Uk Expat Investing For Retirement

[fanciman]

I would be very grateful to hear your suggestions on what to do for the following circumstances:

UK citizen

working outside of UK, earning tax-free salary

Goal: save up lump sum then live off it in retirement in Thailand

Time frame 10 years for savings

What should be done?

The best thing to do that I can see at the moment is to send back enough cash each year to the UK to fully use up the ISA allowance.

With the remaining funds, invest in ETFs, perhaps using ishares.

No idea which brokerage or other system to use to buy ETFs. Maybe the Motley Fool service.

I don't know if there is some additional way to provide some tax benefits for the surplus beyond the ISA.

I also don't know if there is a way to reduce tax once work has stopped and the lump sum starts being used to provide a regular income.

(Maybe all the investments should be converted into something else, once an income is required.)

Please let me know your ideas and suggestions!

Edited November 25, 2012 by fanciman

[AyG]

Without wanting to appear patronising, I think you need to do a bit of background reading first. I'd strongly recommend the Expatriate Tax and Investing Handbook published by Pearson Education Limited. It covers the details of tax planning comprehensively and investment strategy at a fairly basic level.

Commenting specifically on what you've written:

(1) If you're not planning on returning to the UK to live, there is no point sending money to the UK just to use up the ISA allowance. Invest offshore.

(2) Rather than thinking about investment products (ETFs) and the ETF provider (iShares), you should be thinking about in which asset classes you should be investing (e.g. shares, hedge funds, corporate bonds, emerging market bonds, corporate property, &c.) and only then decide which is the best way to invest in these asset classes. Sometimes using ETFs will be both possible and appropriate, but you may do better using investment trusts, OEICS, index tracking funds, &c.

(3) Go for an offshore broker, not a UK one to keep tax matters simple.

(4) You make no reference to inheritance tax planning. If you want to avoid giving 40% of your wealth to the UK taxman when you die you should be looking into QROPS and QNUPS.

(5) You don't mention your age. That has a big impact upon how long the investments will need to last. To be cautious you should take no more than 4% of your investments each year. That means, for example, that if you want an income of GBP 20K/year you'll need investments of GBP 500K. That's quite a lot of money for most people to save in ten years.

[fanciman]

Thanks for the great ideas, AyG!

Start saving at 50 - finish at 60, or even 65.

I couldn't find the Expatriate Tax and Investing Handbook published by Pearson Education Limited at their website or on Amazon. Do you have a link or isbn?

Historically, shares seem to provide the best rate of return, if you can stomach the risk, but which sector will be best is debatable. I think the USA will be strong going into the future, and small companies have outperformed mid and large cap companies.

Thanks very much for the info about inheritance. Can the UK government really take 40% if you earned it abroad tax free, saved it off-shore and lived outside of the country?

Do you know a good forum/internet site for getting info on expat finance matters?

Is it a good idea to set up an off-shore bank account in this situation?

[meatboy]

as whats been said already you need to plan well ahead,retirering in thailand is not cheap,do you plan to have a partner?this could cost you big time if she or he is thai,do you plan to buy a house,car,bike and a buffalo,also where do you want to live,i suggest you take a week or two and read the forums first,there is a tax saving guide that you can get free from www.which.co.uk 15yrs is a long way off but you can dream,dream dream.now who sang that?

[AyG]

The book is at http://www.amazon.co.uk/Zurich-Expatriate-Tax-Investment-Handbook/dp/0273662171

Yes, shares have historically provided better returns than other usual asset classes. However, over the last 10 years in developed markets they've basically gone nowhere. That would be pretty bad news for you if you only invested in shares. It's pretty much impossible to predict which asset class or market will do best, even over the next 12 months, so you need to have a mixture of asset classes (developed market shares, emerging market shares, bonds, commercial property, alternative investments, etc.). Some classes will do better than others, but at least you won't be putting all your money on one horse. Incidentally, I don't agree with your view about the USA going strong in the future - the conditions are right for there to be an irreversible decline in the USA's fortunes, just as there were for the Roman Empire.

