Would you discuss your financial affairs with someone you met in a bar or perhaps on the strength of a recommendation by a friend? You would be surprised by the number of expats who do and while the second is understandable – why wouldn’t you trust a friend’s recommendation? – it is vitally important to check out the credentials of anyone you trust to manage your money. ExpatMoneyChannel’sHannah Beecham went to find out how expatriates can stay on a straight and narrow (and profitable) path when meeting financial advisers in overseas territories. Her first port of call was to Sam Instone, Chief Executive Officer of global wealth management company AES International. Mr Instone urges expatriates to carry out their own due diligence on every financial adviser they meet before discussing their affairs or handing over their money.
Pointing out that expats are a particularly vulnerable group of individuals, Mr Instone highlights the often unique issues affecting expat money management. “They often have much more complex financial affairs, often with multi-jurisdictional tax issues and regulatory frameworks applying to them and there’s a huge amount of misinformation available on the internet or from financial advisers.”
Mr Instone warns that for those expats living in unfamiliar markets like Asia and the Middle East there’s an absence of safety-blankets many Brits have grown up with – such as basic client protection, basic fair treatment of clients, and such basic systems of control which put their needs first. “They simply don’t receive the outcomes which expats expect when sitting down in front of an adviser and which they would probably get if they were in the UK.”
Financial advisers like Sam Instone report that expats are making the same mistakes over and over. “They don’t do enough due diligence or ask the right questions of the firms they deal with.” Such basic questions should cover how the firm is regulated and by which authority. “They then need to go out and check that the adviser really is regulated and regulated in a way that the expat believes them to be.” Mr Instone highlights a case of a firm not being regulated in an appropriate way. “You often see insurance firms giving investment advice which means if something goes wrong an expat has no recourse of complaint against that insurance firm.”
Also check out the qualifications of an adviser. If an expat is asking for technical advice on a certain area – say international pensions or a non-residence tax situation – what experience and qualifications does that adviser have in those particular spheres?
Don’t take their word for it
Expats are vulnerable to the bad guys posing as good guys, so Sam Instone’s vital tip to help the expat community avoid such sharks would be to never take the word of qualifications, regulation or guarantees for granted. Always check them out yourself. This means, as mentioned above, checking up that an adviser and/or the firm is regulated and by which authority. It also means asking to see the certificates of qualifications earned. Ask for client proof and client testimonials. And never take for granted the guarantees, or underlying guarantees, promised on a product.
When researching the products and services offered, check out all areas of the CAT document. CAT stands for the charges, accessibility and terms of the investment product and how these will affect and impact upon your finances. Yes, it does mean reading the small print – it may be tedious but it is the only way an investor can truly appreciate what’s being bought. Find out how much your buying the product works in the financial favour of the adviser/sales person.
Furthermore, expats are urged to be wary of exaggerated marketing claims of international financial services firms. “They’ll say they are the largest financial services provider in the world and offer these guaranteed returns. While it’s very easy to say all of this, in reality do such claims actually materialise?”
Finally, Mr Instone says that whether you’re after the purchase of a financial product, or ongoing portfolio management advice, be very specific about what you want in order to get the outcome of your expectations.
Top Tips when Meeting a Potential Adviser
- Don’t be afraid to ask difficult questions.
- Don’t rely on meetings in bars or friends’ recommendations alone. Check credentials thoroughly.
- Bogus advisers are clever. They will often produce credible documentation – don’t take their word for it. Check with the relevant authorities
- Red tape is no excuse for an adviser not being authorised.
- Authorisation does not always cover everything. Check that the adviser is authorised in the investment area specific to your needs.
- If the adviser is based in Europe with a head office elsewhere in Europe don’t assume they are regulated by the home authority. Only firms who have opted to passport their services will be regulated by their home authority. Otherwise they must be authorised locally. In the case of advisers with a head office in the UK, you can check out whether or not they can passport their services in Europe via the FCA register.
How To Avoid Getting Swindled
Fraudsters operating from so-called ‘boiler rooms’ are swindling British expats out of millions, according to statistics. So how can you avoid getting cheated?
Brits abroad are one of the most vulnerable sectors of the international community. When it comes to mis-management, mis-selling and cyber fraud, statistics suggest we are cheated out of a staggering £2 billion per year. Boiler room scams account for a significant proportion of our losses. Statistics released by the UK’s Financial Services Authority (FSA) suggest that the typical victim of a boiler room loses in the region of £20,000. And surprisingly, the victim is likely to be an experienced investor, probably a male in his 50s or 60s.
What Are Boiler Rooms?
Boiler rooms are close knit syndicates of fraudsters, usually based overseas who use a range of sophisticated high-pressure sales techniques to persuade investors to purchase dubious stocks and shares Of course, boiler rooms are not authorised by any regulator and are acting illegally by promoting and selling shares to investors. In the vast majority of cases, the shares they are selling will prove to be worthless and the boiler room will vanish, leaving the hapless investor severely out-of-pocket. Generally speaking, because boiler rooms generally target investors outside of the country they are based it is difficult for regulators such as the UK’s FSA to take direct action to shut them down. However, the FSA’s latest survey provides an insight into how the fraudsters function and an overview of the scale and nature of their operations.
Well over half (58%) of all respondents to the FSA survey had, at some time, fallen victim to a boiler room type scam and purchased worthless shares as a consequence. Of these victims, 13% had been conned more than once. Three victims each reported losses of over £100,000. The average loss was in the region of £20,000.
Jonathan Phelan, Head of Retail Enforcement at the FSA, says, “Boiler rooms can be lucrative operations that fraudulently earn serious money. £20,000 is a shocking sum and far more than most people can afford to lose.
“Sadly, victims are unlikely to see their money again because their shares will have been overpriced and nearly impossible to sell. Boiler rooms are not authorised by the FSA, and are based abroad outside our reach, so victims are not protected by the financial services compensation and complaints schemes. Our strongest tool is to make people aware of the scam.”
