some investment platforms do give you access to other types, the easiest to access from overseas are exchange traded funds (ETFs) and investment trusts.

An ETF (Exchange traded fund) is a basket of stocks that trades on an exchange. And note, though it can follow an index, this basket doesn’t nessecarily have to follow one.

An investment trust is a public limited company (PLC) traded on the London Stock Exchange, but these companies also hold a basket of stocks.

Whilst on the face of it, they offer pretty similar propositions, there are some key differences.

ETFs are often used for following indices, so they are more likely to be a passive investment. Investment trusts are usually run by an investment manager and so don’t follow an index.

Though not always the case, in general, this has cost and tax implications. In other words, ETFs are usually cheaper and more tax efficient.

Smart Beta / Factor Investing

There’s a lot of hype around Smart Beta, also called Factor Investing. Simply put, this is a way to invest where different shares are chosen based on certain characteristics associated with higher returns.

Though the origins of smart beta go way back, it was brought mainstream by esteemed professors Eugene Fama of the University of Chicago and Kenneth French of Dartmouth college through their Three Factor Model.

In summary, their research concluded value stocks out performed growth stocks and small-cap stocks out performed large-cap stocks.

So all you have to do is go out and pick a small value fund and you’ll be in the money. If only it were so simple.

You see, it seems like the minute they published their research, was the minute value and small cap stocks stopped producing the good returns.

There are a whole host of reasons put forward for this. Perhaps, the biggest one being, now every body knows the trick it won’t work anymore.

But I prefer, the idea, that it might work. In fact, it is almost certain to work someday in the future. The problem is we just don’t know when. It maybe when you invest, it may not be.

The bottom line being, by choosing a Smart Beta (or factor fund) you are making an active bet on the market. You may be right, but you also maybe wrong. To all intents and purposes you are gambling, and that isn’t usually the best thing to do with your investments.

Dr. Fama himself says:

Whether you decide to tilt towards value depends on whether you are willing to bear the associated risk . . . The market portfolio is always efficient . . . For most people, the market portfolio is the most sensible decision.


Can I use money market funds to grow my wealth?

When you look under the hood, Money Market Funds (MMFs) invest in high quality, low risk, short term debt securities which usually pay dividends in line with short term interest rates.

And in practice they give the investor something very similar to a savings account but with a few key benefits for non residents.

  1. Higher interest rates than a savings account
  2. Don’t have to lock your money away
  3. Everybody has access including non residents

The key downside is they aren’t savings accounts. This means there are some slight risks that you don’t have with a real savings account, but at the same time they are considered to be safer than other common investment assets such as stocks, bonds and property.

We’ve gone into a lot more detail on MMFs here.

Why invest in bonds from overseas?

When you buy a bond, you loan money to a company or government.

This loan is for a fixed period of time. It can be months, years or decades but somewhere in the future there will be an agreed repayment date. At which point you’ll get all your money back.

To compensate you for your trouble, you’ll receive interest payments along the way. Usually every six months and this is the key way that you make money through bonds.

The majority of investment portfolios contain at least some bond allocation.

Bonds is a big topic. We’ve written indepth about it here. The key is, bonds are considered safer than stocks and shares but usually provide lower returns. You keep them in your investment portfolio to add diversification and stability.

And like, with money market funds, short term high quality bonds can offer a compelling alternative to a savings account, particularly for non residents who often don’t have access to decent savings.

Talking of savings………

vault door
Are UK based savings accounts open to those living overseas?

We’ve already covered two alternatives that can be used instead of savings: money market funds and bonds. The advantages these have is usually higher rates of return and easy access to your money.

However, they are not savings accounts so there’s some risk (although small) that you don’t get with real cash in a bank.

Whilst, non residents can’t usually open accounts with traditional bank accounts, you do have some options:

The UK’s big high street banks have offshore divisions, usually located in the Channel Islands, that are open to non residents. The biggest downside with these is you usually have to open an account with the bank first and the account requirements can be pretty stringent. As an example, with HSBC you need a salary of at least £100K (or currency equivalent) or maintain a £50K minimum balance.

These offshore offerings also tend to come with slightly higher fees than you’d usually expect to pay and aren’t famous for their customer service. But then again, it could be worth it for the ‘real’ thing.

The biggest alternatives are the Neobanks, which the consensus suggests will give you something cheaper with (according to TrustPilot) much better service. And whilst not banks per say, they are Electronic Money Institutions (EMI) which means they are regulated by the Financial Conduct Authority FCA. The FCA explain what EMIs are here, but my take on it goes a little something like this.

EMIs are online banks without banking licenses, but that doesn’t mean your money isn’t safe. It is protected because it is kept separately at a real bank so if your EMI runs in to difficulty, you money will be still be safe.

Another option, open to all, no matter where in the world they are is using investment platforms. You can either invest in bonds or money market funds as discussed above, or simply leave you cash on the platform to accrue interest.

Most of them give you something pretty similar to savings accounts. I’ve never heard of anybody whose heard of anybody losing their money in that way, but again, there’s an ever so small risk which you don’t get with real cash in a real bank.

