One financial benefit of an expat posting can be lower tax rates than you might pay in your home country. If this is the case for you, it’s important to know how you can make the most of your stay, reap maximum benefits and return home with as little administrative hassle as possible. Here, Andrew Talbot of Expat Financial Planning, provides a case study of a typical expat scenario, and discusses how the company offered assistance and financial tips.
Who they are:
A couple in their mid-30s with two preschool-going children.
The couple was posted abroad for a couple of years. One of the spouses was working, while the other was looking to find a job while on the post, as there would be full-time help available at home. They have a property in the UK that they rent out, and this was paying the mortgage that existed on it. They had to get permission from the lender to do this and were paying an extra fee each year.
What they required:
They wanted to know about saving while they were in living in a country with a low tax regime so that they could supercharge their finances and make their eventual return to their home country as painless as possible. Another goal during their expat tenure was to have their mortgage paid off and to possibly add another property to their portfolio that they could rent for an income.
How Expat Financial Planning helped:
- After running cash-flow modelling using specialist financial planning software, we looked at what the couple could save every month without impacting their spending.
- We added in future school and university fees, and the couple’s desire to pay off the mortgage on their house, along with the “what if” option of buying another rental property. The modelling also showed what their current retirement income would look like today.
- We helped the couple open an additional bank account for savings apart from their current or spending account. This segregated cash for any potential emergencies.
- We calculated the “human capital” of the working spouse and then estimated the amount of insurance to cover the family should there be an early death or if one of them were to suffer from a critical illness. This was put into a trust to keep to it out of their estate, so it wouldn’t be susceptible to UK inheritance tax.
- The cash-flow modelling projected that by paying an extra £225 every month off their mortgage, the couple could save two and half years’ worth of interest, and their mortgage would be paid out early.
- The couple’s disposable money (after making sure there was three months’ worth of expenses in the joint bank account) was sent into a Singapore-based investment platform and entirely invested into low-cost index equity funds. The platform had no penalty or lock-in period, which is important on account of the uncertainty arising from the couple’s expat status. When and if there were a need for them to return to their home country, they could start the repatriation plan by using the accumulated assets to fund local pension- and tax-wrappers.
- We also helped the couple make voluntary contributions to ensure they were on track to receive their full state pension when they retire.
- We re-run the cash-flow modelling every year, making adjustments to the couple’s circumstances such as increases in income and expenditure. The actual return of the assets (portfolio and property) in the local currency and the currency they think in and will eventually spend their retirement income in are adjusted as well. Assumptions such as inflation and future returns are also forecasted. The “what if” strategies are then based on these facts and changed if need to be.
The couple is made aware of what their future finances look like, they understand how a market crash might impact them, and they’ve made provisions for future expenses. They can now enjoy expat life without too much worry.
Written in collaboration with Expat Financial Planning
For advice on savings, investments and other financial matters, call Andrew at 9824 1470.
Expat Financial Planning is part of Avrio Wealth Pte Ltd.
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