UK expat in China, new investor, help needed, please :)

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Deats1980
Posts: 15
Joined: Thu May 03, 2018 8:57 am

UK expat in China, new investor, help needed, please :)

Post by Deats1980 » Thu May 03, 2018 10:31 am

Recently I ran into a nice problem - my UK bank accounts are almost full to the insured limit, and as a non-resident I am unable to open more. So, this got me thinking, it is time to start investing. I started reading and asking family members for advice. The more I read, the more confused I got. Then I found this site and I *think things are becoming a little clearer now. And, yes, now I realise that I have been a fool to have my money sitting in banks... forgive me!!!

So, here is my background:

1) UK citizen (38), Russian wife (33), child (3)
2) Lived abroad for the last 12 years, currently living in China
3) Savings:
£73,000 in 3-year bank bond (1.4%) maturing in mid 2019
£20,000 in 2-year bank bond (1.1%) maturing in mid 2019
£67,000 in 2 year bank bond (1.4%) maturing in mid 2020
£48,000 in instant access account (0%) (just transferred home)
£60,000 in Russian banks earning on average 7%
£15,000 in Chinese bank (0%)
4) Happy with a medium amount of risk
5) Happy to play the long game, don't have a house, and don't feel the need to buy one due to living and working overseas. Plan to stay overseas, at least mid-term (8 years, but could be more).
6) In our current jobs, we can save around £50,000 a year - but working here isn't what I would call a secure job. I imagine if we moved job we would earn closer to £30,000 a year to start with, but this could increase quickly (linked to private lessons). But I would not have so much to save if this happened...
7) Debt - £20,000 student loan. Very low interest rate, happy not to pay this off.
8) I have no pension
9) In an ideal world I would like to move back to England for my daughter to attend secondary school (8 years away) The issue with this - I will be 46 and my job prospects will be bleak. Would therefore love to be able to retire, but I don't know if this is achievable/realistic. Saving £50,000 a year, +5% year on year interest could have us a little shy of a million. But, retiring at such a young age with no pension may be hard. Having said that, maybe we could live off our savings? We are, in general, pretty frugal.

So, that is my background and here is my future!

A - Choose a company to invest with. From research it seems Interactive Brokers, Internaxx and De Giro would be three reasonable choices. However, I don't really understand how I set these up. They have different branches around the world, so which one do I register with? i.e. IB is located in HK, America etc, so which branch must/should I register with? Do they just have an 'international' option that I am missing? Also, will my investment be insured? By this I mean against IB going bust, not me losing on the investment, as I know all investments carry risk. If so, how much for? IB needs $100,000 investment for it to be free, otherwise it is $10 a month, I think. I don't have $100,000 to invest today, but will have next year. If you make a couple of trades a month, then it is free - but once you invest your money, isn't it best to leave it there, rather than making trades?

B - Choosing what to invest in. It seems like 38% bonds, 62% stocks is the way forward. Adjusting each year. Invest in Index Funds with low management costs. I must confess I don't fully grasp how I can choose which funds to invest in? Can anyone point me in the right direction? How do you choose? I understand Vanguard is a great company to invest in/with, but they have so many funds. I have seen funds such as Vanguard UK gilt UCITS ETF and Vanguard Total Stock Market Index. This brings me on to my next point. Having no connection to the US, I don't want investments there due to taxation and legal issues (at least that is what I think the advice is, that I have read). So, is the latter fund something I should not invest in? From what I understand, it is where the bond/stock that the company buys is located, rather than where the purchasing company (IB) is located that counts.

C - Does anyone know if my investments will be taxed in China? I tried to read about withholding tax here, but I can't understand if individuals are subjected to it, or just businesses. Also, whilst I have a 12 month contract here, I spend 3-4 months travelling out of the country each year. Also, I only work a 4 day week (I am a teacher btw). On average, I am actually physically present at work for less than 183 days a year. I don't understand the technicalities of all the Chinese rules, but I believe I should be exempt from paying tax on income I earn outside of China. At least, that is what I hope... http://www.china-tax.net/income-tax-chi ... tax-2.html

If anyone can give me any advice, whether it be big or small, I would be really grateful. I feel quite nervous about all of this. My aging father is telling me to buy a house. He is also telling me horror stories about people losing everything. But he is risk averse in his old age. I don't blame him. But I have followed his advice about keeping my money 'safe' in a bank for the last few years, and I don't think it's a smart thing to do.

