Deciding to pack up your possessions, herd your family into a car and heading off towards the horizon in search of a new place to live and settle down is simultaneously one of the most exciting and terrifying decisions a person can make.
Becoming an expatriate is a door into a realm of new opportunities, but it is not something that can be undertaken lightly. Becoming a legal resident in another country usually requires wading through a mountain of paperwork and bureaucratic systems that can sometimes resemble Kafka at his most surreal.
One of the most important components of making the leap into the life of expatriate is making sure you have the right insurance and that your finances are in order. You are about to step into a whole new tax system so you want to try and ensure that your house is in order and you are not going to encounter any nasty surprises further down the line.
Getting your financial fundamentals sorted is an important step in being able to enjoy your new life in a faraway land, full of wonders and adventures.
So what do you need to know about expat finances?
The first thing you are going to need to get your head around is your new legal status within the country you are expatriating to. There are two aspects to this, the first is your new status as a resident and your second is how this affects your status as a British Citizen. The first aspect will depend on the country that you are going to, with some countries granting visas for a limited amount of time or foreign resident status after a period of employment. Becoming a resident in a new country fundamentally alters your relation to the UK tax system.
Tax regimes in different world vary widely, but most will levy some kind of tax upon an individual’s income. Your new status as a resident of your new country will mean that you now need to pay taxes to the government of that state, but depending on individual circumstances, you may still have some liability to the UK tax system.
As an expatriated individual, you may still be liable to pay UK taxes if:
- Spend 183 days or more in the UK in a set tax year
- Have property in the UK
- Work in the UK
- Paying capital gains tax
In general though, the UK should not be able to tax you on earnings you have made in your new host country. You may want to keep your savings (or part of them) in a UK bank account so that you can earn better interest. One of your first pit stops with regards to researching your new tax arrangements should be HMRC, but afterwards you are going to need to look specifically at the country you are moving to, whether it is America, Dubai or Thailand.
Another important factor to think carefully about is the fact that eligibility to a UK state pension is linked to regular National Insurance contributions. Being an expat can mean that a person ends up with a significant gaps in their national insurance record, meaning it can be difficult to start receiving a state pension when they retire. To overcome this, you may want to make voluntary contributions to the national insurance pot.
Before you move to your new home, if you already have life, critical illness or income protection policies that cover you in the UK, it is vitally important to see if they will continue to provide you when you move overseas. Insurance is an important component of the expatriate financial package because it provides you with a level of protection against some of the harmful contingencies that life can throw at you. Falling and breaking your leg can be a hugely expensive ordeal in a country with no public health system.
Expat insurance is important as a person who has recently moved to a new country may not yet be eligible to begin purchasing policies from domestic providers.
So what kinds of insurance should you be thinking about? There are many different policies and expatriates insurance types that could be important for you and your situation, but you may have to settle on a number of different providers to get the cover that suits you.
Health insurance for expats policies cover the cost of medical treatments that you need to receive while you are abroad, where the ability to afford treatments may be the only guarantee to you receiving them.
Life insurance policies provide family members and other dependents with a steady income or one-off cash payment if you should die unexpectedly while abroad. It is important to note that different policies have varying inclusion sand exemptions from the list of causes of death that will qualify your family to make a claim.
Home and contents Insurance
These two types of policies differ in what they provide cover for. Home insurance (often called buildings cover) protects you against having to shoulder the potentially huge costs of damage occurring to your roof or walls due to things like storms, arson or subsidence. Contents cover on the other hand is focused on the actual possessions within the building. Although distinct, these two forms of insurance are usually combined within home insurance policies.
As an expat, your car is likely to be an incredibly important tool to you, so any damage that puts in out of action can spell financial disaster. Motor insurance policies will shield you from the largest part of the cost of repairing your vehicle.
If you take the time to plan out exactly what your requirements are going to be in your new home and how they fit into your new context with regards to taxes and insurance, becoming an expat shouldn’t be quite such a bewildering and stressful experience.
Are there any other important financial considerations that expats need to consider before they leave to start a new life in the far flung corners of the world?
Photo Credit: Flickr/Tax Credits