Who Are The Victims?
The survey found that boiler rooms tend to prey on older people. Of those who had fallen victim, 38% were aged over 60 while 26% of victims were 51-60 years. The majority of victims were male (81%) and most were experienced investors with 41% of victims saying they had been investing for over a decade.
Many respondents reported that the boiler room called them repeatedly over an extended period of time to encourage them to invest. While 15% of victims were persuaded to purchase shares during their first call, nearly half (49%) of victims were called four or more times before they succumbed. Regardless of whether they purchased shares or not, 63% of respondents reported that they were pursued by the boiler room for at least one month and nearly a quarter (23%) said they were receiving calls from the same boiler room for more than six months.
Mr Phelan explains further, “Boiler room salesmen won’t take ‘no’ for an answer. They will constantly call a target, trying to build a relationship and get their confidence. They will appear knowledgeable and highly professional but they are only interested in taking your money.”
Many of the respondents (57%) reported that they were first contacted by the boiler room out-of-the-blue on the telephone. And one quarter (26%) of respondents reported that they had been approached by four or more different boiler rooms.
This is hardly surprising, as the fraudsters often move from operation to operation taking lists of potential targets with them. These lists may contain far more than names and addresses. Sophisticated fraudsters will construct rounded profiles of their intended victims, amassing as much personal detail as possible.
Although boiler rooms do not necessarily operate from where they say, the countries most commonly cited as locations for their bases are Spain, the US and Switzerland. Anecdotal evidence also suggests Eastern European countries are becoming increasingly popular bases.
Considering a Qualifying Recognised Overseas Pension Scheme (QROPS)? Dion Lindskog, Head of Life and Pension Products at RBC Wealth Management, offers his top tips on some of the issues you should consider before deciding if a QROPS is the right option for you.
- Can you? This should be your first question in order to ascertain whether your current pension arrangements allow you to transfer into a QROPS.
- Should you? A QROPS may not be the answer to every expat’s pension dilemma. Consider issues such as your age. Is now the right time? If you are, say, under 40 should you be paying higher charges of a QROPS over a potential 20 year period for something that is doing a similar job to what you may have now? What are your long term plans? Would a Sipp be a better option?
- Take appropriate advice. You will need to use an adviser experienced in QROPS investments. Check the adviser not only has a thorough knowledge of the pension legislation and local scheme arrangements in a wide range of countries, or at least in the ones appropriate to you, but who also has detailed knowledge of the tax consequences in moving pension benefits between these countries.
- Be clear about the scheme details. Does the scheme fulfill HM Revenue & Custom’s criteria in spirit as well as to the letter of the rules? What does the scheme allow you to do and what benefits does it give? Do these benefits abide by the spirit of HMRC’s notion of QROPS? Joining a scheme in a country where you are not resident simply because it offers more access to your pension pot may be deemed to fall outside the spirit of HMRC rules.
- Where is the QROPS based? How well regulated is the jurisdiction where the QROPS is based and how seriously do they monitor scheme providers and QROPS legislation? Typically, good QROPS jurisdictions will not only abide by HMRC rules, but also endeavour to produce their own additional codes of conduct and legislation.
- Will your current country of residence affect your decision? For example, many scheme providers will not accept transfers from the US. Also, Canada does not recognise tax free pension lump sums. So if you are going to live in Canada and plan to invest in a QROPS, you should consider taking any tax free lump sums before you leave the UK. ExpatMoneyChannel Tip: If you are going to live abroad, then you’ll need to get to grips with filing local tax returns. DIY tax software packages such as TurboTax Canada are increasingly popular and offer an easy route to compliance. Shop around to get the best package to suit your needs.
- Are there any tax implications? For example, the UK is currently looking to make potential changes to the way pensions are calculated. This may favour a move to QROPS, particular for larger pension pots. Transfers out of UK registered pension schemes are tested against the lifetime allowance (LTA) and any amounts transferred above your lifetime allowance are subject to a tax charge of 25%. The LTA was reduced from £1.8m to £1.5m as from April 2012. Also check on whether there is a dual taxation agreement between the UK and the country you plan to retire to? If so, look at which offers the better tax benefits on retirement. It may be the UK regime is more favourable.
- What are the costs? For larger pension pots or expats with suffering a currency mismatch, the higher costs associated with establishing and running a QROPS may be worthwhile. That said, costs are coming down, with more providers now offering ‘vanilla’ QROPS products for expats who require less customised QROPS versions.
Here’s a guide through the world of offshore savings and a recommended approach to protecting your nest-egg against inflation.
- Protect against inflation – The real return savers actually make from interest rates is the actual profit you are left with after taking the effects of the currency’s inflation into account. Inflation is the rise in prices for goods and services over a period of time – usually calculated annually. When weighing up a rate offer, deduct the known inflation percentage to find out how much you’ll actually end up. Advisers also tell savers to include the impact of tax when estimating a potential profit to ensure an accurate projection of likely returns.
- Protect against bankruptcy – Following a period of intense merger activity within the offshore savings sector, all savers should check that their accounts are not spread amongst deposit-takers owned by the same parent institution. If so, only a portion of your overall savings nest-egg may qualify for compensation if a deposit-taker goes to the wall.
- Protect against lack of compensation rights – We’ve seen the collapse of two Icelandic banks in offshore Britain (Landsbanki Guernsey and Kaupthing Singer & Friedlander Isle of Man) so we know the worst does happen to some savers. It is essential to always interrogate a jurisdiction’s financial compensation scheme before putting a penny of your hard-earned cash with any of its financial institutions.
- Protect against ID fraud – It is imperative you comply with identity protection procedures initiated by your deposit-taker. Your part of the bargain in the fight against fraud is never reveal passwords and security codes to anyone. If savings accounts are managed online, never leave a computer screen bearing the details. Do not fall victim to an email scam asking you to re-register your personal details. Real financial institutions would never compromise their customers in this way.