As for 40% inheritance tax, this only applies to the value of your estate about GBP 235,000. And yes, it does apply even if the money was earned and kept outside the country. In some circumstances HMRC will agree that a person has severed all links with the UK and consider them "non-domiciled" in the UK. However, the tax man is extremely reluctant to consider someone non-domiciled, so it's not something you can count on. (And to make life difficult, the taxman neither tells you what the rules are to be considered non-domiciled, nor usually will tell you during your lifetime whether you are non-domiciled.)

I don't know of a good website on such issues.

An offshore bank account is, I would have thought, a must for any expat. However, I don't think it helps much with offshore brokers. My broker (Internaxx) will only accept money from my UK bank account, and will only pay it back into a UK account - it won't deal with my Isle of Man or Guernsey accounts.

[PattayaPhom]

Pru shares pay a good dividend twice yearly currently £8,84 only 5 months ago £6,70 u may have missed the boat already but keep an eye on them

Edited November 25, 2012 by PattayaPhom

[BlackPuddingBertha]

(1) If you're not planning on returning to the UK to live, there is no point sending money to the UK just to use up the ISA allowance. Invest offshore.

......

(3) Go for an offshore broker, not a UK one to keep tax matters simple.

If you aren't UK resident for tax purposes then you can't increase your holdings in an ISA anyway, though you can retain any that you opened before leaving the UK. Besides which, as a non-resident why invest in an ISA when you can get higher rates for cash outside an ISA, and get no tax advantages for a shares ISA as non-residents are already not liable to capital gains tax?

Cant see any point at all in having an offshore broker as there are no tax matters for a non-resident. You dont have to pay UK CGT and you dont have any extra tax to pay on dividends.

I personally have been winding down my offshore holdings since I left Europe because as a Thai resident I can save onshore in the UK and pay no withholding tax on interest and still benefit from the full GBP85K onshore deposit protection. Cash held offshore will get lower interest rates than onshore, and will have only the local GBP50K deposit cover of the offshore jurisdiction which I personally believe to be largely worthless.

The main question the OP needs to sort out first is where he will be resident for tax purposes as this will decide the best options for his needs. And as far as UK residence goes the main factors are whether he goes there often, has family there or has property available to him there.

Domicile and IHT is a very different matter, as mentioned.

[BlackPuddingBertha]

My broker (Internaxx) will only accept money from my UK bank account, and will only pay it back into a UK account - it won't deal with my Isle of Man or Guernsey accounts.

This seems unusual. Offshore accounts with UK banks generally have UK sort codes and are generally part of the BACS system, with some notable exceptions. I use my offshore accounts almost exactly as I use my onshore accounts for both sending and receiving money. Possibly that broker has trouble setting up direct debit/direct credit instructions with your particular bank.

[AyG]

My broker (Internaxx) will only accept money from my UK bank account, and will only pay it back into a UK account - it won't deal with my Isle of Man or Guernsey accounts.

This seems unusual. Offshore accounts with UK banks generally have UK sort codes and are generally part of the BACS system, with some notable exceptions. I use my offshore accounts almost exactly as I use my onshore accounts for both sending and receiving money. Possibly that broker has trouble setting up direct debit/direct credit instructions with your particular bank.

Not the particular bank. They will only deal with banks in the European Community, which Guernsey, Jersey and others of that ilk aren't. (I understand it's a money laundering issue.)

Edited November 25, 2012 by AyG

[AyG]

Cant see any point at all in having an offshore broker as there are no tax matters for a non-resident. You dont have to pay UK CGT and you dont have any extra tax to pay on dividends.

For a non-resident, any income arising in the UK is potentially subject to UK income tax. Once one goes over the tax threshold tax has to be paid.

Furthermore, even if one is not UK domiciled all of your estate within the UK is subject to UK inheritance tax. It's therefore better to have no more than GBP 235,000 in any brokerage account in the UK.

[bushwacker]

I am not British so have nothing to offer in that regard i.e. tax regime. BUT ....

You have identified a time horizon of 10 years to build a nest egg to retire. That is a very short period of time. When you talk about small, medium and large companies, this would not apply to you because your time frame is too short. For example if you were inticed with the higher returns say in small companies and bought stock just before the financial crisis then you would now be looking at the option of working until you die .... hihihihi Also the bankruptcy rate for small and medium companies is significantly greater than large companies. i.e. large has proven themselves to some degree and have a history where as small and medium are fighting their way to survival.

