Offshore funds in passive investment portfolios: Expats vulnerable!

mike_302 wrote: »

If I bring my investments to the UK, I will pay enormous transaction fees, and I mean -- I can't say for sure, particularly in the current climate, how long I would be here. 3 years? 5 years? 10 years?

If you keep them in Canadian investments which are non-reporting funds then as you say, your realised capital gains will be taxed as income. However, as investments for most people are for the long term - if you are only living here 3 or 5 years, you may find you don't need to cash in any investments at all, so you won't realise any capital gains, and not run up against the expensive problem of having to report such gains as income.

Unless you mean the sales you might do - not with the intention to generate any accessible cash - just to periodically reduce your exposure to certain funds to rebalance your portfolio and keep your desired asset allocation roughly in line with some master plan on an ongoing basis. Though that rebalancing process is perhaps something that can be handled from ongoing new investment in UK based or uk-reporting funds over here out of your ongoing salary etc, skewing the allocation of new money towards certain types of assets without actually disposing of the old Canada-based ones and triggering a gain.

If you may be here in the UK for longer than a couple of years, the "massive transaction fees" of moving the portfolio here needs to be put in context. Presumably you're not talking about the UK income taxes on realising the gains on a full exit of the existing Canada-based portfolio - because you'd get them anyway if you moved the existing Canadian portfolio to a different Canadian portfolio manager who was going to use UK-reporting funds. So you just mean literally the transaction costs of moving the money:

- How much is the exit fee from your existing fund(s) ? In the UK, fees to exit are small.
- Then how much to move your CAD into GBP via a currency broker? Maybe a percent or so if you shop around.
- Then invest the GBP with a UK broker, fund supermarket, wrap platform or robo adviser, using ISAs where possible in only UK resident funds or UK-reporting offshore funds. How big is the 'entry fee' for that - not much, as few funds have initial charges or more than a few pounds of explicit transaction fees per fund purchase.

So say the exercise cost you a percent or more because of the currency switch, but less than two percent. If the investments grow over a decade at 7% annualised, that's 97%, and the 2% is pretty much forgotten. Certainly in comparison to paying UK income tax on your realised gains.

And this 1-2% transaction fee loss is only on that portion of the existing Canadian portfolio that you choose to bring over. If it's large, you don't need to bring all of it. The particularly unwelcome tax consequences from investing in non-UK, non-reporting funds are only when you sell and make a gain which gets treated as income by HMRC. If you don't sell, it doesn't come up, and presumably you won't be selling everything to spend here in the next 10 years if you are not staying long term. You haven't mentioned the amounts involved but if you had $150k in Canada maybe you could keep $50k in Canada and only bring $100k or vice versa.

One current way forward I am pursuing is a rob-advisor firm in Canada that is willing to look at creating a portfolio that is compatible with the HMRC reporting funds and distributing funds listings. I am still interested in crowd sourcing other answers and insight though.

As per your other thread, I think you're on a hiding to nothing with that one - if you're trying to get a bespoke UK-friendly set of investment funds out of a Canadian wealth manager whose business model is to be a cheap robot rather than a bespoke advisor; but if they are willing to look at it, there's no harm in asking for it

bostonerimus wrote: »

Are you actually taxed on your worldwide income by HMRC? Can you avoid the reporting issues by keeping the money in Canada?

If you're UK resident but not domiciled in the UK then subject to certain conditions you can elect to be taxed on the 'remittance basis' where your non-UK money is only taxed when brought to the UK, rather than you being taxed on your worldwide income and gains.

But that involves giving up all your UK personal allowance for income tax and your annual exemption for capital gains tax - and can come with an annual charge just for claiming the basis (e.g. £30k or £60k depending on how long you've been here; after a certain amount of time here you are deemed domiciled here and can no longer use it).

It may be of use to some people staying for a reasonably short time, or if their non-UK assets are substantial, and particularly if they earn over £124k in the UK so would have lost their UK personal allowance anyway by it tapering away once they start earning six figures.