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Dubai: By investing, you’re often told that you’re not only making money work for you, but building retirement wealth in the process. However, overseas investment is easier said than done.
For expatriate investors, fluctuations in exchange rates, interest rates and cost of living are just a few of the several challenges that influence their decision to invest in overseas countries such as the UK.
When it comes to investing in the UK, while UK residents and expats often have a range of investment options to choose from, it is crucial to have a clear understanding of your financial goals. This means short-term, long-term and even medium-term goals.
For example, investing in British real estate can not only create a stable source of income, but also have a place to live after returning home.
Overall, it’s understandable that what you choose to invest in is a personal preference, whether it’s real estate or stocks.
Image credit: Bloomberg
What are your investment options in the UK?
“While an individual savings account (ISA) is the ideal solution for someone looking to invest in the UK, these are only available to UK residents,” says Andrew Bailey, an independent property consultant based in the UK but currently working in Dubai.
“Furthermore, most expats, especially those who are abroad for long periods of time, will not be classified as UK residents. However, like an ISA, a pension plan is a tax-efficient way to save and is an integral part of your overall retirement planning strategy An important part of.”
However, the term “pension” has far-reaching implications, and while there are many products to choose from, the two that expats can really take advantage of are QROPS and SIPP. Let’s examine these options in more detail.
How do overseas pension schemes such as “QROPS” and “SIPP” work?
Qualified Recognized Overseas Pension Schemes (QROPS) and Self-Invested Personal Pensions (SIPPs) are known as pension ‘wraps’ that allow you to save, invest and build up a sum of money in retirement.
“While QROPS is essentially a label for a foreign pension scheme that complies with government income and customs rules to receive transfers from a UK-registered pension, a SIPP is an individual pension that works in the same way as a standard pension The plan is similar,” added Bailey.
“QROPS plans offer more flexibility and financial benefits, but, for those who want to be more hands-on, self-invested personal pension plans (SIPPs) allow you to make investment decisions yourself. Ultimately, you control the investment trends.”
Want to buy property in the UK?what do you know
Investing in real estate has been widely regarded by sophisticated investors as a safe addition to any investment portfolio. With the UK property market booming and showing no signs of slowing down, these industry experts agree that now, like no other time, is time to move ahead with property buying plans.
The average house price in the UK was around £295,000 (Dh1.3 million) as of November last year, according to the UK government’s Office for National Statistics (ONS). The figures indicated growth of 10.3% in the year to November, down from 12.4% in October.
“There are multiple benefits to investing in real estate. If you rent it out, it can generate a regular stream of income. Plus, you’ll own an asset that has the potential to increase in value over time,” said Bu, an investment manager at an asset consulting firm in the UAE. Brody Dunn said.
“Even if you decide not to sell, you will have a place to live if you come back to the UK. However, be aware that investing in property as an expat is not that simple.”
Overall, it’s understandable that what you choose to invest in is a personal preference, whether it’s real estate or stocks.
Image credit: Shutterstock
Is it worth investing in UK stocks and shares?
Overall, it’s understandable that what you choose to invest in is a personal preference, whether it’s real estate or stocks. However, when it comes to investing, diversifying your assets by investing in stocks and shares can provide some security should one or more assets decline in value.
“Higher-than-expected rate hikes by the U.S. and U.K. central banks, persistently high inflation, lower consumer spending, and a recession are just some of the factors that could lead to further market weakness. So buying stocks now is no guarantee of a return,” Dunn said. added.
“But when you invest in the London stock market, like any other stock exchange, you are buying or selling shares in a company or buying individual shares in a company. However, there are other options such as mutual funds, which are managed investments Funds that give you exposure to different assets and classes.”
In general, mutual funds can help you easily build a diversified portfolio, allowing you to diversify and reduce risk. However, keep in mind that your returns will often depend on the company’s performance. The better it performs, the more your share will increase.
What about expats investing in offshore bonds?
With offshore bonds, you can make a lump sum investment or make recurring payments. Investing your money means that it may effectively raise taxes over time, since you typically don’t pay taxes on investment growth, which saves you even more in the future.
“Offshore bonds are a tax-efficient option for expats as they often avoid capital gains tax and deferred income tax. As long as you hold the right bonds, the investment will remain tax-free even if you return to the UK,” adds Dunn .
“So when you invest in offshore investment bonds, you’re setting aside your hard-earned savings in what is essentially a life insurance policy, which acts as a tax wrapper. The bond can hold a significant amount of investment funds that are held outside the UK .”
Bottom line: Expats to understand tax implications when investing in the UK
Although the UK has one of the lowest corporate tax rates in the G20 group of countries and is highly competitive in Europe, when it comes to taxation as an expat it is even more complicated as there are multiple national tax rules to consider .
Depending on where in the world you are, double taxation agreements may be in place. These exist from one country to another to ensure you are not taxed twice on the same income. Not all countries have double tax treaties with the UK.
“If you’re thinking about buying UK stocks and property, you’ll be happy to know that UK assets are getting cheap. Stocks are down, bond prices are plummeting, and global market researcher Credit Suisse estimates property prices could fall by 10% to 15%,” Bailey added road.
But as a foreign investor, Bailey reiterated that one should always consider currency risk. Currency risk, also known as exchange rate risk, refers to the risk that an investor’s assets will be negatively affected by currency depreciation.
“As currency rates are constantly changing, investors who trade in different currencies should take this into account when making overseas investments. If you live abroad but hold investments in the UK, exchange rates may have an impact,” he added.
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