Similarly if you invested in the big US banks just before the crisis ..... then double hihihihi

At the moment, I would not touch a bond from a Euro country as they may all be getting unwanted haircuts soon.

So what is the answer. Unforturnately there are no answers or maybe many. Personally, I have learned to invest in boring large, blue chip companies that sell something that people need regardless of what the economy looks like (for example, people will use electricity regardless) and they also have a history of paying a dividend. If there is no share price growth then the dividend carries me. If there is price growth then I get a double wammy with both capital gains and dividends. But again your problem will be the short window (10 years). And consider, if you do buy stocks at this point and they to surprise to the upside, then what are you going to do once you retire. i.e. A growth strategy (building a nest egg) is very different from a conservative capital preservation strategy (not outliving your assets).

If you are sure that you want to retire to Thailand then the other option would be to get a retirement visa now and have your money deposited in a bank, like the Government Savings Bank at a current 3.3% annual interest. (Tax free with this bank). You would be giving up the possibility of a capital gain but also giving up capital losses which you might never recover from.

I agree with the comment about never spending more than 4% of your assets once you have established your nest egg. In fact there have been studies covering all the 10 year periods (slices) since the beginning of the stock market that shows that if you invest your nest egg, and then start withdrawing 4% annually or less then you will never run out of money. Cool.

[partington]

Cant see any point at all in having an offshore broker as there are no tax matters for a non-resident. You dont have to pay UK CGT and you dont have any extra tax to pay on dividends.

For a non-resident, any income arising in the UK is potentially subject to UK income tax. Once one goes over the tax threshold tax has to be paid.

Furthermore, even if one is not UK domiciled all of your estate within the UK is subject to UK inheritance tax. It's therefore better to have no more than GBP 235,000 in any brokerage account in the UK.

Capital gains income though is not taxed , even if it arises in the UK, if you have been non-resident for tax purposes for a certain period...it changed recently , but I think it is 5 years now. It is clearly stated and can be looked up on the HMRC site.

Rent and other earned income arising in the UK is taxable.

[JSixpack]

http://www.bogleheads.org/wiki/Lazy_Portfolios

http://assetbuilder.com/couch_potato/couch_potato_results.aspx

http://www.marketwatch.com/lazyportfolio

[AyG]

Cant see any point at all in having an offshore broker as there are no tax matters for a non-resident. You dont have to pay UK CGT and you dont have any extra tax to pay on dividends.

For a non-resident, any income arising in the UK is potentially subject to UK income tax. Once one goes over the tax threshold tax has to be paid.

Furthermore, even if one is not UK domiciled all of your estate within the UK is subject to UK inheritance tax. It's therefore better to have no more than GBP 235,000 in any brokerage account in the UK.

Capital gains income though is not taxed , even if it arises in the UK, if you have been non-resident for tax purposes for a certain period...it changed recently , but I think it is 5 years now. It is clearly stated and can be looked up on the HMRC site.

Rent and other earned income arising in the UK is taxable.

Capital gains is gains - not income, but you're right it's not taxed for non-residents. The rule is that if you return to the UK (i.e. become UK resident again) any capital gains in the previous 5 tax years are taxable, but if you stay out of the UK you don't pay any capital gains tax from day 1.

It's not just earned income that is taxable. Investment income is taxable too, including interest from bond investments and dividend income from equity investments.

[BlackPuddingBertha]

Cant see any point at all in having an offshore broker as there are no tax matters for a non-resident. You dont have to pay UK CGT and you dont have any extra tax to pay on dividends.

For a non-resident, any income arising in the UK is potentially subject to UK income tax. Once one goes over the tax threshold tax has to be paid.

Yes and no. There are some very generous exemptions.

Furthermore, even if one is not UK domiciled all of your estate within the UK is subject to UK inheritance tax. It's therefore better to have no more than GBP 235,000 in any brokerage account in the UK.

Yes, if IHT is a problem. For me it isnt a problem due to the way I have arranged my affairs.

[topt]

Cant see any point at all in having an offshore broker as there are no tax matters for a non-resident. You dont have to pay UK CGT and you dont have any extra tax to pay on dividends.