Look forward to hearing from some of you :)

Deats1980
Posts: 15
Joined: Thu May 03, 2018 8:57 am

Re: UK expat in China, new investor, help needed, please :)

Post by Deats1980 » Fri May 18, 2018 2:41 am

I just wanted to post my own findings in case it is of any use to expats living in China.

Foreigners do not have to pay tax on income earned outside of China for the first 5 years they live in China. You do have to start paying taxes after this 5 year period is over. However, if you can leave China for more than 30 consecutive days OR 90 days within a calendar year, then your 5 years are reset to year one. So, if you are a university teacher (like me) and get long holidays, then make the most of them and go on a nice long vacation, thus resetting your 5 years and therefore not paying tax on all foreign income. Hurray! Hope this may help.

TedSwippet
Posts: 1763
Joined: Mon Jun 04, 2007 4:19 pm

Re: UK expat in China, new investor, help needed, please :)

Post by TedSwippet » Fri May 18, 2018 3:21 am

Deats1980 wrote:
Thu May 03, 2018 10:31 am
... Having no connection to the US, I don't want investments there due to taxation and legal issues (at least that is what I think the advice is, that I have read). So, is the latter fund something I should not invest in? From what I understand, it is where the bond/stock that the company buys is located, rather than where the purchasing company (IB) is located that counts.
There are four 'domiciles' to consider -- your own, that of the broker you use, that of fund or ETF you hold, and that (or those) of the assets that the fund or ETF holds. Your own determines your personal tax payable on investment income. That of the fund or ETF determines what country/countries tax withholding might apply on payments from it, and what it might have to pay internally to dividends it receives from stocks held in various countries. The domicile(s) of the assets determines the returns you will get. And the broker's domicile comes into play if you live in a country without a US estate tax treaty (you do!) and hold more than $60k in cash in a US broker when you die.

For you, the optimum route appears to be to hold US domiciled ETFs for your US stock asset allocation up to a maximum of $60k, and hold Ireland domiciled ETFs for everything else. China has no US estate tax treaty(*), but has negotiated a 10% rate on US stock dividends that beats the 15% payable internally by Ireland domiciled ETFs, so this makes US domiciled ETFs a good choice here. For other assets however, you would very likely be paying that same 10% as an additional tax to the US for nothing if you held US domiciled ETFs. In contrast, you would get the full dividends without further withholding from an Ireland domiciled ETF holding non-US assets.

More on ETF domicile choice in this wiki page. Details on Vanguard's Ireland domiciled ETFs here. As for brokers, Interactive Brokers is popular with folk who have an international lifestyle. They have a UK operation but unless you live in the UK they will probably push you into their US brokerage. Not ideal, but as long as you do not hold more than $60k in cash in such an account you should be in decent shape. Much more on US tax traps for US non-resident aliens in this wiki page.

(*) One possible unique twist for you here is that the US/UK estate tax treaty appears to cover UK nationals no matter what country they live in, which would make you safe above $60k in the US (well, up to $11MM, so a fair bit of headroom!). If you are going to hold more than $60k in 'US situs' assets -- including US domiciled ETFs -- you would however want to check this point very thoroughly. For that matter, you should probably also check everything I wrote very thoroughly too. Remember that I'm just some random bloke on the internet...

Valuethinker
Posts: 35318
Joined: Fri May 11, 2007 11:07 am

Re: UK expat in China, new investor, help needed, please :)

Post by Valuethinker » Fri May 18, 2018 10:43 am

Deats1980 wrote:
Thu May 03, 2018 10:31 am
Recently I ran into a nice problem - my UK bank accounts are almost full to the insured limit, and as a non-resident I am unable to open more. So, this got me thinking, it is time to start investing. I started reading and asking family members for advice. The more I read, the more confused I got. Then I found this site and I *think things are becoming a little clearer now. And, yes, now I realise that I have been a fool to have my money sitting in banks... forgive me!!!

