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Why Having an Exit Strategy is Key to Saving & Investing Offshore

No one knows what the future will hold of course, however some expatriates are aware of the fact that there could come a time when they will want or need to return ‘home’ to their original country of residence and domicile.  It may be that an expatriate in question is merely working abroad on a fixed contract, or that an expatriate couple plans to retire back to the UK for example…

For such individuals it is critical to consider their exit strategy when it comes to their savings and investment activity offshore.  Whilst living abroad many expats can benefit from the offshore financial marketplace and the potential tax saving advantages therein, however for those who may one day move back onshore, investments have to be carefully structured.

If you move back to Blighty and have all your wealth offshore that’s fine as long as you declare it as soon as you become tax resident again in the UK.  However, you may discover you’re now taxed on your income, assets and gains and that when you come to bring your invested wealth back into the country you not only have to pay tax on it, but you have to be able to prove where it all came from even if you were living abroad when you earned and invested your wealth in the first place.

Proving where your money came from probably won’t be difficult – even if it is a time consuming hassle – but paying tax on an investment you had carefully structured to be as tax efficient as possible will be disappointing at best!  This is why you need to be aware of all scenarios and work with your financial adviser as best you can to structure your offshore savings and investments appropriately so that if you move nation or repatriate, your financial plan won’t unravel.

The term ‘time apportionment relief’ may be one you need to familiarise yourself with.  It relates to the likes offshore life assurance policies as well as investment products wrapped within such structures.

Basically, if you become a UK tax resident once again following a period of life abroad, and you fully encash a qualifying offshore policy, the profit you enjoy from that is called a chargeable gain and it will be added to all your other income for the year in question and taxed accordingly.

However as you were formerly resident outside the UK your chargeable gain can be proportionately reduced thanks to time apportionment relief.  The formula used to determine how much you may be able to save and offset is calculated by multiplying the profit (or chargeable gain) by a factor, which is determined by taking the total number of days the policy holder has been a UK resident again and multiplying it by the gain and then dividing that by the total number of days the policy was actually in force.

Whilst maths is not my strong point, it is very evident that a positive factor in an affected individual’s favour in such a scenario is how long they had the policy in force for before they returned to the UK.  This means that there is even more pressure on expats to address their financial position and to take their expatriate advantage as soon as they move abroad so that they can make the most of time apportionment relief should they ever need to.

However, the bottom line is that any advice you take relating to structuring your wealth offshore has to be taken from an expert who really understand expats and their tax position.  Expats may have a very positive tax advantage when they live abroad, and this may disappear if they repatriate or relocate – therefore an expat needs to find not only an independent financial adviser to assist them, but one who really understands a) the offshore financial marketplace and b) the complex tax-lot of expats.

Knowing you need an exit strategy when it comes to your saving and investments as an expat is key and it’s stage one…stage two and equally key is finding the right advice relevant to your personal circumstances.  Explore your exit strategy with your financial adviser – don’t put it off because situations and circumstances can change and you need to know what to do with your wealth if needs be.

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