Investment doctor: How can my ex-pat dad invest in the UK?
My father lives in Spain and has a £12,000 insurance payout following my mother’s death. He’s holding the money in a UK current account and plans to keep it there until the Sterling to Euro exchange rate improves. I’ve been told he can’t have a UK investment account as he’s not a resident – even though he still pays tax on his pension in the UK before it is sent to Spain.
Surely as a UK taxpayer and British citizen he can obtain a better return?
Unfortunately, he may be out of luck, says Ben Yearsley, investment director of Wealth Club. “The main reason is that opening an account with most, if not all, providers will require you to have a UK address.”
There is also a danger of waiting until Sterling recovers – especially given the political risks associated with both Sterling and the Euro.
“The currency may never get to the level he deems acceptable to transfer over,” he says. “My view is that the rate seen this time last year, when it was close to the €1.36>£1 level, was artificially low.”
However, the good news is that your father does have some options to consider, according to Justin Modray, founder of Candid Financial Advice.
One of the most viable is opening an offshore bank account in Sterling. “In this low interest rate climate the rates aren’t great, but they’re still better than a current account,” he says.
“Santander Isle of Man pays 0.75% on its easy access International Saver account and Standard Bank Jersey) pays 1.4% on its 196-day notice International Saver 196 account.”
He suggests Moneyfacts.co.uk as a good source of offshore banking best buys. “When considering these accounts, your father should check the protection offered by local compensation schemes, much like the Financial Services Compensation Scheme (FSCS) in the UK,” he adds.
If he wants to invest the money, then Mr Modray suggests he takes a five- to 10-year view, as volatility can be high over the shorter term. The most practical way to hold investments in Sterling, since UK-based options are a non-starter, is an international dealing account.
“TD Direct Investing offers a Luxembourg-based dealing account with multiple currencies including Sterling,” he says. “It offers access to shares and funds, so a wide choice of potential investments are available.
But it’s more expensive than UK investment platforms, with most funds costing between 1.5% and 2% a year and buying UK shares costs €14.95 plus 0.10% per trade.”
Another option is Keytrade Bank Luxembourg. “It also offers fund and share investing, but again costs are a lot higher than the UK,” he says. “Unfortunately, this is a marketplace that smacks of little competition – hence the relatively high fund fees.”
Other investment medicine
An alternative might be for your father to give the money to you, so you can invest via a UK account in your name, suggests Ben Yearsley.
“You can then give the money back to your father in the future,” he adds. Obviously how you invest the money will depend on your overall attitude to risk as a family and whether your father needs the money for a specific reason. This will determine the type of assets you
Mr Yearsley suggests it is probably sensible to consider splitting the £12,000 three or four ways rather than pinning your hopes on one area.
Being diversified also lessens the overall amount of risk you are taking. “If you want to take a medium or low-to-medium level of risk with the money, then I would consider ‘targeted absolute return’ funds,” he says. These aim to deliver positive returns – often over one to three-year periods – regardless of market conditions.
However, many haven’t delivered on their goals (for more on this, read our Fund briefing: Targeted absolute return funds).
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The practice of locating your financial affairs (banking, savings, investments) in a country other than the one you’re a citizen of, usually a low-tax jurisdiction. The appeal of offshore is it offers the potential for tax efficiency, the convenience of easy international access and a safe haven for your money. However, offshore is governed by complex, ever-changing rules (such as 2005’s European Union Savings Directive) and, as such, is the exclusive province of the wealthy and high-net-worth individuals.
The Financial Services Compensation Scheme is the compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading, the FSCS may be able to pay compensation to its customers. Limits apply to how much compensation the FSCS is able to pay, and those limits vary between different types of financial products. However, to qualify for compensation, the firm you were dealing with must be authorised by the Financial Services Authority (FSA).
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
Absolute return funds
Absolute return funds aim to deliver a positive (or ‘absolute’) return every year regardless of what happens in the stockmarket. Unlike traditional funds, they can take bets on shares falling, as well as rising. This is not to say they can’t fall in value; they do. However, over the years, they should have less volatile performance than traditional funds.