So, here is my background:

1) UK citizen (38), Russian wife (33), child (3)
2) Lived abroad for the last 12 years, currently living in China
3) Savings:
£73,000 in 3-year bank bond (1.4%) maturing in mid 2019
£20,000 in 2-year bank bond (1.1%) maturing in mid 2019
£67,000 in 2 year bank bond (1.4%) maturing in mid 2020
£48,000 in instant access account (0%) (just transferred home)
£60,000 in Russian banks earning on average 7%
You are taking a heck of a risk with that Russian bank money:

- is it in roubles or USD or GBP? If the rouble devalues, what happens?
- is there any form of deposit insurance?

This is not necessarily bad, but I would cap my exposure to Russian banks at, say, 20% of total assets. You may have found one of those anomalies of global finance-- a higher return than is justified because somebody really needs the money (Russian financial institutions) and will pay up to investors (who may themselves be restricted in how/ where they can invest) to get it.
£15,000 in Chinese bank (0%)
4) Happy with a medium amount of risk
5) Happy to play the long game, don't have a house, and don't feel the need to buy one due to living and working overseas. Plan to stay overseas, at least mid-term (8 years, but could be more).
6) In our current jobs, we can save around £50,000 a year - but working here isn't what I would call a secure job. I imagine if we moved job we would earn closer to £30,000 a year to start with, but this could increase quickly (linked to private lessons). But I would not have so much to save if this happened...
7) Debt - £20,000 student loan. Very low interest rate, happy not to pay this off.
8) I have no pension
9) In an ideal world I would like to move back to England for my daughter to attend secondary school (8 years away) The issue with this - I will be 46 and my job prospects will be bleak. Would therefore love to be able to retire, but I don't know if this is achievable/realistic. Saving £50,000 a year, +5% year on year interest could have us a little shy of a million. But, retiring at such a young age with no pension may be hard. Having said that, maybe we could live off our savings? We are, in general, pretty frugal.

So, that is my background and here is my future!

A - Choose a company to invest with. From research it seems Interactive Brokers, Internaxx and De Giro would be three reasonable choices. However, I don't really understand how I set these up. They have different branches around the world, so which one do I register with? i.e. IB is located in HK, America etc, so which branch must/should I register with? Do they just have an 'international' option that I am missing? Also, will my investment be insured? By this I mean against IB going bust, not me losing on the investment, as I know all investments carry risk. If so, how much for? IB needs $100,000 investment for it to be free, otherwise it is $10 a month, I think. I don't have $100,000 to invest today, but will have next year. If you make a couple of trades a month, then it is free - but once you invest your money, isn't it best to leave it there, rather than making trades?
I cannot really help you but my *guess* is that Hong Kong would not be a bad bet. Being part of China but with a western financial system. To be clear, though, HK itself has high financial risk as a small city with huge bank deposits to GDP: this was Ireland, Iceland, Switzerland and the UK before the credit crunch.

With a stockbroker your assets should be separately segregated. Thus, if the broker goes bust, what is at risk is only the money you have with them in cash. This is why best practice in some other places (Canada, perhaps USA, UK) is to hold minimum cash at the broker, and hold all your cash investments at banks (which have federal deposit insurance) OR in money market funds and short term bond funds.
B - Choosing what to invest in. It seems like 38% bonds, 62% stocks is the way forward. Adjusting each year. Invest in Index Funds with low management costs. I must confess I don't fully grasp how I can choose which funds to invest in? Can anyone point me in the right direction? How do you choose? I understand Vanguard is a great company to invest in/with, but they have so many funds. I have seen funds such as Vanguard UK gilt UCITS ETF and Vanguard Total Stock Market Index. This brings me on to my next point. Having no connection to the US, I don't want investments there due to taxation and legal issues (at least that is what I think the advice is, that I have read). So, is the latter fund something I should not invest in? From what I understand, it is where the bond/stock that the company buys is located, rather than where the purchasing company (IB) is located that counts.
That is a sensible asset allocation.

