Quick question for fellow British expats: SIPP or GIA?

[thatbaicong]

Disclaimer: I’m not investment savvy at all so please bear with me.

Context: I’m from the U.K. but am moving abroad soon so will not be able to pay into an ISA. I’m looking to save a portion of my salary for my future (retirement, house purchase, etc). I have been advised to open both a SIPP and a GIA by different people, and invest in global trackers and ETFs.

But I’m still totally confused about how they work, especially SIPPs.

• Should I open both an SIPP and a GIA, or go for one over the other?

• Someone mentioned that I can only pay into the SIPP a certain amount each year and for only 5 years. Can someone explain this to me?

• If I were to pay into an SIPP, what happens after the 5 years? Do I leave it untouched and only continue investing into my GIA (but if I can’t touch it until I’m 55 wouldn’t that accrue huge fees over the years?) or should I need to keep paying into it to justify the brokerage fees?

I’d appreciate any and all info I can get on this. Thanks.

 

[adam_88]

@thatbaicong Before you leave open an ISA and max out your allowance if you can. I would be cautious about contributing to an ISA after you have moved although technically you will not be tax non-resident for quite sometime after that.

Strictly speaking, UK non-residents are not allowed to make contributions to a SIPP. However, if you were classed as a UK tax resident within the previous five years you should still be able to make contributions of up to £3,000 each year.

https://www.expertsforexpats.com/answers/pensions/can-i-contribute-to-a-sipp-when-a-non-resident/

SIPPs, ISAs, GIAs, Offshore Bonds etc are all vehicles through which you can access products available to you, the consumer, on the market. The U.K. treats each differently for tax purposes.

If you are U.K. tax non-resident and you have a GIA with Hargreaves Lansdown or similar, and you invest through them, provided you sell the investment before returning to the U.K., you will not be liable for CGT on the investment. Strictly speaking you should not have or open a HL account if you are out with the EEA - and each broker has it’s own rules - but I know many people who maintain a U.K. address and have never been challenged by HL.

Alternatively open an account with Saxo bank, Swissquote or similar who are favourable to expats / nomads.

You don’t mention where you’re going to. You should understand tax liability for invested monies there, too, as you will presumably be tax resident in your new country.

Lastly, do yourself a favour and check out this book:

https://www.amazon.co.uk/Millionaire-Expat-Wealth-Living-Overseas/dp/1119411890/ref=nodl_

Ignore the sensational title, this book preaches simple, boring, pragmatic investment advice for expats.

 

[thatbaicong]

@adam_88 I’ll be heading to Turkey.

If I open a SIPP before I leave and pay the maximum allowed £3000/year for 5 years, what happens after the 5 years is over?

Will I have to continue to pay annual fees on the account through until when I can access the money (55yo) despite not being able to add further funds to it? (Assuming I don’t return to the U.K.)

 

[adam_88]

@thatbaicong After five years you cannot contribute. You will likely continue to pay a “management fee” on an annual basis which will likely be a percentage of the total value held in the SIPP. But this will be the case for any invested monies through any broker so should not concern you too much unless these fees are particularly high.

As an expat you will be approached by “financial advisers” peddling opportunity to transfer your pension into an offshore bond or “QROPS.” You should ignore these people.

As an expat who will not be subject to U.K. tax I’m not sure why you’d opt for a SIPP over a standard investment account with a broker and invest fixed amounts each month?

 

[thatbaicong]

@adam_88 I just ordered the book you recommended - thanks.

“QROPS”. You should ignore these people.

What is wrong with a QROPS account?

The website link you shared (expertsforexpats.com) seem to be advertising QROPS. Are they the type of financial advisors you said to avoid?

As an expat who will not be subject to U.K. tax I’m not sure why you’d opt for a SIPP over a standard investment account with a broker and invest fixed amounts each month?

I think someone recommended I do both: pay the maximum I can into a SIPP for the 5 years to get the government top ups, and also invest into a GIA. I guess my fear was that if I don’t return to the U.K. for a long time my SIPP account fees would build up over the years and nullify any savings I had gained through it. What are your thoughts?