For a non-resident, any income arising in the UK is potentially subject to UK income tax. Once one goes over the tax threshold tax has to be paid.

Yes and no. There are some very generous exemptions.

Furthermore, even if one is not UK domiciled all of your estate within the UK is subject to UK inheritance tax. It's therefore better to have no more than GBP 235,000 in any brokerage account in the UK.

Yes, if IHT is a problem. For me it isnt a problem due to the way I have arranged my affairs.

AyG a small correction as I think you have transposed the numbers for the IHT threshold - it is actually £325,000 for the latest tax year.

http://www.hmrc.gov.uk/inheritancetax/intro/basics.htm

[AyG]

AyG a small correction as I think you have transposed the numbers for the IHT threshold - it is actually £325,000 for the latest tax year.

http://www.hmrc.gov....ntro/basics.htm

Mea culpa. Thank you.

[BlackPuddingBertha]

Investment income is taxable too, including interest from bond investments and dividend income from equity investments.

Again, yes and no. The tax liability for non-residents on dividends or bank interest is limited by concession to that which is withheld at source, and in many cases (FOTRA gilts, R105) it is possible to avoid any tax being withheld at source. The tax on dividends is notional and cannot be reclaimed, but nor do dividends generate any extra tax liability for non-residents. And as long as your taxed income doesn't exceed the personal allowance it is possible to reclaim all the tax paid at source on bank interest from HMRC. I do it every year.

Of course this only applies to bank interest, gilts and dividends, not to other types of income such as rent, pensions etc etc

[AyG]

The tax liability for non-residents on dividends or bank interest is limited by concession to that which is withheld at source, and in many cases (FOTRA gilts, R105) it is possible to avoid any tax being withheld at source. The tax on dividends is notional and cannot be reclaimed, but nor do dividends generate any extra tax liability for non-residents.

There is no "concession" to the best of my knowledge that limits tax to what is withheld at source. When you are a higher rate (40%+) income tax payer, whether you are resident or non-resident, makes no difference. There is additional tax to pay on dividends. And the tax on dividends is not notional - it's real. It's just that it's accompanied by a tax credit which offsets the need to pay any income tax if you're a lower rate tax payer.

Also, when your income is above the personal allowance there is also tax to pay on bank interest, whether or not you've filled in an R105 or not.

You express your opinions with such certainty. Perhaps you'd like to provide some official source to substantiate them? A link to the HMRC website which explains the "concession" which you claim to exist would be a good start.

[BlackPuddingBertha]

You express your opinions with such certainty. Perhaps you'd like to provide some official source to substantiate them? A link to the HMRC website which explains the "concession" which you claim to exist would be a good start.

Here you go: http://www.hmrc.gov.uk/international/tax-incomegains.htm#3

"Savings and investment income (except rental income)

Savings and investment income includes:

• interest from bank and building society accounts
  
• dividends on shares
  
• interest on stocks
  

If you're not resident in the UK, you might still be liable to pay UK tax on any savings or investment income from UK sources. But the amount of tax you pay is limited to the amount deducted 'at source' before you receive the income - you don't need to complete a tax return to tell HM Revenue & Customs (HMRC) about this."

The rest of what you said is just wrong, sorry.

[wordchild]

in the case of dividends from UK (public) companies you should declare them on a UK tax return but, as BPB says, there should be no further tax to pay beyond the notional tax credit. In effect (as a non resident) you have a choice, you can make use of your personal allowance , if it suits, in which case all your UK sourced income forms part of the tax calculation. Or, you can choose not to make use of it, in which case , for investment income say from UK dividends or corporate bonds (but excluding UK pensions and income from UK property) the tax liability is limited to what has already been deducted at source. There is no limit on this so you can have very significant dividend income from the UK without paying any additional tax.

In practice it makes no difference whether your (UK) stocks are held via an onshore or an offshore broker/custodian. Like many on this forum i assumed, when i first left the UK, that i needed to move everything offshore and i opened bank and brokerage accounts in Singapore. Whilst i have retained my bank accounts i have reverted to using my original UK brokers (convenience and better service) as it makes zero difference from a tax point of view. If you are resident in Thailand the UK is in most respects "offshore". Obviously one needs to be mindful of Thai tax rules when bringing investment income from the UK (or anywhere else) into Thailand.