The trick is to get the right tax position on the funds. Domicile. Whether you need Accumulating or Distributing or does it matter?

If you can nail that, then Europe certainly offers enough ETFs to do what you need. You basically need 2 (or 3) ETFs:

- global equity index ETF
- emerging markets ETF (if not in the above)
- global government bond ETF

Both ishares and Vanguard have some good products that do this.

WhiteMaxima
Posts: 1208
Joined: Thu May 19, 2016 5:04 pm

Re: UK expat in China, new investor, help needed, please :)

Post by WhiteMaxima » Fri May 18, 2018 12:02 pm

tencent, ctrip, alibaba, maotai liquid. man you have so many growth companies to chose.

PaulBeigh
Posts: 10
Joined: Wed Oct 05, 2016 12:37 am

Re: UK expat in China, new investor, help needed, please :)

Post by PaulBeigh » Fri May 18, 2018 12:26 pm

I'm also a UK expat in China, so here is my advice:

1) Do NOT transfer the money to China if you have avoid it. There is a 50k USD limit for transfers into the country, and you are only allowed to transfer out money that you either transfered into China, or "earned" in the country. (So profit on investments will be difficult to transfer out of the country.) Because the Chinese stock market is not as independent as the western ones, I would not recommend investing in Chinese stocks.

2) I personally use Internaxx for investments. There is a fairly high fee when buying / selling, but it was the best available when I looked. You will need to get a notarized copy of your passport when opening the account (this might be easiest to get when you travel out of the country). You might also need to get a proof of address - in my case, a letter from my employer stating that they paid for accommodation at a certain address was OK, but you might need a rental contract or similar.

3) I don't know whether Russia taxes the foreign income of its non-resident citizens. You should investigate this, and decide whether or not your wife should be a joint owner of the share account.

4) Until you because tax resident (after at least 5 years), China will only tax any income or capital gains that is earned within China. Similarly, the UK will only tax your UK-source income (such as house rental, if you are renting out a UK property). This gives you the big advantage that if your brokerage is outside both the UK and China, then no-one will tax the capital gains or dividends on your shares and bonds. This is a huge advantage, and more than outweighs any transaction costs. If you ever leave China permanently, then you should sell your complete portfolio while you are in China, and then rebuy a similar portfolio - this will give a higher cost basis for your capital gains tax in the future. (In the UK, this is called "bed and breakfasting".)

5) There are odd UK capital-gains tax issues if your return to be resident in the UK after less than 5 years away - you should double-check these, so that you are aware

6) After 5 years, you might become tax resident in China, which would mean that your entire worldwide income would be subject to Chinese income tax and capital gains tax. To avoid this, you need to be absent from China either for 30 consecutive days, or 90 days total during one of these 5 years. (After being absent from China for this length of time, the 5-year calendar will restart at the next 1 January.)

Deats1980
Posts: 15
Joined: Thu May 03, 2018 8:57 am

Re: UK expat in China, new investor, help needed, please :)

Post by Deats1980 » Sat May 19, 2018 1:58 am

Firstly, thank you for taking the time to reply and offer such good advice. It really is appreciated.

valuethinker, I will tell a quick story as to why we have so much money in Russia. Then I will talk about the other points. If you want to skip the story, feel free :happy