- Protect against adverse terms and conditions – Always read the small print of any terms and conditions when opening an account. Look out for penalties in the form of loss of interest against withdrawals made outside the notice terms and ways in which you could miss out on introductory, or loyalty bonuses.
- Profit by comparisons – it pays to research the rates paid by deposit-takers. Be sure to compare like with like and don’t be taken in by a new rate offer that is well above the market average. Those tempting percentages could be slashed once savers have been caught in the net.
- Profit from a competitive market – Today’s market is more competitive than ever. To put it bluntly, financial companies want savers more than they do borrowers. Select a handful of consistent top league payers and do your research to find out which one really wants to reward your customer loyalty.
- Profit by tracking market movements – Rates paid are still pegged to a currency’s base rate set by central banks. If you saving in sterling, euros and US dollars, make sure you stay abreast of these currencies’ base rates to gauge the rate offers on your accounts.
- Profit by locking away for longer – Recent economic conditions aside, the best paying accounts are those that lock savers into a fixed term – we’re talking a couple of percentage points’ difference. Calculate how long you can manage without accessing your savings pot and match that period with a provider’s best fixed term offer.
- Profit by saving regularly – Get the best from regular savings with products that encourage and reward such good habits.
Mix and Match Healthcare Benefits
If you’re shopping around for the most appropriate healthcare insurance, then choosing a plan tailored to your specific needs has not always been possible. But some healthcare companies are looking at ways of customising healthcare plans to offer expats a more flexible choice.
Expats may soon have the option of putting together a comprehensive healthcare insurance package piecemeal. The idea is to pick a core plan with basic cover for inpatient hospital treatment and then selecting individual areas of cover for other eventualities. And the number of healthcare insurance providers offering this kind of bespoke plan is increasing.
Basically, the concept is that once inpatient care is covered you select only those additional benefits you believe may be required; and you de-select any you feel you can do without. That way you avoid paying for a comprehensive healthcare package many of whose benefits you know you will never need. For example, once you’ve had your reproductive tubes tied, so to speak, then maternity cover for you or your spouse is going to be irrelevant. u have reached a certain age, then maternity cover for you or your spouse is pretty irrelevant. So, why pay for it? Equally, if you have no children, then why buy a plan which includes cover for a parent to accompany a sick child?
Take Advantage of Top Up Cover
Another reason why this kind of pic’n’mix is likely to become popular is because it enables enterprising expats, especially those accompanied by their families, to take advantage of top-up cover. Of course, you can only do this if your employer has already provided you with a basic healthcare package. So, when selecting family insurance examine the extent of any cover provided by your employer to find out if you and they are already protected under a company scheme (a surprising number of expats are covered without realising it). Pay attention to the small print and if some vital benefit is not included, and your employer won’t top your cover up, then you might well want to buy in this item of insurance cover yourself.
The principal benefit of such self-selection of course comes down to cost. And buying exactly what you need, whilst ignoring extras you can do without gives you the satisfaction of being more in control of your premiums. But to ensure you end up with the benefits which will genuinely bring you and your family peace of mind, it is essential to trawl through a selection of plans offering individualised or ‘modular services’ to get a sense of the going rate.
Check the Costs Don’t Outweigh The Benefits
Of course, there could be disadvantages to this kind of modular approach. Unless you have a crystal ball, you’ll never know what illness, accident or injury could be about to strike. And without knowing it’s very difficult to second-guess the benefits you will need. Expats opting for bespoke plans need to think very carefully at the outset whether the all embracing blanket cover available from the more traditional plans can be ignored without creating disquiet, or worse, some horrendous bill to be faced in the future. As for the cost, remember it is sometimes all too easy to get carried away adding bolt on after bolt on, which could boost the eventual premium to considerably more than the cost of a packaged plan.
Donald Simpson, Partner at Turcan Connell explains why expats returning to the UK should take tax advice and plan early as there may be opportunities to mitigate tax liabilities. Considerations include tidying up your tax affairs before you leave your expat location as well as being aware of your tax status when back in the UK. And remember, if you return to the UK within five years of leaving, you are liable to pay UK tax on any capital gains realised during your absence. Listed below are the main points expats should consider:
1. Resuming UK Tax Residence
If you return to the UK to live or work, you will in most circumstances become tax resident in the UK. The UK tax year runs from 6th April. The legislation provides that a person is tax resident for the whole of the year in which they return. By concession, HMRC allows a split year treatment allowing income and gains before your return to be taxed in your previous jurisdiction, meaning only your income and gains following your return are subject to UK tax. As this treatment is by concession, HMRC could withdraw it. It is therefore best to realise income and gains, where appropriate, in the previous tax year where possible. Those returning to the UK would need to register with HMRC for self-assessment. There may be no requirement for self-assessment where there is no unearned income.
2. Finalising matters before you return
Finalise your tax affairs in your current country of residence and ensure any necessary returns are filed. It is important to be aware of the tax rules in the country you are leaving:
- when does the tax year end?
- will they only tax you on income and gains until your departure date or for the whole of the tax year?
- where overlap exists in tax between the UK and your current country of residence, is relief available under the double tax treaties so that you are not paying tax twice?
3. Taking advantage of better tax rates
If you are living in a country with lower tax rates than the UK, it makes sense to accelerate income payment before you return to the UK. Those with businesses should take dividends and bonuses ahead of their return. Subject to any penalty charges, it may also make sense to close deposit accounts before returning so that interest is received and taxed outside the UK. Depending on the situation it may be beneficial to cash-in investment bonds before you return. Where tax rates are lower in the UK than in your country of residence, the reverse is true and income should be deferred until you acquire tax residence in the UK.
