Expat Financial Services
Being an expat can be a very exciting and rewarding experience. The enjoyment of learning and communicating in a new language, meeting and interacting with individuals of different nationalities, for British Expats a climate which includes sunshine and the chance to see different cultures and a way of life are amongst the benefits.
Some things are more difficult including dealing with legal matters in a foreign language, not knowing all the local customs and perhaps being away from your family.
As an expat, some things are just different. In this category of “just difficult” comes financial planning as an expat. There are many more factors that will affect your financial planning and there will be a requirement to allocate your money to different priorities. However, you may be able to save more too? Your pensions will require more planning and you are less likely to be able to rely upon your employer for pension provision.
Here is a list of the elements that make expat financial planning different
Emergency Cash Fund
Regardless of where you live, we all need some cash that is instantly available for emergencies. As an expat however, this fund needs to be higher than if you were in your home country. Inevitably you will be required to make trips back home. A visit to see ailing and infirm relatives is a good example of this requirement. The amount depends on your individual circumstances and a good, independent financial adviser will include this in your financial planning.
Exchange Rate and Currency issues
As soon as you leave your home country and relocate abroad you will need to exchange currency to that of your new country. It is very important that you search for the best deal; many banks are expensive. You should see what specialist currency dealers can offer, they are often the best place to exchange currency.
If you will receive an income from your home country, such as a pension, it will need to be exchanged into the currency of your new country. You are then exposed to fluctuating rates. The impact of a change in exchange rates could leave you without sufficient income. Currencies move quickly and often and so it is easy to be caught “short”. However, some currency companies allow you to “forward book” your currency which means that you can fix the rate of exchange for future transfers, sometimes for up to 1 year in advance.
Similarly, currencies need to be considered for your savings and investments. As a principle, if investments are generating income for you to live the investments should be in the same currency as your expenditure.
Taxation – In more than one country
The tax situation can be, well taxing!! Double taxation agreements between, for example, the UK and Spain, mean you have to be clear about which country will be the controlling country in tax terms and therefore where you will pay your tax? And what about residence and domicile? In your home country these may be different definitions. But overseas, these are often the same. Inheritance tax is calculated differently and it is easy to be caught in two tax regimes.
A recent survey found that the largest financial worry for expats is the provision of a big enough pension pot for retirement. If you are planning on retiring in your home country you will need to save sufficient to meet the standard of living in your home country (and currency comes into play again here) for, as an example, the cost of housing which may be greater in your home country than in your new country. If you are going to retire in your new country there are many factors to take into account such as what to do with your pension from home.
Many expats state that the health care in Spain is as good as the UK. However, despite this many people return home in later years due to health problems. It is worthwhile looking into the state health care of the country you are moving to and you may need to consider additional health care cover.
With children comes the added responsibility of their education. Not all education systems achieve the same standards. Many countries have different systems for paying for education costs. You may have to pay school fees in order to educate children at an international school. Or you and your children may wish to use a boarding school but this is an expensive option; something I know from personal experience.
To make sure that your expat life is without worry and that your future is taken care of, you should have a financial adviser who will provide you with regular reviews and support. As an expat your circumstances are likely to change more often than if you were in your home country.
This article has been provided by Barry Davys MBA of the Spectrum IFA Group. He is an expatriate himself who has lived in Spain for 5 years.