Before I married my wife we had separate savings. Hers in Russia, mine in England. We moved to Russia and worked there for a couple of years. This led to us both having savings there (her savings from 6 years of work - 4 in China, 2 in Russia and mine from 2 years work in Russia - I left my other savings in the UK). In 2014 the ruble absolutely tanked it. It went from 1GBP = 60Rub to 1GBP = 120Rub. Over night we lost about 25,000GBP (from 50k down to 25k). We ordered the rubles from the bank, intending to send them home and 'cut our losses'. We had to wait 3 days for the bank to order the money. The banks started offering crazy interest rates - 18%! In this time I decided that as we were living in Russia, and would visit regularly should we choose to leave, it made more sense to keep the money there, as the cost of things would still be similar, so the money could still buy the same stuff there, but only half the stuff in the UK. On top of this, we could put our money in a 3-year fixed interest account and get 54% back! We split our money between multiple banks so as our money would be insured by the government should banks shut down. It's a good job we did... 2 banks we were invested in went broke after a couple of years. Thankfully we got our initial investments bank + interest. In 3.5 years we have gone from 3.000,000Rub to 5,000,000 and the Ruble is down to 1GBP = 83rub. So, over 60,000GBP from 25,000GBP. Not a bad move to keep the money there :D The Russian government is deliberately trying to devalue the Ruble to increase its reserve funds. The country was back to making money when oil hit $50 a barrel. It's now nearly $80 a barrel. They are raking it in. Building up cash reserves. I believe in the not too distant future, the Ruble will increase in value. Getting 7% guaranteed interest from the bank is pretty good - I know the Ruble can go up and down, but actually I think we will win on this too. We'll see. Lastly, all the Rubles are in my wife's name. We are having trouble getting joint accounts - both in Russia and out of Russia - so we prefer to have assets in both our names (everything else is in my name). Internaxx, for example, has said we can't have a joint account as she is not European and isn't a European resident :x

Valuethinker: I read that whilst brokers keep your stocks separate, if the poop hits the fan then shady dealers can essentially use your funds without your knowledge or consent. So, whilst technically if a broker goes bust you should keep your non cash funds, it doesn't always happen. Is this right? Internaxx are only insured up to 100,000Euros. I am thinking that I must open up several broker accounts - maybe Internaxx, IB, De Giro etc. Limit the risks. I will definitely listen to your advice and keep cash away from the brokers!

Paul: good to hear from someone in my shoes - thanks! Sending money home has been a pain in the butt. We rely on Chinese friends to send all our cash home, as our contract initially forbade the transfer of Yuan into foreign currencies! Now we have an 80% exchange written in. Still, we can't send everything we earn home (as some of it isn't in the contract), so we just ask Chinese people to do the Bank of China transfer under their name ($50k at a time). But, this seems to be getting harder, as they are asking our friends more questions :o :annoyed

Point taken on the Chinese stock market, we will stay clear.

I am currently trying to open an Internaxx account, but can't, as my passport is out of my hands (getting a new visa). Will have to wait a few weeks.

My wife can't be part of the account at Internaxx as she is Russian :annoyed

Good to hear that you also agree about the 5 year rule. And I will look into 'bed and breakfasting'. I figured I would be able to sell and buy back before returning home to avoid capital gains, but I haven't looked into this at all yet, as we think we will be here for a while. I have been out of the UK for 12 years now, so should have no issues there.

Tedswippet: Thanks for so much detail. Being such a newbie, I am still trying to get my head around it all! I will read your links and try and post to you a bit later when I have finished work.

Thank you all, once again. :beer

Valuethinker
Posts: 35318
Joined: Fri May 11, 2007 11:07 am

Re: UK expat in China, new investor, help needed, please :)

Post by Valuethinker » Sat May 19, 2018 7:47 am

Deats1980 wrote:
Sat May 19, 2018 1:58 am
Firstly, thank you for taking the time to reply and offer such good advice. It really is appreciated.

valuethinker, I will tell a quick story as to why we have so much money in Russia. Then I will talk about the other points. If you want to skip the story, feel free :happy