4. Capital Gains Tax Considerations
If you return to the UK within five years of leaving, you are liable to pay UK tax on any capital gains realised during your absence. Conversely, if you have been non-UK resident for at least five years, any gains on assets disposed of during that time will not be subject to UK tax. This presents an opportunity where you have been outside the UK for five complete tax years. Investments standing at a gain could be sold before you return to the UK. Planning for land and property standing at a gain is more difficult where you wish to retain those assets. However, with careful planning it is possible to retain such assets within family structures but trigger a gain ahead of your return to the UK. On any future sale of those assets, only the gains since your return to the UK would be taxed.
5. Non-UK Domiciles
For those with a non-UK domicile, special considerations apply. Offshore structures may be appropriate to keep UK situated assets out of the UK inheritance tax net. Non-domiciles should consider holding assets and investments in offshore jurisdictions and seek to be taxed only on gains and income which they remit. Where a non-domicile has been UK resident for 7 out of the last 9 tax years, a charge must be paid to be taxed on the remittance basis. Those non-UK domiciles who have been resident in the UK previously and took advantage of the remittance basis, should consider transferring any unremitted income and gains to the UK before they become UK tax resident again. That would enable the funds to be used in the UK after their return.
Also see Watch out for new tax rules
Donald Simpson is a Partner, Turcan Connell, legal, wealth management and tax specialists www.turcanconnell.com
There is a wide number of offshore bank accounts to choose from. But what kind of account do you need and what will it cost you?
Are offshore bank accounts for me?
Whether or not they are for you will depend very much on your need as an expat to have all or part of your financial affairs in one convenient place. Although technological advances mean that local banks are now more geared up for customers who have perhaps more complicated banking requirments than the average retail customer, some expats prefer the convenience of dealing with a bank that specialises in providing services aimed at expats, which is what offshore banking is supposed to specialise in. However, these banks have over recent years started to alter their offerings with many now catering specifically for the wealthier customer, which means some expats simply cannot afford the luxury of having an offshore bank account. This is partly due to the rising costs of keeping an offshore banking operation open in conjunction with the recent global recession. By shopping around, however, expats will still find banks catering for this section of the market who do not require wealth management services.
Why do I need an offshore bank account?
An offshore bank account isn’t nearly as exotic as it sounds. These accounts can assist an expatriate in ordinary ways – chief amongst them is the management of money transmission instructions (incomings and outgoings) via an account that ensures your foreign earnings and income remain as offshore as you. This convenience will endorse your non-resident tax status with the UK tax authorities, as well as reward any balances you achieve with interest paid gross. Although you will have to meet any taxes dues on gains and profits derived from offshore accounts in your country of residence. In theory, offshore banks understand your money transmission activities better than their onshore peers. For example, you won’t find yourself explaining in pained detail why you need an account, which can handle several different currencies, nor will you be asked to pop into the local branch to explain some query on your account.
Where are the offshore banks?
Offshore banks can be located in all the finance centres located around the world. But for this type of workhorse account chiefly denominated in sterling, expats should look to the Channel Islands and the Isle of Man to find a spread of international subsidiaries of the UK’s High Street banks. While the choice of banks is dwindling due to a spate of mergers and takeovers, along the main streets of the principal cities of these islands you’ll find names such as HSBC Bank International, NatWest International and Lloyds TSB Offshore.
What you get for your money
The noticeable difference between an offshore cheque account and its onshore cousin lies in a common insistence of a relatively high minimum balance which must be maintained on account. Think in terms of a thousand pounds and with some banks as much as £25,000.
As for features, cheque guarantee cards and other enabling plastic, overdrafts and loans, standing orders and direct debits, the extent of online banking facilities and so on, the only satisfactory route to ensuring you open an account which truly matches your needs is by putting in the necessary leg-work. Of course, leg-work in this instance means logging on to the banks’ websites and researching the features of each account. Start off with a list of facilities you know you’ll need. Try not to get swayed by add-ons you see emblazoned across the screen if they are the type of product or service you know you will never call upon – after all, each extra offering will have a price tag somewhere down the line, whether this be in lower interest rates offered or buried in the bank’s tariff of services.
Pick a currency, any currency
The very nature of living/working overseas means all expatriates will be juggling currencies. At the very least you’ll be dealing with two – the currency you are paid in and/or the currency you are spending as well as sterling, particularly if you have pensions or regular financial commitments back in the UK. But even with this seemingly straightforward division, boundaries become blurred. Many expats are paid a percentage of their salary in sterling and the remainder converted into the local currency to meet everyday living expenses. Those working with international companies find themselves paid in US dollars, or having all of their salary paid in the local currency.
Multi-currency banking is an area in which offshore banks shine. Basically, these are umbrella accounts, under which various sub-accounts can be maintained in different currencies according to an expat’s personal needs. Such an account enables you to receive your income in a foreign currency, say US dollars, while at the same time and from the same place, meet ongoing commitments, (say, a life policy, mortgage repayments, school fees) in, for example, sterling.
Within the offshore banking sector, there’s a range of multicurrency accounts sheltering the big three, sterling, US dollars and euros. Some banks specialise in offering a much wider choice of currencies. Royal Bank of Canada (Channel Islands) offers five currencies with its Executive Plus account, while Investec Bank’s (CI) Private Interest Current Account covers sterling, euro, US$, Australian $, Canadian $, Japanese Yen, South African Rand, and the Swiss Franc.
What it’s going to cost you
There is little uniformity between banks in terms of which services incur charges and what those charges might be. An acceptable fee to one customer will seem like an outrageous rip-off to another and vice-versa. Banks justify their charges on the basis that they regularly deal in cross-border transactions utilising different currencies. Many of the charges imposed, therefore, are a reflection of the fees they have to pay other banks in the chain of command.
As a general rule expect the following to be fee-free: cheque books, cheque cards and internet banking. A number of banks allow for a set number of free standing orders per year (usually half a dozen) which is worth asking about. Expect to pay for ancillary services such as bank-to-bank payments, telegraphic transfers, local currency cash withdrawals, foreign currency exchange, foreign currency cheque clearance and credit cards.