Edited November 27, 2012 by wordchild

[BlackPuddingBertha]

in the case of dividends from UK (public) companies you should declare them on a UK tax return ......

Actually if you are non-resident and have no other taxable income (pension, rental income, annuities, salary etc) then you dont need to file a tax return for dividends or bank interest. The extract I quoted above confirms this.

Of course the situation for anyone with a UK pension or other taxable income is very different, and I expect to review my circumstances if ever I reach 67 and if ever they are still paying pensions by then.

[AyG]

You express your opinions with such certainty. Perhaps you'd like to provide some official source to substantiate them? A link to the HMRC website which explains the "concession" which you claim to exist would be a good start.

Here you go: http://www.hmrc.gov....comegains.htm#3

"Savings and investment income (except rental income)

Savings and investment income includes:

• interest from bank and building society accounts
  
• dividends on shares
  
• interest on stocks
  

If you're not resident in the UK, you might still be liable to pay UK tax on any savings or investment income from UK sources. But the amount of tax you pay is limited to the amount deducted 'at source' before you receive the income - you don't need to complete a tax return to tell HM Revenue & Customs (HMRC) about this."

The rest of what you said is just wrong, sorry.

I stand corrected. Thank you.

[topt]

in the case of dividends from UK (public) companies you should declare them on a UK tax return ......

Actually if you are non-resident and have no other taxable income (pension, rental income, annuities, salary etc) then you dont need to file a tax return for dividends or bank interest. The extract I quoted above confirms this.

Of course the situation for anyone with a UK pension or other taxable income is very different, and I expect to review my circumstances if ever I reach 67 and if ever they are still paying pensions by then.

One extra wrinkle here is that even if you do have rental income but you have agreed with HMRC that it can be paid to you directly without any withholding amounts, as the total falls below your allowances, you may still not need to file a return. I have been receiving rental income and claimed for overpaid tax but have not had to file an actual tax return for a few years now.

[fletchsmile]

in the case of dividends from UK (public) companies you should declare them on a UK tax return but, as BPB says, there should be no further tax to pay beyond the notional tax credit. In effect (as a non resident) you have a choice, you can make use of your personal allowance , if it suits, in which case all your UK sourced income forms part of the tax calculation. Or, you can choose not to make use of it, in which case , for investment income say from UK dividends or corporate bonds (but excluding UK pensions and income from UK property) the tax liability is limited to what has already been deducted at source. There is no limit on this so you can have very significant dividend income from the UK without paying any additional tax.

In practice it makes no difference whether your (UK) stocks are held via an onshore or an offshore broker/custodian. Like many on this forum i assumed, when i first left the UK, that i needed to move everything offshore and i opened bank and brokerage accounts in Singapore. Whilst i have retained my bank accounts i have reverted to using my original UK brokers (convenience and better service) as it makes zero difference from a tax point of view. If you are resident in Thailand the UK is in most respects "offshore". Obviously one needs to be mindful of Thai tax rules when bringing investment income from the UK (or anywhere else) into Thailand.

Might be worth adding that for existing ISAs in mutual funds, some onshore provider such as Hargreaves Lansdown will reclaim the tax on dividends for you. So if you hold a fund outside an ISA, your income tax on the div may be limited to what has been deducted, but if you hold the same fund within an ISA they get the tax credit back for you as ISAs are income tax and capital gains free

Edited November 27, 2012 by fletchsmile

[topt]

in the case of dividends from UK (public) companies you should declare them on a UK tax return but, as BPB says, there should be no further tax to pay beyond the notional tax credit. In effect (as a non resident) you have a choice, you can make use of your personal allowance , if it suits, in which case all your UK sourced income forms part of the tax calculation. Or, you can choose not to make use of it, in which case , for investment income say from UK dividends or corporate bonds (but excluding UK pensions and income from UK property) the tax liability is limited to what has already been deducted at source. There is no limit on this so you can have very significant dividend income from the UK without paying any additional tax.

