Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@. Skimlinks & other affiliated links are turned on

Search
  • FIRST POST
    • mike_302
    • By mike_302 12th May 18, 7:34 PM
    • 30Posts
    • 0Thanks
    mike_302
    Offshore funds in passive investment portfolios: Expats vulnerable!
    • #1
    • 12th May 18, 7:34 PM
    Offshore funds in passive investment portfolios: Expats vulnerable! 12th May 18 at 7:34 PM
    Another thread I recently started, lead to this alternative discussion on offshore funds, reporting vs non-reporting funds, and passive investment portfolios. What is an expat in the UK to do!?

    Then I found this excellent blog from several years ago, highlighting this exact problem.
    http://monevator.com/avoid-income-tax-with-reporting-funds/

    What is an expat in the UK to do?! I'm stuck...
    If I keep my investments in Canada, there's no point in keeping them invested because of this tax regime penalising the gains, and discounting the losses.
    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?

    I don't think I'm the only person suffering this problem.
Page 1
    • bostonerimus
    • By bostonerimus 12th May 18, 9:16 PM
    • 2,423 Posts
    • 1,715 Thanks
    bostonerimus
    • #2
    • 12th May 18, 9:16 PM
    • #2
    • 12th May 18, 9:16 PM
    If your funds are inside pension wrappers you should be ok as the treaty protects those from current income tax even if you are taxed on your worldwide income by HMRC. I'm not sure if there are any Canadian funds that are UK reporting....take a look at the list published by HMRC. If you were a US citizen resident in the UK there'd be a pretty simple solution of investing in Vanguard ETFs in the US. Those are HMRC reporting and they are obviously ok when it comes to US taxation too.
    Misanthrope in search of similar for mutual loathing
    • mike_302
    • By mike_302 13th May 18, 10:11 AM
    • 30 Posts
    • 0 Thanks
    mike_302
    • #3
    • 13th May 18, 10:11 AM
    • #3
    • 13th May 18, 10:11 AM
    Unfortunately, the wrapper solution doesn't work for me. Canada has two tax wrappers, only one of which is recognised by the UK. The room you get in that does not grow that quickly as a young person who is earning a low income as a student...

    I know there aren't a lot of Canadian ETFs in there.

    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.

    Thanks very much for your (clearly experienced) insight! I am starting to see that there will be a lot more Americans facing the same difficulties.
    • bowlhead99
    • By bowlhead99 13th May 18, 12:33 PM
    • 8,292 Posts
    • 15,175 Thanks
    bowlhead99
    • #4
    • 13th May 18, 12:33 PM
    • #4
    • 13th May 18, 12:33 PM
    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?
    Originally posted by mike_302
    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
    Last edited by bowlhead99; 13-05-2018 at 12:37 PM.
    • bostonerimus
    • By bostonerimus 13th May 18, 12:45 PM
    • 2,423 Posts
    • 1,715 Thanks
    bostonerimus
    • #5
    • 13th May 18, 12:45 PM
    • #5
    • 13th May 18, 12:45 PM
    Are you actually taxed on your worldwide income by HMRC? Can you avoid the reporting issues by keeping the money in Canada?
    Misanthrope in search of similar for mutual loathing
    • bowlhead99
    • By bowlhead99 13th May 18, 1:08 PM
    • 8,292 Posts
    • 15,175 Thanks
    bowlhead99
    • #6
    • 13th May 18, 1:08 PM
    • #6
    • 13th May 18, 1:08 PM
    Are you actually taxed on your worldwide income by HMRC? Can you avoid the reporting issues by keeping the money in Canada?
    Originally posted by bostonerimus
    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.
    • mike_302
    • By mike_302 13th May 18, 3:18 PM
    • 30 Posts
    • 0 Thanks
    mike_302
    • #7
    • 13th May 18, 3:18 PM
    • #7
    • 13th May 18, 3:18 PM
    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.
    It's this rebalancing process that I'm concerned about -- you're correct. This is an interesting possibility: make sure I have a robust baseline portfolio in the Canadian accounts, then develop something here. Slightly complicated, as I opted for a robo-adviser in a stocks and shares ISA here in the UK, for simplicity; but... Maybe. (I recognise that having two different rob-advisers in two different countries doesn't give me a perfectly spread-out risk level).

    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. ....you just mean literally the transaction costs of moving the money:
    I wouldn't mind it if I ended up here for 10+ years, but if I had to go through the whole affair of moving the funds in 3 or 4 years, and the even bigger hassle if it wasn't straight back to Canada but on to a 3rd country -- while I agree it's just a couple percent in charges for the currency exchange and the other incidentals (transactions, etc.), it's definitely a hassle moving money in and out of countries, etc.There's a high degree of stress involved, just to have it follow along with me...

    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
    Yea, I know what you mean; but as you say, if they're willing to investigate it, and there's no additional cost beyond their standard robo-adviser management fee (approx 0.75% incl. fund fees) then I'll have the discussion with them. See, since they advertise themselves to expat Canadians, and have claimed to me that they regularly deal with people in other countries, it's not a stretch to believe that I'm not the first UK-based client... And if they weren't aware of this until now, then they may be in some trouble, because you can't rightfully claim to be the robo-adviser for expats if you don't know the tax implications for your clients! So perhaps they see value in developing an offering for us. It wouldn't be that crazy for them to build 5 portfolios with the few reporting ETFs based in North American markets.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

173Posts Today

1,448Users online

Martin's Twitter
  • I've just heard about the 8 month pregnant woman shot through the stomach by a crossbow. Its both evil and medie? https://t.co/hQTOxWiXhj

  • Major new guide... Brexit, what it means for you and your finances: M mortgages, savings, flights, consumer rights? https://t.co/SXCMG2qXwX

  • Have you haggled on the high street in the last year? If so who with and did you succeed? Please vote in this week? https://t.co/fdzmmFfA4u

  • Follow Martin