Familiarise yourself at the outset with the tariffs levied for every type of instruction or request you are likely to make – remember these might include quite minor items, such as sending a fax or even an email confirming a payment has gone through.
Many offshore banks package their services within a club-style account. In these cases, customers must also be aware that the bank might make additional charges on top of the annual standing fee depending on the services used.
At the end of the day, you need to work out whether the convenience of having an offshore account is worth the ever-rising cost.
The confusion over whether or not British expats can keep open a UK bank account is pushing them out of the safety net of the UK’s regulatory authority and compensation scheme, is currently skyrocketing. We asked you for your experiences on the worrying trend for UK-based banks to ask expats to close their UK accounts. So far your responses indicate that the problem is not as cut and dried as originally thought.
Based on ExpatMoneyChannel research, whether or not an expat can keep open a UK-bank account will very much depend on who you bank you with; how long you have banked with them; whether you retain a UK address and what type of account you have. What’s more, our research shows some banks are taking a lottery-style approach as to whether or not expats can keep their UK bank accounts by applying different rules even to the same customer base.
These are worrying findings as there are many practical reasons why a British expat would need to have a UK bank account. These would include the convenience of receiving state or private pensions, particularly if you are an expat in a country that does not have an arrangement with the UK to pay pensions directly overseas, such as Brazil and United Arab Emirates. In addition, setting up an international account with a UK bank offshore is out of reach for many expats, with an increasing number of international accounts requiring new customers to have a minimum annual salary of £50,000 or savings of £25,000. And while this requirement is sometimes waived, if you are an existing customer, our survey indicates, after a couple of years even these expats are being asked to stump up the extra cash. And when it comes to private pensions, not all companies have the facility to make electronic payments overseas which means for expats living in remote locations where post may be a problem, the safest way to receive pension payments is to set up an overseas electronic transfer arrangements via a UK bank account.
Then there are those expats who may eventually return to the UK and who do not wish to cut financial ties. Indeed, an expat may still have property in the UK that is let out or they may have a mortgage to pay, so having a UK bank account to accept such payments is useful. Finally, there is the pressing question of whether or not an expat with financial ties in the UK wants to be placed outside the safety net of the UK’s regulatory authority and compensation scheme.
In terms of keeping a UK bank account, if you are a longstanding client of a UK bank then it may simply be a question of persuading your bank to allow you to keep your account open. Unfortunately, if you have already closed your UK account then re-opening one may be much more difficult. Below, you’ll find our check list of what you should be thinking about when deciding on your bank account arrangements.
• If you are going to work abroad for a fixed period with the intention of returning to the UK at some point, then it is advisable to keep open a UK account and it should be relatively easy to persuade your bank to allow this.
• If you are retiring abroad then you need to think carefully about how keeping open a UK bank account will be viewed by HMRC. Particularly if you wish to perhaps change your domicile in the future or if you have complicated tax liabilities.
• If you do keep open a UK account then bear in mind you may come up against difficulties receiving gross interest paid on any savings. Ask for form R105, which is the HMRC form required to pay interest gross on your savings. Bear in mind that banks or building societies are under no obligation to accept this form.
• Be careful when using online banking facilities. Some readers have been ‘locked’ out of accounts when using their expat address rather than the UK address online.
• If you have or want to close your UK account then try and open an offshore account offered by a UK-based bank. While it is no guarantee, it is possible that provided you have been a good client, they can assist you in opening a UK account should you want to come back to the UK. Ask about the possibility of this when setting up the offshore account.
• Check that you can waive any large opening balance condition of opening an offshore account with your UK bank and for how long.
• Also, don’t take no as the definitive answer. If you wish to keep open your UK account then perhaps you can reach some compromise by also opening an offshore account with the same bank. Use your powers of persuasion, particularly if you are a longstanding customer!
Expat Experiences with Opening a Bank Account
“I have a current account, which I have held since I was 16. It was originally a Girobank account, then Alliance & Leicester and I believe it is changing again. I wanted to make a correction to my address in North America where I live. When I called the bank they said that they couldn’t change my address and wanted me to close my account. I explained that I’d had it since I was 16 and it was used to make monthly payments in the UK, and they let me keep it. Why don’t the banks have an ‘expat account’, with e-statements instead of paper, and standard forms to prove that you are a bona-fide expat?”
– Expat, North America
“I kept the same account I had when I was still in the UK and I also have bank accounts in Europe where I live. I have had no problems maintaining an account in the UK, and since the sums involved are small I have no real issues. However, if I needed to deal with substantial sums I feel that I may find it hard to get the information I need. Perhaps the banks should provide better information, either when they refuse to allow expat customers to open an account or in any case when their customers move abroad,”
– Expat, Europe
“I didn’t dare tell the bank I was moving as I suspected they might suddenly make me close my account. This would have been a real pain as I do use my account, especially with regard to renting out my house in the UK. I have bank accounts where I live as well now. The main problem with UK banks is that they don’t seem to realise there are so many expats who still need British banking facilities. I have lost count of the number of times I have had to explain that I couldn’t phone the only contact number available, which has tended to be an 0800 or 0845 number. This situation has fortunately improved as many previously unreachable numbers are now connected, but it just shows how blind most banks are. The UK is part of Europe now and has been for some time. Get rid of that island mentality, please!”
– Expat, Europe
“We moved to mainland Europe 17 years ago and were told at that time we could keep our Barclays account, which we had used for many years. Shortly after moving here we were forced to move the account to an offshore account in Jersey with a direct debit Visa card. I would like an ordinary credit card,”
– Expat, Europe
“I have a UK academic pension, part of which has to be paid into a UK bank account. This and the State Pension are subject to UK taxation. When I went overseas I retained my UK bank account. Four or five years’ later, although the address and bank account number remained unchanged, all my affairs are conducted through an amorphous entity in the Midlands. I also have a Jersey bank account. However, I find the charges levied for offshore are higher than in the UK and interest paid on deposits is lower. At the moment, I have no desire to return to the UK but would be very unhappy to lose banking privileges because of my pension situation.”