Before I married my wife we had separate savings. Hers in Russia, mine in England. We moved to Russia and worked there for a couple of years. This led to us both having savings there (her savings from 6 years of work - 4 in China, 2 in Russia and mine from 2 years work in Russia - I left my other savings in the UK). In 2014 the ruble absolutely tanked it. It went from 1GBP = 60Rub to 1GBP = 120Rub. Over night we lost about 25,000GBP (from 50k down to 25k). We ordered the rubles from the bank, intending to send them home and 'cut our losses'. We had to wait 3 days for the bank to order the money. The banks started offering crazy interest rates - 18%! In this time I decided that as we were living in Russia, and would visit regularly should we choose to leave, it made more sense to keep the money there, as the cost of things would still be similar, so the money could still buy the same stuff there, but only half the stuff in the UK. On top of this, we could put our money in a 3-year fixed interest account and get 54% back! We split our money between multiple banks so as our money would be insured by the government should banks shut down. It's a good job we did... 2 banks we were invested in went broke after a couple of years. Thankfully we got our initial investments bank + interest. In 3.5 years we have gone from 3.000,000Rub to 5,000,000 and the Ruble is down to 1GBP = 83rub. So, over 60,000GBP from 25,000GBP. Not a bad move to keep the money there :D The Russian government is deliberately trying to devalue the Ruble to increase its reserve funds. The country was back to making money when oil hit $50 a barrel. It's now nearly $80 a barrel. They are raking it in. Building up cash reserves. I believe in the not too distant future, the Ruble will increase in value. Getting 7% guaranteed interest from the bank is pretty good - I know the Ruble can go up and down, but actually I think we will win on this too. We'll see. Lastly, all the Rubles are in my wife's name. We are having trouble getting joint accounts - both in Russia and out of Russia - so we prefer to have assets in both our names (everything else is in my name). Internaxx, for example, has said we can't have a joint account as she is not European and isn't a European resident :x
OK so it is in rubles, and within government guarantees. You should be pretty safe - it's a nightmare scenario when govt does not make good on its bank guarantees. Instead, what governments do in extremis is print money-- devaluing all savings through inflation. In the extreme, that's Zimbabwe. (note Greece or Italy for example cannot do this - their currency is not something they can control, it is controlled via the European Central Bank and the Eurozone).

But stay within those deposit insurance limits.

I have the same understanding of the Russian economy-- when oil is say above $70 a barrel, they coin it. Also there is natural gas, and to some extent Gazprom's exports are priced wrt the oil price (that's very different from North America, where fracking for oil has led to a gas glut and a far lower price for NG).

Re exchange rates what you are describing is called Uncovered Interest Parity (UIP). Covered Interest Parity pretty much holds-- you cannot make money investing in a high interest rate country and hedging back into your currency, the cost of the currency Forward or Future offsets the additional interest paid. UIP does not hold. The data is noisy, but basically a long term strategy of investing in high interest rate countries works, if you are not immediately hedging the risk with Forwards, the subsequent currency devaluation does not fully offset the higher interest rate you receive.

One important caveat on UIP. When it goes wrong, it really goes wrong. Iceland in 2008 was paying 15% interest rates-- very attractive when other countries were giving 5%. But it then collapsed explosively, the Kronor devalued, Iceland imposed exchange controls and lenders had to take a haircut (reduction) in the value of their outstanding credits. Something similar (very approximately) happened to Russia in 1998, where interest rates were 90% on some bonds but the Russians did what everyone thought they could not do, and defaulted (on some bonds but not all bonds) -- this led to the collapse of the world's largest hedge fund Long Term Capital Management (LTCM).

So the Russia thing is good, and your logic is good. But remember there is always the event risk that it will go wrong (in exchange rate terms) and it will do so fairly suddenly, and quite painfully.
Valuethinker: I read that whilst brokers keep your stocks separate, if the poop hits the fan then shady dealers can essentially use your funds without your knowledge or consent. So, whilst technically if a broker goes bust you should keep your non cash funds, it doesn't always happen. Is this right? Internaxx are only insured up to 100,000Euros. I am thinking that I must open up several broker accounts - maybe Internaxx, IB, De Giro etc. Limit the risks. I will definitely listen to your advice and keep cash away from the brokers!
Normally each country has some kind of securities industry guarantee fund to protect small customers. But even in 2008 it wasn't fully tested-- when the whole industry is at risk of collapse rather than just 1-2 firms. It is to insure you against fraud and securities firm failure. Your assets should be segregated into an account with your name on it, held by an outside custodian. So:

- I am not sure if they can use your money, however I do know that with Lehman, at least some of the client money was not separately segregated (due to bad bookkeeping and back office systems rather than deliberate malfeasance). Lehman had a private wealth management division, I believe, but I am not aware if any clients lost money that way.