 

[adam_88]

@thatbaicong I'm glad you have ordered the book. I read that after a few years away from home and it helped me alot. I also found this book a great follow up to boost my knowledge of the basics.

RE SIPP - I suppose you'll get the tax relief on money invested into the SIPP for 5 years, so that seems reasonable. After the 5 years, you will stop contributing, and the money ring-fenced in the SIPP will continue to be exposed to the stock market through the investment product you have chosen i.e. shares / fund / ETF or whatever. The fees will drag on your growth but this will always be the case. You will never escape fees associated with invested money. You should aim to select a platform with minimal fees. I.e. if your annual management fee on your SIPP provider is 0.25% and your investment grows by 5% per year, net growth is 4.75% per year.

RE expat financial advisers - I receive cold calls from "financial advisers" often - Harrison Rowe, De Vere Group and various others. Their advisers are often young champagne charlies with an opening gambit of how they can "offer you a free review of your pension" and "increase performance due to COVID" and such things. Honestly I am not a financial wizard but I have read a few books and understand some basics and it doesn't take much questioning to realize you should not be trusting these people with your money. They are middle men and they often work on commission - which is illegal in the UK.

They will transfer your money to an investment group based in Cyprus, Jersey, Guernsey, Isle of Man or similar.

The classic pension transfer or lump sum investment almost tends to be a "fixed term savings plan." They will transfer your money to a portfolio and often claim your funds are guaranteed if you finish the payment plan. The biggest downfall of these plans tends to be:

• The fees and commissions are high. It's not uncommon to read of net 3-4% in fees for such products. This obviously eats away at your investment performance.
• In order to stop the plan, you will still be liable for payments and commissions for the duration of your agreed term - i.e. they will take future commissions and fees from your capital before returning. This is also illegal in the UK.
• All of these products operate out with the UK, you have no protection from the UK FCA or financial ombudsman.
• The average time to hold a fixed term investment plan is approx. 5-7 years - far short of the 10 and 20 year plans sold. This is because people realize they are a rip off and choose to end them prematurely, paying a hefty price in the process.

I wouldn't go as far as to say that there is never a situation where QROPs is beneficial, but it would very case specific and I suspect that would boil down to tax liability vs loss of investment growth due to high fees. To understand a bit more of the nuts and bolts for transfer, read this:

https://www.aesinternational.com/blog/should-i-transfer-my-uk-pension-to-a-qrops-or-a-sipp

This also contains some good information:

https://www.pensionsforexpats.co.uk/pension-planning/qrops-sipp-rules-tax-withdrawal-rules/

For more reviews on bad expat investor experiences, read this:

https://uk.trustpilot.com/review/www.devere-group.com?stars=1

There is no shortage of reviews / posts online. I managed to avoid such products but I have alot of friends who were taken in by them.

 

[thatbaicong]

@adam_88 I think I'll go ahead with the SIPP (so long as I can find one with low fees, like you said), and once that's maxed out start investing through my GIA. And of course read those books in the meantime.

Thanks for all your input - I really appreciate it.

 

[adam_88]

@thatbaicong Seems like a good idea. The next thing is where to invest your money, those books I recommended will help you alot with that.

All the QROPS and pension transfer horror stories might be more relevant to you if you end up over seas for an extended period of time. None the less be intolerant of cold callers.

Good luck and enjoy your time working abroad.

 

[whitesunshinee]

@thatbaicong Having a quick read through - if you open an ISA and then leave you won't be able to contribute and this is good if you plan to return, not so if you don't plan because then it sits there and you can't add to it.

The amount you can add to a SIPP is 40k per year, so double the ISA, however, you can't access it until you are 55 and this could be a problem if you want to have access to it!

The 5 year rule I believe is if you have been outside the UK for over 5 years you don't have to pay any tax. I believe this is only true if the investment is held outside the UK, if it is held in the UK then it will be subject to UK tax.

If you just want an investment account, you can open up a platform in a place like the Isle of Man which will be portable, has good regulations and backed by good custodians.

Similar to experts for expats there is a lot of blogs and articles on investments for expats website. He is a UK citizen and financial advisor.

 

[anordinaryguy]

@thatbaicong RemindMe! 1 day, "check replies"