Saturday, 13 August 2016

Saturday, 13 August 2016

Guest blog: The Complexity of Expat Finances



One of the biggest challenges that expatriates face when moving to and living in France is the complexity of expat finances. According to HSBC’s Expat Explorer Survey, 75% of respondents (9,288 respondents worldwide) say that their finances have become more complicated since they left their home country and this can be especially true in France with the complex inheritance and tax rules. Add to this, problems with understanding language and it can soon become difficult to know where to turn.

Many expats don’t consider all aspects of their finances before, during and after moving abroad; therefore making organising their financial affairs even more difficult than it needs to be. What are the common mistakes made by many?

1. Living beyond your means

The excitement of starting a life in a new location, integrating with the local culture, building or renovating a new home (always unforeseen expenses) and making new friends can affect your spending behaviour. How far does your income/investments go to cover this lifestyle? Am I planning far enough ahead for my/my children’s future?

2. Banking, local or overseas

It is of course imperative that you open a local bank account in your new country of residence to assist with your day-to-day financial needs. What then - what other needs do you have and what products are suitable for you now you are in France? Like in the UK, France has many tax efficient savings and investment solutions (Assurance Vie as an example).

Should I maintain accounts in my home country or consider alternative locations? It’s important to get this part right to ensure you are aligning everything in a tax effective manner and getting the best service/returns for your money.

3. Not getting your tax right

Many expats forget to inform their home country’s tax agency of their decision to move abroad, thus failing to change their tax status. In the UK, aspiring expats should inform HM Revenue and Customs (HMRC) of their intention to move abroad and submit a completed P85 form. This is crucial for expats to ensure that they will not be sought after for tax, claim tax relief or any tax refund they are owed and become non-UK resident to avoid tax on certain incomes. If you are a UK expat and want to learn more about getting your tax right now you have moved abroad, visit HMRC’s website or speak to a regulated financial adviser.

4. Not researching the laws of inheritance in the country you are moving to

Every country has its own way of taxing people’s wealth after they have left this world. Leaving the UK, contacting HMRC and completing the P85 form does not remove your Inheritance Tax liability to the UK; but on top of this you are likely to have a liability on the assets you hold in the country where you now reside and this is certainly true in France, potentially up to 60% Inheritance Tax liability. Careful financial planning is required to ensure that you get to leave your wealth to your loved ones in the most tax efficient way possible.

5. Neglecting your pensions

Ok, so by this time you know how much you need (or know what you are spending) to maintain the lifestyle you have always dreamed of (or become accustomed to); you have the appropriate banking facilities in place and have notified HMRC in the correct manner; you have also looked into your inheritance tax obligations and fully understand what this is likely to look like for your family.

Next you would be advised to review your pensions; we have all been educated over our working careers that we must set aside monies to be able to live a comfortable life in retirement. So what should I do with what has been accumulated? How do the new Pension Reforms in the UK affect me? What options outside of the UK could have advantages such as QROPS etc.

6. Getting the services of unregulated financial planners

One mistake expats make is believing that their financial adviser is regulated in their new country of residence. You need to ask the question and complete your own due diligence; the Internet is a great place to start. If your financial adviser is regulated appropriately then you should be able to see this via the countries regulator; i.e. the Financial Conduct Authority in the UK or the Financial Services Commission in Gibraltar – this is not sufficient in itself if you live in a country outside of these – the Financial Adviser must have the relevant ‘Passporting’ permissions to provide advice in your country of residence – again this information should be well documented on the Regulator’s website.

7. Poor investment choices

Making poor investment choices is, to some extent, relevant to the previous mistake, which is getting the services of unregulated advisers, especially in countries with lax policies on regulation. Many expats make investment choices based on the advice of insufficiently regulated financial planners. It is imperative that you understand that your adviser is regulated, has the appropriate licences/permissions to advise you in the location you are in and hold sufficient Personal Indemnity cover. Failure to do so could leave you with a difficult task should it be necessary to complain about your investment choices/performance.

Do you recall your parents telling you ‘You made your bed, you lie in it’ – well it doesn’t quite have to be like that! You wouldn’t jump out of a plane without a parachute, so why continue without the necessary tools to help you make wise financial choices. The key, as always, is to educate yourself and to take control of your own financial future, but when your situation becomes too complex, you can always get the expertise of a planner to help you organise your finances in your native language. If you are an expat, or if you are just about to become one or have made these mistakes and need help organising your finances, speak to a qualified financial adviser.

Guest article by: Rosemary Sheppard
Blacktower Financial Management (International) Limited
Email: rosemary.sheppard@blacktowerfm.com
Website: www.blacktowerfm.com
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