When you move to Spain, you can keep your Premium Bonds, but they will no longer be tax-free, and all of your winnings will be subject to taxation…. Residents of Spain, on the other hand, have access to tax-efficient investment instruments that can lower taxable income and hence income taxes.
Is it possible to purchase premium bonds while living abroad?
We’ve always been a UK savings company with HM Treasury backing, however we do have some international customers. There are a few things you should know if you’re thinking about relocating abroad or already live outside the UK to ensure that our accounts are still appropriate for you.
You need a UK bank or building society account
You’ll need a UK bank or building society account in your name to save with us. This is because we can only send and receive payments in pounds sterling to and from a UK account.
Is it possible to invest in UK funds while living abroad?
We normally advise against investing in the markets (whether it’s shares, ETFs, or bonds) in the short term, with a minimum of 5 years.
5 years is a short time in the investment world, and if you need those funds in less than 5 years, investing in the markets is probably not the best option for you. You want to spend over a long period of time so that you know exactly what you’re getting.
You are true that you must be a UK resident to apply for an ISA. There are no residency limitations with a General Investment Account/unit trust (though this will be dependent on the platform you choose).
You would be taxed in the UK if you went onshore with a UK unit trust. This unit trust would pay either dividends or interest, both of which would be taxed in the United Kingdom. If you pay basic rate tax, you get a £2,000 dividend tax-free allowance, as well as a £1000 personal savings tax-free exemption.
Most robo advisers and DIY platforms will include risk questionnaires that you can fill out, and they will be able to recommend various portfolios/funds based on your answers.
However, over the next five years, I wouldn’t recommend investing in the markets; instead, consider putting your money in a fixed cash account with guaranteed interest.
If you do decide to invest, you must face the possibility that your capital will drop if you take a moderate amount of risk.
Anyone can purchase premium bonds.
Premium Bonds can be purchased by anyone who is 16 years old or older. On behalf of their kid or grandchild under the age of 16, parents, legal guardians, and (great) grandparents can invest.
No interest is paid on Premium Bonds. Instead, your Bonds will be entered into a monthly prize draw to win tax-free gifts.
Premium Bonds – the prize draw
Every month, almost two million awards are distributed to lucky Bond holders whose numbers are determined at random.
For every £1 you invest, you will receive a unique Bond number. Every month, each number has a separate and equal chance of winning a prize.
On the National Savings and Investment (NS&I) website, you may learn more, apply online, and check if you’ve won if you have Premium Bonds.
Is it possible for me to purchase premium bonds for my grandchildren who live abroad?
It is feasible to buy premium bonds for grandchildren in other countries, but you should check to see if it is permissible to do so in their home country, as some nations have strong gaming and lottery rules. Although there are no guaranteed returns with premium bonds, they are tax-free in the United Kingdom and you could win rewards.
How can I invest while residing in another country?
Lauren Miller is a company owner from the United States who writes on personal finance, career development, and retirement planning.
Living abroad is sure to be one of the most memorable and exciting experiences of your life but don’t expect the same level of excitement if you’re considering investing while living abroad. In fact, since the implementation of the Foreign Account Tax Compliance Act (FATCA) in 2010, it has been more difficult for Americans residing overseas to invest in the United States or elsewhere.
Fortunately, it’s not impossible; all you have to do is educate yourself before diving in.
Consider Repatriation
Before deciding on an investment strategy, think about your long-term living objectives. Your investing approach will be very different if you plan to live and work in a foreign nation for a few years before returning to the United States, than if you plan to retire overseas.
The most important factor to consider is how to handle currency risk. Currency risk refers to the possibility of losing money on an investment due to fluctuations in the exchange rate. The wisest course of action is to invest largely in the currency you want to spend the cash against. If you expect to retire in Europe, invest in Euro-based stocks, bonds, and mutual funds. If you expect to retire in the United States, invest in dollar-denominated equities, bonds, and mutual funds.
Seek an Expat-Friendly Broker
One of the goals of the 2010 Foreign Account Tax Compliance Act was for the IRS to be more aggressive in enforcing US regulations on foreign investment taxation and reporting. As a result, a growing number of foreign institutions are refusing to allow Americans to create abroad investment accounts, and many U.S. brokerages are refusing to engage with expats as well.