You can read more on this here.

Can I buy premium bonds from outside the UK?

Another type of investment that doesn’t always come instantly to mind is premium bonds. Because these are UK government products many people believe non residents can’t invest. However, that’s not the case.

You can buy premium bonds from abroad. When savings accounts and government bonds are paying high interest rates premium bonds don’t always look very attractive.

However when the opposite is true, they become an excellent option. You can read more about them here, but here’s a quick summary of why you might want to consider them:

Property investment aka BTL

Unlike in many countries, there are currently no legal restrictions placed on non residents when they purchase UK property.

The key difference when buying from overseas is likely to be costs. In short, non residents pay more tax in the form of stamp duty. An additional 2% to be exact. (We’ve gone into a lot more detail about paying stamp duty from overseas here).

But that’s a small hurdle in my book, if you are in it for the long term. Many overseas residents buy holiday homes and investment property aka buy to let.

In fact, with online property portals like Rightmove and Zoopla, and the whole industry moving online means it’s never been easier.

We’ve gone in to a lot more detail about buy to let here and we’ve compared it to investing in shares here but here’s the short version.

Whilst there’s a good chance you’ll get higher investment returns with BTL than pretty much all other common alternatives it will come at a cost.

For most people, most of the time, its only going to work really well as an investment if you use a mortgage, let out your property and put the work in.

Otherwise you may as well just stick your money in shares. Historically its around 9% for shares vs 4% for property. You need the rental income, the work and the leverage from a mortgage to get the big returns.

When I say work, I don’t mean hands on. You can more or less outsource the day to day running of things to a letting agent, but you’ll still have things to do. Trust me, even fully managed city center apartments let to professionals have decisions to make, forms to fill out and the occasional emergency to deal with.

And whilst mortgages are considered to be just about the safest form of debt out there, that doesn’t mean they are risk free. Many people have got into trouble in recent times so it always pays to speak to a professional. (Some UK mortgage brokers do deal with non residents).

What are REITs?

How to invest in real estate with little money? Easy. Use REITs.

REIT stands for Real Estate Investment Trust. Real Estate Investment Trusts (REITs) are designed to enable investors to pool their money in portfolios of income generating property.

REITs let you invest in commercial and residential property. When you buy a share of a REIT you get access to small slices of a basket of properties. You also get a proportional interest in all the income that these properties generate.

Think about it like this. You get access to the property market without having to buy property. You can invest in UK, US, some other country or even global real estate in one fund without the hassle of being a ‘real’ landlord.

On paper, its perfect. You get all the benefits of being a landlord without any of the drawbacks. But if only life were that simple.

We’ve gone into a lot more detail about this here, but the headline is this:

Funds that invest in all kinds of businesses are usually a better option than a dedicated property fund. You get the benefits of a property fund and more.

If you want the benefits property investing provides you are usually better with the real thing.

That said, some people will have a reason to invest in REITs. The best way for most is going to be through ETFs. For UK property in particular. We have two.

We’ve gone into a lot more detail on this here if you are interested, but here’s a quick summary of them.

UK REIT ETFBenchmark Designed to AdvantagesDisadvantages 
IUKPFTSE EPRA/NAREITTrack the performance of real estate companies and REITs listed on the London Stock Exchange.Much bigger fund with longer track record. Less complicated. Can invest commission free.In theory behaves less like real property. More volatile.
UKREMSCI UK IMI Liquid Real Estate IndexAchieve a risk/return profile similar to direct real estate indexes using liquid instruments.In theory behaves more like real property. Adds inflation protection. Less volatile. Smaller fund with shorter track record. More complicated. Can’t invest commission free right now.

Cryptocurrency

Whilst many people out there dismiss cryptocurrency as something akin to Tulip Mania, the fact that it has been knocking about since 2009 suggests it might just be here to stay.

In 2024 some of the biggest fund providers in the business released Bitcoin ETFs and highly respected financial services companies like Morning Star started to write about adding Bitcoin to your investment portfolio.

The consensus seems to be keeping things manageable.

Morning Star suggest limiting your exposure to cryptocurrency to 5% of your portfolio and only investing money you don’t need for at least 10 years.

But even 5% maybe on the high end. A report by the highly respected CFA Institute assessed the impact of Bitcoin on a traditional stock and bond portfolio. Based on the period between January 2014 and September 2020 allocating just 2.5% of your money to Bitcoin would have increased your returns by nearly 24%.

The key being, though seemingly unlikely now, an unproven investment asset like cryptocurrency still has the potential to go to zero so investing what you wouldn’t mind loosing seems like the best way forward. The risk of loosing 2.5% for a potential 24% gain seems worth it. Amounts much above that might not be.

Its not that long ago that Bitcoin lost 82%, Ether lost 90% and other currencies lost more. Whilst they may bounce back next time around, equally, they may not.

Some pretty big guns expect a reckoning one day in the not too distant future.

