There is no getting away from the fact that internationally mobile citizens (i.e., expats) and those who really want to head off and set up a new life abroad are being heavily impacted by the poor state of global economics, with Britons especially negatively affected.
Britons are coming from a nation with a weak economy, a weak currency, poor interest rates, (which affects retirees and those with invested or saved wealth), and high inflation. Many want to get out and enjoy a better quality of life abroad, but they can’t afford to do so. Those Brits living abroad can be affected by the same aspects if they derive an income from British based assets or wealth, and they may be further impacted by a strong euro and inflation across the eurozone, or perhaps the massively overinflated Australian economy if they’ve decided to emigrate Down Under.
The way Britons are coping has been well documented in a couple of articles across expat websites like the international edition of the Telegraph and expatforum.com – but no one is offering much of a solution to help affected individuals. So, we thought we’d offer you a 7-step plan to avoid the worse of the global economic effects as an expat or someone who wants to move to live abroad…
1) Research Currency Exchange Options
As boring as it really is, currency exchange has become big business thanks to the Internet. Word has spread online about how ‘ordinary’ people like you and me can use the services of an FX broker to move money about at the most preferable rate of exchange possible.
Banks generally do not give you the best rate of exchange and they are not the cheapest option for moving large or regular sums of money – fact. So, if you live overseas or you’re moving abroad, you want to move a large sum of money or regularly exchange currencies for income or bill payment, look into who is offering the best rates of exchange and the best terms and conditions.
If in doubt, pick up the phone and ring round, ask to have someone explain how a given service provider will advantage you and your position. Research your options and you may find it is more affordable for you to live abroad than you thought, or that you can continue to afford your life or service your international debts, mortgages or living costs.
Currency exchange is a dull subject matter – but according to expatforum.com: “Older British expats living in Europe have potentially lost out on over €3 billion on pension transfers over the last two years…” simply because they fell foul of a strong euro and a weak pound, poor exchange rate offerings from their banks and high fees for transfers.
To me that figure sounds a little on the high side – but it does serve to highlight the fact that you would do well to look into how best you can ever make a transfer or a currency exchange if you want to live overseas – whether you’re transferring your life savings in one lump sum, or you want to regularly receive an income.
2) Rent – Don’t Buy or Sell
Unless you know that you want to live abroad for the rest of your life in a given home in a given location and you are so certain that the rate of exchange you will get when you transfer funds to buy is the best you will ever see in your lifetime – you might be best advised to rent a home abroad when you move, and leave your British home rented out rather than sold too.
Yes, this does have a tax impact in that you may incur income tax on your rental income from your British property, and yes, in theory paying rent is throwing away ‘dead money’ – however, property markets in many of the favourite expat hotspots are in turmoil.
You have crashing or crashed markets in the likes of Spain, Portugal, Greece and Ireland, you have the most expensive real estate in the world in Australia (which most market commentators say is about to explode economically (see below)), you have high prices and yet slow markets in Canada and New Zealand…and all in all, now could be a very bad time to sell your home in the UK if you want a) a good price and b) a quick sale.
Don’t just assume that you have to sell up at home and buy abroad – look at the rental options and look at the long-term financial impact of any decision you may make, taking into account currency conversion rates, taxes and interest costs (if you have or would need a mortgage).
3) Maybe Move Your Pension Offshore
Have you heard of QROPS – qualifying recognised overseas pension schemes? These are effectively offshore expat pensions backed by HMRC which are suitable for many people who are working abroad and/or who intend to retire overseas.
You can move your British pension into a QROPS, diversify how it is invested in terms of what it’s invested in and the currencies it’s exposed to, you can perhaps invest it or take an income from it when the time comes in a tax enhanced way (depending on where you’re resident for tax purposes), and you don’t have to buy an annuity with this type of pension so any unspent sums can be left to heirs in your will.
QROPS are very beneficial – but they are not suitable for everyone – so speak to an independent financial adviser qualified to advise on these schemes to get best advice before making any decision about whether they could see you better off in retirement or not.
4) Diversify Invested Assets Across Currencies and Commodities
As the ever-strong euro and ever-weakened pound serve to show us, it can be very important to diversify wealth across currencies if you’re going to be living abroad and be dependent on your invested wealth for an income.
It is also critical to consider further diversifying your portfolio across commodities/underlyings, risk levels and banks/finance houses if you want a) security and b) the best chance of fiscal success. However, as everyone’s financial position and personal status differ, once again it is critical that you seek qualified professional advice from an independent financial adviser before making any decisions. Please note: this article does not constitute advice.
5) Beware the Australian Economy
Australia is an evergreen, hugely popular expat destination for Britons who want to move to live abroad at any stage of life – and yet the Australian economy is allegedly poised on a knife-edge, with some describing it as the biggest ever Ponzi scheme.
Wherever the truth lies, the fact of the matter is Australia has among the highest costs for real estate in the world right now, and exceptionally high living costs. Therefore, anyone who wants to move Down Under needs to know it’s very expensive at the moment…with a potential and catastrophic crash pending.
To sum up the issues with the economy, let us quote from an article posted last year in the quarterly ‘Government: Business, Foreign Affairs and Trade’ publication: “Australia needs more than one billion dollars every day – that’s one thousand million dollars each and every day – to avoid default on its foreign debt, yet we seem to be basking in the illusion that we are not a future Greece.
“Australia is now in a worse foreign debt position than Hungary and ranks as the 11th most indebted nation on earth. With gross external debts (equity and debt) of over 2 trillion and a debt to GNP ratio exceeding 100%, Australia sits well within the field of European countries facing a bleak future.
“Australians should be able to hear clearly the “tick..tick..tick” of our own debt bomb. But government and business refuse to talk about it.”
So, if Australia is your preferred expat destination, just be aware of its dodgy economic position!
6) You Can Do It!
Do not be put off by all the negativity that abounds about affording to move to live abroad – it is entirely possible to make the move even if you have limited funds at your fingertips. It all depends on where you want to live and how you want to live, whether you can earn an income abroad and how well and carefully you do your research.
If you are committed to living overseas then embrace the challenge…you potentially have an awful lot more to gain than lose.
7) Have a Plan and a Financial Reserve
Following on directly from point 6 above – it is critical that if you want to make a success of your relocation that you plan it well and have as much in reserve in financial terms as possible.
Visit a country before you commit to it, rent a home before you buy as you never know whether you will pick the right neighbourhood or property at your first attempt, look closely at the cost of living – factoring everything from groceries to taxation – and make sure your financial status matches your potential liabilities and outgoings.
Those who succeed in making a new life for themselves abroad tend to be the ones who are under no illusions about their new life, who do not approach the move with rose coloured glasses on, who have financial reserves and who are fully committed to throwing everything they have into their new life in terms of working to make it work!
We wish you every success…