In practice it makes no difference whether your (UK) stocks are held via an onshore or an offshore broker/custodian. Like many on this forum i assumed, when i first left the UK, that i needed to move everything offshore and i opened bank and brokerage accounts in Singapore. Whilst i have retained my bank accounts i have reverted to using my original UK brokers (convenience and better service) as it makes zero difference from a tax point of view. If you are resident in Thailand the UK is in most respects "offshore". Obviously one needs to be mindful of Thai tax rules when bringing investment income from the UK (or anywhere else) into Thailand.

Might be worth adding that for existing ISAs in mutual funds, some onshore provider such as Hargreaves Lansdown will reclaim the tax on dividends for you. So if you hold a fund outside an ISA, your income tax on the div may be limited to what has been deducted, but if you hold the same fund within an ISA they get the tax credit back for you as ISAs are income tax and capital gains free

Fletchsmile when you say mutual funds do you mean Unit trusts, Investment trusts and the like? Also can you explain how they do that as since 2004 you are not able to claim back the 10% tax "credit" shown on any company dividends - or are we talking about different things?

[fletchsmile]

in the case of dividends from UK (public) companies you should declare them on a UK tax return but, as BPB says, there should be no further tax to pay beyond the notional tax credit. In effect (as a non resident) you have a choice, you can make use of your personal allowance , if it suits, in which case all your UK sourced income forms part of the tax calculation. Or, you can choose not to make use of it, in which case , for investment income say from UK dividends or corporate bonds (but excluding UK pensions and income from UK property) the tax liability is limited to what has already been deducted at source. There is no limit on this so you can have very significant dividend income from the UK without paying any additional tax.

In practice it makes no difference whether your (UK) stocks are held via an onshore or an offshore broker/custodian. Like many on this forum i assumed, when i first left the UK, that i needed to move everything offshore and i opened bank and brokerage accounts in Singapore. Whilst i have retained my bank accounts i have reverted to using my original UK brokers (convenience and better service) as it makes zero difference from a tax point of view. If you are resident in Thailand the UK is in most respects "offshore". Obviously one needs to be mindful of Thai tax rules when bringing investment income from the UK (or anywhere else) into Thailand.

Might be worth adding that for existing ISAs in mutual funds, some onshore provider such as Hargreaves Lansdown will reclaim the tax on dividends for you. So if you hold a fund outside an ISA, your income tax on the div may be limited to what has been deducted, but if you hold the same fund within an ISA they get the tax credit back for you as ISAs are income tax and capital gains free

Fletchsmile when you say mutual funds do you mean Unit trusts, Investment trusts and the like? Also can you explain how they do that as since 2004 you are not able to claim back the 10% tax "credit" shown on any company dividends - or are we talking about different things?

Topt,

I was probably a bit lax with the terminology, and have got used to interchanging terms in this part of the world. Plus life's always a bit more convoluted, and I just over simplified. To clarify:

Yes I was referring to UK unit trusts (US people and others often call mutual funds)

Yes you're right, when ISAs replaced PEPs the original 20% tax credit was cut to 10%, and since 2004 the 10% tax credit on dividends from shares and equity unit trusts in an ISA can't be reclaimed, and the concession scrapped.

But: For corporate bonds and unit trusts holding corporate bonds the 20% tax credit on the distributions can be reclaimed for an ISA holder. Strictly speaking these would be better described as "interest income" or "distributions"

Plus the water gets muddied a bit for mixed funds (combination of equity and bonds): the underlying investments in the fund will earn dividend and interest. So the distributions to unit holders come from a mixture of both equity dividends and corporate bond interest. Example: Invesco Perpetual Monthly Distribution Fund

http://www.hl.co.uk/...ribution-income

In this fund 70% is bonds and the remainder is shares. The tax credit reclaimed for this fund is still 20% - even though part of the income is coming originally from dividends and part from interest on bonds.

The main point I was just trying to make is that under some circumstances the tax credit can still be recaimed from unit trusts. Hargreaves Lansdown do this automatically for you as part of their ISA, and make the admin simple, without worrying about the technicalities like above.

.