– Expat, Middle East
“First Direct allowed us to retain our UK bank accounts (current and savings). Cater Allen allowed me to open a new savings account, since I had been a (business) customer of theirs for several years previously. We own a Buy-to-let property in the UK and the rent received goes into one of the First Direct accounts. We lost money and would now prefer to keep my savings in the UK. I support your efforts to convince UK banks to accept savings from expats. I object to being treated as a money-laundering criminal just because I moved to mainland Europe.”
– Expat, Europe
“I have a UK bank account. However, I had a problem with my Debit Card & PIN last summer (which my bank admitted was their fault) which now means that on my next UK visit I will be unable to use my card until I have unlocked it at an ATM of my bank which is something I could do without. There should be a way of enabling PIN’s for those of us who live abroad before having to arrive in the UK with loads of money in case of emergency,”
– Expat, Europe
“I was not asked to close my UK bank account. I left the UK in 2002 so it may be that the rules were different then. I now have accounts with HSBC in both the UK and US, and I have accounts with another local bank in the US. My only gripe is that I have to keep a large chunk of capital in HSBC to derive the benefits of the account I have. This was not such a problem when interest rates were better! However, my pensions are paid directly into my UK bank account from my pension providers in the UK and I can use these facilities to transfer money as I need it directly from my UK to my US bank account. I have enquired of my pension providers as to whether my pensions can be paid directly into my US account, and they tell me they cannot pay directly into my HSBC US account, but can do so via an intermediary such as Citibank, at a cost of about £2.70 per transaction. As I have four pension providers, two of which are very small (one is only about £40 a month) I am choosing to keep it all where it is at the moment,” Expat, North America
“I have savings with a building society. I haven’t experienced any problems yet with regard to my expat status but I tried to get a bank card and had no luck. I would like better interest rate!”
– Expat, North America
“I have a UK bank account prior to leaving the UK and receive an armed forces pension. I was not asked to close my account. However the bank does not seem to want to allow me a credit or a debit card tied to my account, which would be useful for when I visit the UK two-three times per year. I do not understand the benefits of offshore, I believe my pension has to be paid into a UK account.”
– Expat, North America
“I have property, bank accounts and an investment account in the UK, all acquired or opened before I left the UK. I also have an offshore account. No problems in keeping accounts open, but I cannot change it to one paying better interest,”
– Expat, Southern Hemisphere
“I have current and savings account with Lloyds TSB in the UK. I have had the account for a long time. Lloyds have suggested I open an offshore account, but as this involves massive fees I have ignored it and continued using my UK based accounts,”
– Expat, Southern Hemisphere
“I have various bank accounts and building society bonds in the UK. Have not had a problem with HSBC but Northern Rock compulsorily repaid our 5 year bond as soon as they were notified of our expat residence. I would much prefer to remain entirely onshore. I feel very unwanted despite deciding to leave my life time savings in sterling pending eventual return to the UK. Offshore rates are lower too,”
– Expat, Southern Hemisphere
“I tried to reopen an account in the UK, but was told it was not possible at every bank. Yet online it appears UK bank accounts are open to anyone for a price,”
– Expat, Europe
“I have pensions and income from stock/investments and have retained several accounts with different banks for safety (i.e. hedged my bets). I have had few problems with banks, except when they request documentation through the post which takes about a week each direction. However, building society refused to allow us to open any new accounts and therefore existing account lost competitiveness and I eventually closed it. We still retained a UK address for a while so were able to supply appropriate bills etc to prove new address when we felt settled enough to change our address to our new expat home.
The UK banks also were able to open matching accounts in our expat location with fast transfer facilities. Also later as gained confidence went offshore with some savings.
However, NatWest has refused me an offshore account because of my location and I have had similar mutterings from Halifax where I already hold accounts, which is worrying. Halifax have said if I close I would not be able to re-join them in the future. I am concerned about the constriction of the offshore market over the last year or so, and particularly with the recent takeover of accounts by Santander. Some hold separate licenses still but if they amalgamate under one Santander license that will cause problems. Lloyds/HBOS is also integrating/restructuring offshore. All this is taking competition out of the market. Know Your Customer rules are becoming ever more invasive and the opening documentation rules a minefield, varying with each organisation. I would like to go offshore with full international banking but, generally, with the exception of the odd headliner, the rates and terms are lousy. Thank goodness for the Internet – without internet banking it would all be a nightmare!”
– Expat, Southern Hemisphere
“I have property in the UK which I let out. I don’t have a UK account as despite being a customer of Lloyds TSB for many years they forced me to open an account with their Jersey branch as I was no longer resident in the UK. I only use my account to receive the rent on my flat and to pay my mortgage payments and home insurance. What little is left I spend when I come home on holiday on accommodation, meals and clothes. I certainly cannot afford offshore products and services. The advantages of using an offshore centre are for high earners to avoid tax, not for people like me. The disadvantage for me is the fear that the Government where I live in Europe assumes that people with offshore accounts have them to avoid tax liabilities will chase me up just because my name appears. It will then be up to me to prove that my income is in fact low and I am not a tax avoider, which could cost me a lot in lawyer’s fees, time and worry.” –
“I have a UK bank account. However, when I informed my banks that we were moving abroad I was told that we had to have a UK address. So I changed my contact details and now use my daughter’s address. However, I would prefer to use my overseas address and have access to a savings account. My current UK bank won’t allow me to open a new savings account unless I can prove I am resident in the UK.”
– Expat, Europe.