But everything is not lost. Simply do your research and look for a U.S.-based broker who is familiar with expat investments and has experience working with Americans living abroad. Even if you want to retire in a different country and wish to make the majority of your investments in a different currency, putting them in the hands of an American investment business makes it easier to comply with complicated tax rules.
Research Taxes
Tax penalties are one of the key reasons you should continue to use an American-based investment firm to make your investments. FATCA, which is based on the Passive Foreign Investment Corporation (PFIC) guidelines, necessitates substantial recordkeeping and reporting when your interests are held offshore. All mutual funds, hedge funds, cash management products, and foreign pension plans domiciled in foreign countries are subject to these restrictions. PFIC investments are taxed at a substantially higher rate up to 35 percent than non-PFIC investments. This is a much more difficult pill to chew than the long-term capital gains tax rate.
The key is to comprehend what “housed” entails. You can invest in European equities and bonds either through a U.S. brokerage or through a European brokerage. The investments themselves may be equal, but those held in the United States through a U.S. brokerage would be taxed at a lower rate, whilst those held outside the United States would be taxed at a higher rate, depending on the total quantity of all your international investments.
Construct a Globally-Diversified Portfolio
Given the international economy, everyone, especially expats, should establish a globally diversified portfolio of investments. If you’re not sure where you want to put your money, engage with a broker to build a portfolio that includes different currencies. When it comes time to cash in your investments, this lowers your overall risk.
Invest in Property
Consider a property investment if you have the financial resources and the desire. If you intend to live in a foreign country forever, you can invest in international property without incurring the same tax penalties as investing in foreign equities. When it comes time to sell, the returns might be large depending on where you live. Just be wary of the regulations and conventions that govern property transactions in other countries. Enlist the help of a respected real estate agent preferably an American who lives in the foreign country and a lawyer.
If you expect to return to the United States in a few years, you might want to consider buying a property in the United States to rent out while you’re away. Real estate is a terrific long-term investment option as long as you have a dependable property manager who can handle the rental while you’re away.
Final Thoughts
If you’re planning to relocate to another country and already have a well-constructed investment portfolio, don’t assume you’ll be able to keep it intact while living as an expat. Check with your broker to see whether they are expat-friendly and aware with the laws and regulations that apply to Americans living abroad. The last thing you want is to get a call or an email telling you that your account is being closed because you neglected to notify the brokerage of your new address.
Do Premium Bonds have to be declared as savings?
Premium Bond earnings, like cash ISA earnings, are always tax-free and do not go against the personal savings allowance, so it’s almost like having an extra allowance.
What happens to my investments in the United Kingdom if I relocate?
If you open an Individual Savings Account (ISA) in the UK and then relocate abroad, you won’t be able to deposit funds into it until the following tax year (unless you’re a Crown employee working abroad or their spouse or civil partner). As soon as you cease to be a UK resident, you must notify your ISA provider.
What happens to my investments if I go to another country?
Brokerage account limits for expats in the United States differ by brokerage business. Some firms will allow you to keep your existing brokerage account if you relocate overseas, but they will not allow you to open a new one due to your residency in another country. When a firm discovers a client has an international address, it may request that they close all of their existing U.S. financial accounts. Expat account limits in the United States may differ for taxable and retirement funds (IRA, Roth IRA, and 401k). Each online expat broker is unique!
What happens to my pension if I relocate to another country?
You have two alternatives if you relocate overseas before receiving any pension income:
- Stop paying into your pension and withdraw your funds at a later period – at the earliest, at the age of 55.
- Continue to contribute to your pension. However, keep in mind that the amount of tax reduction available for your donations may be limited.
If you don’t get regular updates on your pension automatically, it’s crucial to ask for them.
When it comes to taking money from your pension, you have many of the same options as you would if you lived in the United Kingdom.
Is there anyone who has ever won a million dollars playing Premium Bonds?
Two Premium Bonds holders from South Gloucestershire and Surrey have won the £1 million jackpot in the October 2021 prize draw, bringing them a great summer windfall.
A woman from South Gloucestershire, who owns £49,994 in Premium Bonds, purchased the first winning bond, 433SN401366, in January 2021.