Edited November 27, 2012 by fletchsmile

[topt]

in the case of dividends from UK (public) companies you should declare them on a UK tax return but, as BPB says, there should be no further tax to pay beyond the notional tax credit. In effect (as a non resident) you have a choice, you can make use of your personal allowance , if it suits, in which case all your UK sourced income forms part of the tax calculation. Or, you can choose not to make use of it, in which case , for investment income say from UK dividends or corporate bonds (but excluding UK pensions and income from UK property) the tax liability is limited to what has already been deducted at source. There is no limit on this so you can have very significant dividend income from the UK without paying any additional tax.

In practice it makes no difference whether your (UK) stocks are held via an onshore or an offshore broker/custodian. Like many on this forum i assumed, when i first left the UK, that i needed to move everything offshore and i opened bank and brokerage accounts in Singapore. Whilst i have retained my bank accounts i have reverted to using my original UK brokers (convenience and better service) as it makes zero difference from a tax point of view. If you are resident in Thailand the UK is in most respects "offshore". Obviously one needs to be mindful of Thai tax rules when bringing investment income from the UK (or anywhere else) into Thailand.

Might be worth adding that for existing ISAs in mutual funds, some onshore provider such as Hargreaves Lansdown will reclaim the tax on dividends for you. So if you hold a fund outside an ISA, your income tax on the div may be limited to what has been deducted, but if you hold the same fund within an ISA they get the tax credit back for you as ISAs are income tax and capital gains free

Fletchsmile when you say mutual funds do you mean Unit trusts, Investment trusts and the like? Also can you explain how they do that as since 2004 you are not able to claim back the 10% tax "credit" shown on any company dividends - or are we talking about different things?

Topt,

I was probably a bit lax with the terminology, and have got used to interchanging terms in this part of the world. Plus life's always a bit more convoluted, and I was just simplified. To clarify:

Yes I was referring to UK unit trusts (US people and others often call mutual funds)

Yes you're right when ISAs replaced PEPs the original 20% tax credit was cut to 10%, and since 2004 the 10% tax credit on dividends from shares and equity unit trusts in an ISA can't be reclaimed, and the concession scrapped.

But: For corporate bonds and unit trusts holding corporate bonds the 20% tax credit on the distributions can be reclaimed for an ISA holder. Strictly speaking these would be better described as "income" or "distributions"

Plus the water gets muddied a bit for mixed funds (combination of equity and bonds): the underlying investments in the fund will earn dividend and interest. So the distributions to unit holders come from a mixture of both equity dividends and corporate bond interest. Example: Invesco Perpetual Monthly Distribution Fund

http://www.hl.co.uk/...ribution-income

In this fund 70% is bonds and the remainder is shares. The tax credit reclaimed for this fund is still 20% - even though part of the income is coming originally from dividends and part from interest on bonds.

The main point I was just trying to make is that under some circumstances the tax credit can still be recaimed. Hargreaves Lansdown do this automatically for you as part of their ISA, and make the admin simple, without worrying about the technicalities like above.

.

Thanks for the clarification - I have had an HL account for a while now but never had any bond funds. This is useful to know.

Cheers.

[BlackPuddingBertha]

Might be worth adding that for existing ISAs in mutual funds, some onshore provider such as Hargreaves Lansdown will reclaim the tax on dividends for you. So if you hold a fund outside an ISA, your income tax on the div may be limited to what has been deducted, but if you hold the same fund within an ISA they get the tax credit back for you as ISAs are income tax and capital gains free

Yes, but the ISA is of fairly limited use to many non-residents as you have to open it when resident and cant add to it once you have become non-resident. Certainly of interest to anyone who happens to be in that position though.

[fletchsmile]

Might be worth adding that for existing ISAs in mutual funds, some onshore provider such as Hargreaves Lansdown will reclaim the tax on dividends for you. So if you hold a fund outside an ISA, your income tax on the div may be limited to what has been deducted, but if you hold the same fund within an ISA they get the tax credit back for you as ISAs are income tax and capital gains free

Yes, but the ISA is of fairly limited use to many non-residents as you have to open it when resident and cant add to it once you have become non-resident. Certainly of interest to anyone who happens to be in that position though.

True. I used to be a big fan of PEPs and later ISAs while UK resident.

When working in Thailand and tax resident, I was an even bigger fan of LTFs.