“I had no problems retaining bank accounts, but was asked to close my building society account. One poor experience with HSBC, after being encouraged to sign-up to an offshore bank account they then had a hefty increase in bank fees unless you had savings over a certain amount – given the inconvenience of opening these type of bank accounts it was a real pain as I had to change things around.”
– Expat, Far East
“I have bank accounts in UK with 2 separate banks. One bank is not aware I have moved abroad, as I think they will ask me to close the account which I do not want to do as I will probably return to the UK at some point. The other bank does not have a problem with me being abroad, but will not let me open a savings account with them despite having held a current account with them for many years. The main problem I would like addressed, is how someone who is temporarily working abroad can open a new bank account in UK. Banks want proof of address (electoral register), utility bills, etc. but as my UK house is rented out I am not able to provide these. I am building up significantly more than the £50K protected under the UK Government scheme, but cannot move any surplus over £50k to another bank as I cannot provide the anti-money laundering bits and pieces they require. My only option seems to be an offshore account, but I would be happier with a UK based account.” Expat, Caribbean
“My UK bank was happy to switch my address to France. However, if I had known that it would mean not being able to take out savings bonds I wouldn’t have bothered. Now we cannot upgrade or move our accounts to take advantage of improved rates. I’ve looked at offshore banking, and it seems geared towards people with far more money to invest that we have. We don’t currently pay charges for our accounts in the UK, and now that we are retired we don’t have the sort of income that merits that kind of account. I want to be able to interact with my bank in exactly the same way as I did when I lived in the UK. Nothing has changed except my address. I live within the EU for goodness sake! The Know Your Customer rules are being taken to extreme. My bank should know me by now – I’ve banked with them for years. I would also be more than happy for them to check my accounts for signs of dodgy dealings – which they do anyway!! There’s no good reason why expats within the EU should be blocked from normal banking practices.”
– Expat, Europe
“I have several UK bank account. For two of them I have given a contact address in the UK. For the third, this was opened for me by my bank in the Far East, using my expat address.”
– Expat, Far East
“I had a current account with Midland (now HSBC) since my youth but whilst working abroad they suggested I open another current account at Midland Offshore (now HSBC International) in Jersey. Didn’t think I needed two so eventually closed the UK account. Unfortunately HSBC Jersey recently imposed a a very high minimum balance which I was unable to maintain so I tried to reopen my account at HSBC in London. An impossible task. They claim, on the BBA website, to facilitate opening accounts in the UK, but this is not the case. All roads lead to HSBC International in Jersey.”
– Expat, Europe
“We have UK bank accounts and all our pensions are paid in sterling. However, we were forced to close our building society term deposit. Because we cannot open onshore UK accounts anymore, we have to use Isle of Man/Jersey/Guernsey for new term deposits in sterling. This is mostly acceptable but we find very cumbersome. They can be awkward to open, prove identity and operate.”
– Expat, Southern Hemisphere
“I have a UK bank accounts and bank cards as well as an offshore sterling deposit account. However when I applied for a Caravan Club visa card managed by my bank, I was refused because of not having a UK address, despite my bank having no problem with me living abroad for the past 30 years!”
– Expat, Europe
“As I have had my account for over 30 years, I persuaded my bank to let me keep it by also opening offshore accounts. I have international accounts in sterling, dollars and euros. I use the online service to transfer where funds are needed. The main problem has always been the poor rates of return compared to those offered on the UK accounts – and not just since the credit crisis and drop in rates. I am not allowed to open any deposit accounts or interest bearing accounts in UK only forced to use the offshore accounts where returns were (and are) always much lower. I tend to use my local banks to get better returns. Basically I use the offshore account for convenience of moving money via internet and keeping an eye on balances when I want. From a practical point of view – flexibility/ internet etc very good – from a financial return basis I think they are poor,”
– Expat, Europe
“I have a current account and statements were sent to my eastern European address but now they are sent by e-mail and I have online banking. However, I have just requested a debit card, so we will see what happens! I have not experienced any problems, but there have been notices on the online banking website that only UK residents can have accounts – although they have certainly not enforced it in my case! However, an insurance company which offered free insurance to account holders wrote to me to say that cover did not apply to me. My main bank account is in eastern Europe where I live,”
– Expat, Eastern Europe
“Up until last year I was an expatriate in Hong Kong and South Africa for more than 30 yrs. Retained my UK bank accounts throughout, and I have a buy-to-let property. The Natwest bank sent me a form annually to confirm my non-res status, and Inland Revenue taxed me on the property income plus any interest gained on the UK accounts. Know Your Customer regulations had no impact. Always found NatWest to be most helpful.”
– Expat, Europe
“I receive a UK Government pension and I have a UK bank account with First Direct. When I divorced I contacted the bank to close my account, stating I did not have a UK address. However, they persuaded me to stay with them, they just changed my account to a Visa Direct. I think there are plenty of offshore investment opportunities giving a decent return, without having to rely on the UK. If anything, I was persuaded to stay away from the UK for tax reasons,”
– Expat, Europe
Jersey’s trust sector is managed by thousands of professionals who are leading the way with new models and modifications of this centuries-old method of passing on wealth.
Jersey’s trust industry has 50 years of experience and is now represented by 4,500 practitioners who work alongside a further 12,500 executives drawn from the wider finance industry. With such a densely populated area of expertise, it’s no surprise to learn that fiduciary work plays a major role in Jersey’s banking sector. To give some idea of how large a slice of business this is, Royal Bank of Canada confirms it has over 450 trust-specific professionals in Jersey alone.
Types of Jersey trusts
Despite the different types of trusts that have developed over the last half a century, the most enduring remains the discretionary trust. “Something like 90% of Jersey trusts we draft are fully discretionary ones as they give the maximum flexibility,” explains Giles Corbin, Partner with Jersey-based law firm Mourant.