- So yes you should probably have at least 2 stockbroker accounts. The main thing is to keep cash balances to a minimum.
Paul: good to hear from someone in my shoes - thanks! Sending money home has been a pain in the butt. We rely on Chinese friends to send all our cash home, as our contract initially forbade the transfer of Yuan into foreign currencies! Now we have an 80% exchange written in. Still, we can't send everything we earn home (as some of it isn't in the contract), so we just ask Chinese people to do the Bank of China transfer under their name ($50k at a time). But, this seems to be getting harder, as they are asking our friends more questions :o :annoyed

Point taken on the Chinese stock market, we will stay clear.

I am currently trying to open an Internaxx account, but can't, as my passport is out of my hands (getting a new visa). Will have to wait a few weeks.

My wife can't be part of the account at Internaxx as she is Russian :annoyed

Good to hear that you also agree about the 5 year rule. And I will look into 'bed and breakfasting'. I figured I would be able to sell and buy back before returning home to avoid capital gains, but I haven't looked into this at all yet, as we think we will be here for a while. I have been out of the UK for 12 years now, so should have no issues there.
Main thing is that HMRC does not think that is what you have done ie just to minimize tax. Thus in the UK, for residents, I believe there is a 30 day rule-- you cannot buy back the securities for at least 30 days.
Tedswippet: Thanks for so much detail. Being such a newbie, I am still trying to get my head around it all! I will read your links and try and post to you a bit later when I have finished work.

Thank you all, once again. :beer
My father worked outside the UK for over 30 years, and retired outside the UK. He still paid into National Insurance. Had he retired in the UK (or the USA, or the EU, but not Australia nor Canada) he would have then qualified for the full state pension. That's worth having because it is currently more than inflation indexed (the "triple lock" indexes it to the lower of real wage growth, inflation and 2.5% p.a.). Even £150 per week at age 67 is worth having-- and it carries an automatic widow's pension (so if you think of your wife living to 100+, which is perfectly possible these days ...) - every couple of years my mother (who has never lived in the UK) has to swear in front of a lawyer that she is still alive!

So that's worth checking into, especially as you may well return to the UK.

maylikesun
Posts: 25
Joined: Fri Aug 18, 2017 1:46 pm

Re: UK expat in China, new investor, help needed, please :)

Post by maylikesun » Sat May 19, 2018 8:11 am

For the money you earned in China and deposited in Chinese bank, I don't know whether you can buy Chinese money market funds or China government savings bond. Those are both offering quite good rates right now.

I will be careful in inVesting in Chinese stock market though.

Deats1980
Posts: 15
Joined: Thu May 03, 2018 8:57 am

Re: UK expat in China, new investor, help needed, please :)

Post by Deats1980 » Thu May 24, 2018 2:25 am

Valuethinker wrote:
Sat May 19, 2018 7:47 am
My father worked outside the UK for over 30 years, and retired outside the UK. He still paid into National Insurance. Had he retired in the UK (or the USA, or the EU, but not Australia nor Canada) he would have then qualified for the full state pension. That's worth having because it is currently more than inflation indexed (the "triple lock" indexes it to the lower of real wage growth, inflation and 2.5% p.a.). Even £150 per week at age 67 is worth having-- and it carries an automatic widow's pension (so if you think of your wife living to 100+, which is perfectly possible these days ...) - every couple of years my mother (who has never lived in the UK) has to swear in front of a lawyer that she is still alive!

So that's worth checking into, especially as you may well return to the UK.
This is something I need to look carefully into. I have barely paid any NI over my working life, as I have spent 95% of it overseas. So, I think I would have to make a pretty big lump sum payment just to catch up. Also, I have no idea where we will end up in the long run. Maybe we will go to England for 7 or 8 years when our daughter reaches secondary school age, but after this there is a pretty good chance we would go back overseas again. Where we would fully retire is anyone's guess! Russia, South Africa, Spain, England, Thailand, I really don't know. If you can only claim a state pension if you live in certain countries, then this would be a pretty big risk to pay into something that I could never claim... Definitely something that I will try and research in the future, but for right now, I think I won't pay in.

maylikesun, at the moment, I have no interest in investing in anything directly in China. As a foreigner, there is way too much bureaucracy and problems to do anything here. Even sending money home is a massive pain in the bum. I can't imagine what it would be like setting up financial accounts.

