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Basic Financial Awareness for Expats: 101

Basic Financial Awareness for Expats: 101

A surprising number of expats don’t give much thought to their finances when moving country. But this lack of effort can easily cost someone ten thousand pounds, for want of a bit of time spent educating yourself on the basic financial issues. Obviously the decision to move country is a lifestyle one, but your finances definitely affect your lifestyle!

A surprising number of expats don’t give much thought to their finances when moving country. But this lack of effort can easily cost someone ten thousand pounds, for want of a bit of time spent educating yourself on the basic financial issues.

Obviously the decision to move country is a lifestyle one, but your finances definitely affect your lifestyle!

At some stage during (or after) the migration process people often then panic when they hear about some tax or other they didn’t realise applied (examples are capital gains on leaving, foreign investment taxes, 6 month rule on pensions, dual tax residency”¦etc) or some deduction they didn’t claim.  

The lack of financial awareness makes people vulnerable to excessive charges (/ taxes) and poor or overpriced advice. Basically financial naivety makes expats prime targets for being ripped off.

The aim of this article and others is to encourage people to be aware of the Basic financial issues to get your head around.  In this article I simply set out a template list of questions that everyone moving country should ask.  In other articles I aim to help people understand more about the three core concepts behind these questions, and how to make it easier for people to find answers (or in complex cases, to find advisers they can trust)

Questions Expats Need to Find Out:
TAX RESIDENCY STATUS:

– At what date will I become [new country] tax resident, and at what date will I break [old country] tax residency? (You can sometimes claim tax refunds on either side for working only part of a year)

– Does [new country] give any advantageous tax treatment given my expat status, or am I taxed in the same way as a [new country] citizen? What will my tax classification be? (Jargon here includes tax resident, temporary resident, domiciled, etc. Eg. Temp visa holders in Australia aren't taxed on their world assets and the UK has a similar lenience for in-pats)

– If I stay longer / shorter than planned how will this impact my tax? Will I be dual tax resident (eg. Aussies in the UK less than 2 years)?  What must I watch out for when making plans.

– When I eventually leave [new country], will I break tax residency on the date I fly out or will it still hang over me for a period afterwards?

HOW MY MOVE WILL IMPACT MY FINANCIAL HEALTH:

Assets left in [old country]
– When I arrive in [New country], will they tax my world investments or just money I bring into [new country] (ie. will they tax my investment income on cash, rent, dividends etc left in (old country) or offshore)
– Will [new country] charge any capital gains tax on property I have in [old country] whilst I'm living there?
– Will [new country] tax the annual growth of my personal pension left in [old country]? (eg. A nasty tax suffered by British in Australia)

Tax and deductions:
– What are the income tax rates in (new country) and where can I find calculators?
– What relocation expenses can I deduct?
– What other tax deductions can I claim?

About the (new country) retirement system:
– What pension/retirement schemes could I contributie to in [new country] to boost my retirement?
– When I leave, can I transfer these back to my [old country] retirement fund?
– What tax applies to the contributions if I 'salary sacrifice' into the scheme?
– What tax applies on the growth each year?
– When can I get the money out
(eg. what age), and what tax applies to benefits paid out if I left them in [new country]? Note: retirement systems often provide amazing tax breaks.

About the [new country] investment environment:
– Are there any other tax sheltered savings schemes (that might be similar to ISAs in the UK).
– Is interest on my home mortgage tax deductible?
(in some places it is!)
– Is there any capital gains on selling your own home?

For answers, try tax office websites (and help staff), your accountant, the forums and trusted financial advisers (who genuinely understand how a second tax system will impacts your financial planning).

And if you don’t think it matters because you don’t have much in investments anyway, then you may need a little dose of “FOM” (fear of missing out).  Here is a chart showing how much an example self funded retiree would need in assets over the course of his lifetime to have a retirement of say 30,000 per year:

Chart of Realisable Assets
And some more motivation:

It’s not ok to assume you can just save money later.  People need to look after themselves now as the state can’t be relied on to give you the retirement you would hope for.  Making bad planning decisions (or no planning decisions) makes it much slower and harder to reach your goals.

Jim Hennington BComm FIAA (Fellow of the Institute of Actuaries of Australia) www.expatmoneysaver.com
My goal is to help raise basic financial literacy for expats so they get more value from the financial industry.  

© Jim Hennington