Alan Binnington, Private Client Director for RBC Trust Company says that a prime reason for the popularity of discretionary trusts’ is that once the assets have been transferred to the trustees the settlor ceases to own them, which may have advantages from a taxation point of view or for asset protection purposes. This transference of ownership also means that assets can be passed to future generations without the complication of having to obtain grants of probate. “The trust may hold assets through a wholly owned company or companies. This is often useful where there are different types of asset being placed into trust, such as shares in a family business, art, investments, boats and aircraft in which case placing them in separate companies enables higher risk assets to be segregated from lower risk ones.”
The flexibility offered by this type of trust is also underpinned by the trustees having the discretion as to which of the beneficiaries are to benefit, when and by how much. “Although trustees in such cases have a wide discretion it is usual for the settlor to give them some guidance as to how he or she would wish them to exercise their discretion, in the form of a non-binding ‘letter of wishes’ which can be updated and revised from time-to-time,” adds Mr Binnington.
Jersey’s trust law is currently undergoing its fifth amendment expected in the second quarter of 2011. The new law is expected to give settlors greater freedoms in direction of beneficiaries’ information.
A year ago Jersey’s trust sector introduced a new type of fiduciary structure. Called ‘foundations’, they are viewed by practitioners as a hybrid between a trust and a company. Essentially, foundations are structured on civil law concepts, whereas trusts are routed in common law principles. The originator of a trust, the settlor, hands over all control of the assets to the trustees, whereas with a foundation, the founder sits on the council making decisions. “The council is the ruling body of the foundation whose function is to administer the foundation’s assets and carry out the foundation’s objectives. There is no beneficial class as such and it is usual for a foundation to be established for a particular purpose,” explains Justin Thomas of Fairbairn Trust.
Mr Corbin points out that a foundation’s structure is more likely to be understood by international clients and more readily recognised by those countries’ legal authorities.
Whatever the type of trust that ultimately appeals to you, Alan Binnington signposts all expats to first take sound tax advice. “All too often clients think that having an offshore structure is bound to have tax benefits. The reality is that for persons resident and domiciled in the UK there are now very few advantages in setting up an offshore trust and a failure to take tax advice might result in the clients being worse off than if they had not set up a structure in the first place.”
The regulatory environment
Jersey was one of the first jurisdictions to regulate its trust industry and the regulator, the Jersey Financial Services Commission, insists on high standards with regular compliance inspections. Jersey recently introduced a depositors’ compensation scheme but, in common with similar schemes in other jurisdictions, this only protects persons who deposit money in a bank rather than those who set up trusts.
A significant difference between placing money on deposit with a bank and placing money in trust is that a deposit is simply a debt owed by the bank to a customer, with the customer taking the risk of the bank becoming insolvent, whereas assets placed into trust do not form part of the trustee’s assets in the event of the trustee’s bankruptcy.
Jersey practitioners feel that the system of licensing and regulation of professional trustees provides a greater degree of protection than a compensation scheme, particularly given that such schemes tend to have relatively low maximum compensation amounts.
Lastly, the Jersey courts also exercise a degree of supervision over the conduct of trustees. A beneficiary who feels that a trustee has committed a breach of trust may bring a claim to the courts for the trustee to make good any loss to the trust fund.
Below you can find some of the worst financial mistakes you could do as an expat this year.
1) Sure fire investment opportunities
With savings rates low, it’s normal to shop around for higher returns. But whether it’s a great savings rate or a fantastic investment opportunity, if the return is way above what you can get elsewhere then work on the basis there must be a catch. There could be a plausible explanation for higher returns, such as restrictions on the investment period or a more sophisticated investment vehicle – all of which may be fine so long as you fully understand the risks involved. Should something go wrong, are you covered by any compensation scheme? Do your homework on the savings or investment plan, the financial services firm behind it, as well as the individual you are dealing with (more on this in point 4 below). Sticking with investment plans offered by tried and trusted investment firms such as RL360, Prudential International or Friends Life International may not always achieve super soaraway returns, but you will sleep more soundly knowing that plans on offer have been specifically designed to suit expat needs and, most importantly, are highly regulated. Remember, If it’s too good to be true, it generally is.
2) Ignoring your tax reporting obligations
With governments looking to squeeze every ounce of tax from citizens, tax reporting obligations are on the increase. Expats often have to abide by several tax regimes to ensure they fulfil their obligations both locally and in their home country, so it can get quite complex. Whether it’s declaring offshore returns, transferring your pension offshore or shielding assets in a trust, full disclosure is often the best policy if you want to avoid stiff penalties.
3) Making financial decisions without doing your due diligence
This is essential if you have been called out of the blue about an investment opportunity over the phone or been given a recommendation by an acquaintance. In all cases do your due diligence on both the adviser and firm they work for. Take time to step back and review what you are being promised or sold and make sure you are clear on the charges. This is particularly important as the landscape for adviser charging changes. Different rules on how an adviser can charge for his time depends on the country he or she is regulated by. In the UK, advice is now fee-based whereas in other countries it is still possible for advisers to charge commission. Your chosen adviser should be fully transparent on charges you can expect to pay, how you should pay and what, if any, effect it has on your investment returns. Also don’t take credentials on face value. Check on public registers accessible via the local financial regulatory authority, as well as any other regulatory authorities the firm may come under. This will help ensure you have some level of protection and redress should something go wrong. There are an increasing number of firms having their credentials cloned, so pay extra attention to spellings etc. For tips on steering clear of adviser scams, listen to our podcast on How to Trust Your Adviser.
4) Getting star struck!
The practice of using famous names to sell property developments or financial services is a common marketing tool. But don’t let a famous name get in the way of the fundamentals, particularly when it comes to buying property overseas. Do your homework to satisfy yourself it is the right investment for you. Top of the property risk scale are off-plan developments or property clubs using high pressure sales techniques, big price discounts and guaranteed rental income or buy-backs. See our guide to buying property abroad.