What should I do with my money when I move abroad?
Planning and anticipating the effects that moving will have on your finances are sometimes eclipsed by the immediate and practical considerations of moving. One important factor to consider is how to manage your finances whilst you are abroad and avoid headaches such as risks caused by currency fluctuation. In this article we will look at three common scenarios which might prompt a move abroad – a family man moving because of a promotion, a couple retiring abroad in order to spend time with their family, and a business woman setting up a new business overseas.
An international bank account could be an effective solution for all these scenarios as it allows making international payments quick and simple, and enables you to start or continue saving whilst enjoying your new life adventure. However, as our article illustrates, choosing the right location for your money requires research and consideration of several factors. We have looked in detail at three scenarios to highlight the different financial factors which would need to be taken into account before the move.
1. A British Expat moving to the UAE
Martin Wright is leaving London to take up a new job in the UAE. His wife and two young children will be relocating with him, and he has been provided with temporary accommodation for three months while he finds somewhere suitable to rent. He will need an offshore bank account for savings and to make international transactions for the cost of his homes in London and France. Although his employer will help with relocation advice, he needs to think about the financial implications of his move as well. “As a rule, a reserve of at least six months’ living expenses is good practice when setting up in a new country,” says Simon Betteridge, Director of Banking Products Premier UK & International, Barclays.
Becoming an expat does not have to mean the end of your financial obligations in the UK. “Paying management fees for a rented-out property or keeping on top of monthly credit card payments can drain your UK bank account, especially without a salary going in,” warns Daniel Webber, Co Founder & MD of money transfer comparison site, FX compared. “The fees for transferring this money between countries might come as a surprise to many, especially for those expats who are paying school fees back in the UK. With an average yearly cost of £29,685 for boarders in years 7-11, international money transfer fees can really mount up.” Alex Edwards, currency analyst at UKForex, an international payment provider, says that as a British expat, you can keep your UK account as long as you meet your bank’s specific requirements around due diligence and the prevention of money-laundering. “If your circumstances qualify you to do this, you should be able to manage your financial affairs as if still residing in the UK. This can be useful for trips home, as well as helping you to maintain your credit history.”
If you do not meet the requirements for maintaining a UK account he suggests you:
- Speak with your local high street bank. Often, they will have an offshore facility or links with intermediaries that can provide such a service
- Shop around to get the best deal, as you might have to pay a fee to operate an offshore account
2. Non-British expats moving to South Africa
John and Sarah Longman are moving to South Africa, where they plan to retire. Their daughter Gemma moved to Durban three years ago to work and is likely to stay there for at least another ten years, so they have made the decision to spend their retirement with her and help her look after her young son. John and Sarah are moving from Hong Kong, where John has worked in banking for ten years, and they have cash savings which they plan to bring with them and convert into local currency. They may need to manage currency fluctuations by pre-booking their exchange rate.
This is a way of fixing the rate at which you change your money, and can give you a certainty of what exchange rate you can get. However, it can also mean you miss out on any upside.
“A forward contract is a currency tool that allows you to lock in a current exchange rate for a future payment. It provides protection against any unfavourable currency movements down the line,” says Alex Edwards at UKForex. “However, you don’t need to hedge all of your currency exposure in this way. In leaving some money to one side, you can benefit from any upside in the value of the currency you’re holding if it has increased against the currency you need to convert it to.” In other words, if you leave money to one side it could appreciate against the currency you need to convert it to, but there is also the possibility that it could decrease in value, leaving you worse off”.
It is worth getting transfer quotes from a range of sources, from banks to regulated foreign exchange companies before you sign up. Also think about how much you will be transferring at one time too; often you’ll be quoted better exchange rates the more you transfer but this is not guaranteed.
3. A non-British expat moving to China
Priva Patel is setting up a new business in Shanghai, and is planning to live there for at least five years. She is planning to open a number of new restaurants but is not sure whether she will be staying in the country long term, as that depends on how successful her start-up becomes.
Adam Price, of Vouched For, warns that she needs to think carefully about tax. “The taxation of money held in offshore bank accounts can be complicated and varies between jurisdictions and by the nationality of the individual concerned.”
“Many people are aware that the money they earn abroad (usually called foreign income) can be free of UK income tax if they are classed as a ‘non-resident’ but forget that UK income, like cash in bank accounts, is taxed at source and income from UK rental properties can still have tax due depending on their exact circumstances,” he says.
It is always worth seeking independent tax advice.
Victoria Hicks, a wealth management consultant at The Lawrence Scoffield Group, says becoming a resident in a new country whilst still having financial commitments in another can cause complications to your tax status. “It is common to end up paying tax twice, especially soon after the move,” she explains.
So if you are planning to move abroad, either for work or for retirement, it’s good to think in advance about where you are going to keep your money because this could affect your standard of living, the overall safety of your cash and investments, and how much tax you pay. You’ll also need to decide how long you are likely to stay in your new country, and whether it is a politically and financially safe place for your money. You should also consider getting tax advice from a specialist before you leave to understand your tax obligations in your new country and the country you are leaving, to avoid surprises later.
When I move abroad, where should I keep my money?
Consider the political and legal stability of the country
It is important to consider the strength of the legal system of your chosen country.
“Many may feel their money is more secure with an international bank in an offshore product, especially if there are economic and/or stability issues in the new country of jurisdiction,” says Victoria Hicks.
Think about how you transfer your money, and what you will need to buy
“Make sure you have the correct tax and legal advice, especially when you are based overseas and buying property in the UK or abroad. Take time to find out about local taxes and regulations as well as those back home in the UK” says Simon Betteridge, Director of Banking Products Premier UK & International, Barclays.
Consider how you might receive your pension
“International bank accounts are designed to assist with the movement of money between countries. These accounts can be extremely helpful, especially if you continue to receive income in the UK, potentially from property, investments or pensions. International accounts run side by side with UK accounts and enable you, amongst other things, to transfer money quickly and efficiently. Thought should also be given to opening a local current account to assist with day-to-day banking” says Simon Betteridge, Director of Banking Products Premier UK & International, Barclays.
How long are you going to stay there?
If you have no debts in the UK and you have no plans to move back then it may be wise to consider transferring all your cash holdings to the local currency, says Victoria Hicks. “Playing the foreign exchange market may appeal to high-risk investors, but is an area where significant losses can be made and should be considered extremely carefully.”
Will you want to invest offshore?
Depending on the country you move to, there will be different investment opportunities which will all carry different risk. It might be worth considering the economic climate, as high interest environments, which might be perceived as attractive, can often be less stable.