Tax and Other Tips for Expats

While living abroad, expats often encounter a unique set of financial situations. With increased earnings and potentially beneficial tax situations, they can build wealth at an accelerated rate. However, the journey is not without its pitfalls. iExpats has ten golden rules every expat should know to manage their finances seamlessly, including tax suggestions.

Understanding the Expat Financial Landscape

Living abroad can indeed provide greater financial opportunities compared to staying in one’s home country. With the potential for higher earnings, a lower cost of living in many destinations, and various tax benefits, expats have a lot on their plate. Yet, the allure of a new life overseas can sometimes mask the uncertainties that come with it. The challenge often isn’t about having funds but understanding how to invest them wisely and who to trust for advice.

1. Map Out Your Financial Journey

Drafting a financial plan is crucial. It’s a blueprint of where you stand now and where you want to be. Are you saving for your child’s education, a new house, or perhaps retirement? Visualising these goals and setting a timeline to achieve them is essential. Part of the plan also involves creating an emergency fund, ideally equalling three months of your salary, to cushion any unforeseen financial blows.

2. Get Clear on Your Tax Status

Just labelling yourself an ‘expat’ doesn’t exempt you from taxes. Your tax obligations depend on where you live and the duration of your stay. Familiarise yourself with double taxation agreements (DTA) which prevent you from being taxed twice on the same income by two different countries.

3. Explore Offshore Saving and Investing

As an expat, you have the advantage of offshore saving and investment avenues. It’s all above board, as long as you report your earnings and gains to the relevant tax authorities. Keeping offshore finances secretive is where problems arise, especially with the introduction of global information-sharing systems like the US FATCA and CRS.

4. Bank Smart

For those in politically or economically unstable countries, it’s wise to bank in a third, more stable country. This strategy ensures your assets are safe, even if the country you’re residing in faces financial crises.

5. Think About Retirement

For retirement, expats have a plethora of options. QROPS (Qualifying Recognised Overseas Pension Scheme) is an offshore pension popular among many. Similarly, International SIPPs (Self-Invested Personal Pensions) are favoured by expats familiar with the UK version. Before diving in, it’s crucial to consult with an expert as the realm of offshore pensions is intricate.

6. Craft a Comprehensive Will

Inheritance laws differ from one country to another. Having a will in every country where you hold substantial assets ensures your last wishes are respected and your beneficiaries are safeguarded from potential tax burdens.

7. Seek Out Expertise

Given the intricacies of offshore finances, seeking an experienced international Independent Financial Advisor (IFA) is invaluable. They can guide you through QROPS pension transfers, offshore investments, and the maze of tax and residency rules.

8. Stay Updated with Tax Affairs

Especially relevant for British expats, HM Revenue & Customs mandates that you complete a Form P85 to tie up any loose ends when leaving the UK. Staying abreast of tax return requirements in your resident country is equally essential.

9. Do Your Homework

Researching your destination country can save you a world of financial headaches later on. Understanding residency implications and potential financial pitfalls before relocating can steer you clear of unexpected tax bills or the need to restructure finances.

10. Keep Your Expectations Grounded

Lastly, be pragmatic. While it’s crucial to save and invest, remember to live in the present too. Set achievable goals and ensure you have enough to relish your life abroad.

In conclusion, embarking on an expat journey is thrilling and financially rewarding if navigated with care. By following these rules and staying informed, you can enjoy the fruits of your labour while living your best life overseas.