If you do decide to invest in Bitcoin or other cryptocurrencies, its a lot easier than it used to be. Most investment platforms provide some kind of access these days.

Tax on UK investment income

Anything to do with taxes can quickly get complicated. We’ve covered most of the basics here in a lot more detail.

However in summary there are two areas where non residents will likely pay tax. Either from UK income or property.

Any income earned in the UK is subject to income tax and that includes rental income. In addition, capital gains tax applies when selling property that’s increased in value.

Any UK passport holders are eligible for the personal allowance. Currently this is £3K for capital gains and just over £12.5K for income tax. For example, in practice a couple could earn £25K rental income tax free annually.

Socially responsible investing

Socially responsible investing (SRI) is here. Now you can choose to invest in funds that choose companies that are socially responsible. Even better you don’t need to pay crazy money for a money manager because you can invest in a socially responsible ETF yourself.

And as we’ve already established, ETFs are available to pretty much anybody with an investment account, so should be open to you no matter where you live.

A socially responsible ETF skips the bad guys and concentrates on the good guys. Of course, who the good and bad guys are will depend on you.

Some people don’t mind alcohol companies, but would draw the line at cigarettes. Others don’t mind either of the above, but would draw the line at weapons. Whatever your flavor, there is likely to be a product suitable for you.

It turns out these funds aren’t hard to find. A quick search for SRI on Morningstar brought up a list of these and Morningstar even provides a detailed sustainability rating for their funds.

All good so far, but a couple of things worth mentioning before you go ahead and invest.

  1. A lot of this is self governed so you have to put a lot of trust in the companies included in the fund.
  2. SRI funds may provide inferior returns.

In the Credit Suisse Global Investment Returns Yearbook 2015, esteemed finance professors Elroy Dimson, Paul March and Mike Staunton devote an entire section to comparing SRI investing with non-SRI investing.

They compared a Vice fund to a Social Index fund. The Vice fund won handsomely. It turned $10K into $33.6K vs $26.7 for the Social Index Fund over the same time period. They then compared Tobacco companies against the wider stock markets. Big tobacco beat the wider market by 4.5% in the US and 2.6% in the UK.

And just to make sure, they followed this by comparing countries grouped by their World Bank corruption rating. Would you believe the group of countries with the highest corruption rating had the highest investment returns!

Here’s what the guys behind the studies said:

Much of the evidence that we review suggests that, as illustrated by the Vice Fund, “sin” pays. Investments in unethical stocks, industries and countries have tended to outperform. For those for whom principles have a price, it is important to know the likely impact screening may have on both performance and diversification. Also, ironically, responsible investors should recognize that they may be partly responsible for the higher returns from sin.

Alternatives

There are many so called ‘alternative’ investments out there, which are becoming easier and easier to access.

Wine, jewelry, stamps, violins, art, books and classic cars are all game for investment.

The chart below was put together from data in the Credit Suisse Global Investments Returns Yearbook 2018. It shows the annualised real returns for different assets over 117 years.

Source : Credit Suisse Global Investment Returns Yearbook 2018: Summary Edition

I don’t think many people will be surprised to find that stocks give the best returns, but I’m not so sure that they would have guessed that classic cars come a close second. They’ve increased annually by 4.8% ie not that far off stocks.

And it certainly came as a surprise to me that violins, stamps, jewelry, wine and classic cars all performed better than global bonds and what about the poor returns from housing?

On paper investing in alternative assets like classic cars looks like a winner, but there are things to think about.

The data for collectables is likely to be based only on the really high-end items, which as you can imagine are likely to be very expensive.

You can buy shares for pounds. The same can’t be said for classic cars. Even a single case of wine is likely to set you back thousands of pounds. The cheaper stuff just isn’t as likely to get the good returns.

You then need to think about storage. All these assets are going to need storage of some kind which will add to your costs, particularly classic cars which at the very least are going to require a garage.

Unless you’ve got the latest state of the art security system and a couple of dobermans you’re probably going to need to spend some money on insurance.

Even people who know what they are doing are likely to need some help when buying alternative assets. It would be hard to buy something special without a dealer getting involved and dealer commissions are going to be a lot higher than you pay when buying stocks and bonds.

And where there is money involved there are unscrupulous people. Alternative assets have a bad reputation for attracting unsavory characters, that are out to cheat investors.

Most of these assets will have their fare share of people ready to take advantage of the inexperienced, whether that be through crazily high fees or in extreme cases through fakes.

I’m sure a classic Ferrari won’t be the easiest thing to fake, but the same can’t be said for the associated paperwork.

The bottom line being, its probably worth a look if you have a large net-worth.

Where can I get financial help?

If you want general free advice it’s always a good idea to start with the Money Advice Service.

We often refer back to them on this site. Basically, it’s a free government backed website full of information on everything finance related.

Money Helper is a reasonable alternative which again is backed by the UK government.

The DIY approach works for most people, most of the time, but it’s not for everyone and certainly not all of the time.

If you think you could do with speaking to a financial advisor you might want to read this where we’ve covered how you can find one.

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