Deats1980
Posts: 15
Joined: Thu May 03, 2018 8:57 am

Re: UK expat in China, new investor, help needed, please :)

Post by Deats1980 » Thu May 24, 2018 2:39 am

Tedswippet, sorry for the late reply. I have looked into several etfs and to keep it simple, I would ideally like one fund that follows the world market. I am not really sure how this affects the taxation situation though, as obviously one world fund has stocks from multiple countries with multiple taxation laws, right? I am pretty settled on using Internaxx to start off with.

Here is my take on the 4 'domiciles' and I hope you can correct me if I am wrong.

1) my domicile (UK) and residence (China) - I owe no taxes
2) broker - if I use Internaxx in Luxembourg, I believe there are no taxes, right? But if I use IB, for example, won't I pay US taxes? I certainly wouldn't want to hold in excess on $60,000 in cash with IB due to inheritance tax laws. But, do you think that only applies to cash, and not funds? Surely if US law would make me pay US taxes on any cash I have with them, then won't I also pay additional taxes with them on things like dividends?
3) if I buy etfs from Ireland, I don't owe taxes to Ireland, I think - so a world fund with Irish domicile.
4) I am a little confused here... If I buy global equity index, then how much would I owe in taxes? Would I have all taxes on US stocks withheld automatically? EU stocks, maybe no and ROW, I have no idea?? Would this be a good reason to buy more funds related to Europe rather than the US?

Also, if I buy just one fund, it often seems a little more expensive to manage the fund e.g. https://www.vanguardinvestor.co.uk/inve ... _fund_link is 0.25. Could I get a better deal by mixing and matching myself? Is it worth the hassle? Would buying and selling several funds end up costing the same when I have to re-balance my holdings every 6-12 months?

Valuethinker
Posts: 35318
Joined: Fri May 11, 2007 11:07 am

Re: UK expat in China, new investor, help needed, please :)

Post by Valuethinker » Thu May 24, 2018 3:45 am

Deats1980 wrote:
Thu May 24, 2018 2:25 am
Valuethinker wrote:
Sat May 19, 2018 7:47 am
My father worked outside the UK for over 30 years, and retired outside the UK. He still paid into National Insurance. Had he retired in the UK (or the USA, or the EU, but not Australia nor Canada) he would have then qualified for the full state pension. That's worth having because it is currently more than inflation indexed (the "triple lock" indexes it to the lower of real wage growth, inflation and 2.5% p.a.). Even £150 per week at age 67 is worth having-- and it carries an automatic widow's pension (so if you think of your wife living to 100+, which is perfectly possible these days ...) - every couple of years my mother (who has never lived in the UK) has to swear in front of a lawyer that she is still alive!

So that's worth checking into, especially as you may well return to the UK.
This is something I need to look carefully into. I have barely paid any NI over my working life, as I have spent 95% of it overseas. So, I think I would have to make a pretty big lump sum payment just to catch up. Also, I have no idea where we will end up in the long run. Maybe we will go to England for 7 or 8 years when our daughter reaches secondary school age, but after this there is a pretty good chance we would go back overseas again. Where we would fully retire is anyone's guess! Russia, South Africa, Spain, England, Thailand, I really don't know. If you can only claim a state pension if you live in certain countries, then this would be a pretty big risk to pay into something that I could never claim... Definitely something that I will try and research in the future, but for right now, I think I won't pay in.
OK. The key issue is the indexation. In some countries (like Canada and Australia & maybe South Africa) your benefit is basically frozen at the level when you left the country. In other countries (USA, EU) it is indexed in the same way as the basic state pension. It would cost the Treasury £450m a year to fix this anomaly (the leading destinations of emigration of Brits are Spain, Canada and Australia -- the latter two usually for family reasons) so it never gets fixed.

AND it has a survivor benefit which my Mum receives.

It's worth checking into. £150 per week (indexed to inflation) is worth having, as is the survivor benefit. It would cost an absolute fortune in index linked gilts to duplicate that in a personal pension portfolio-- I am talking something like 40x the annual benefit*. If your wife lived to be 100, you & her, then her, could easily be collecting for 33 years - and living to 100 is a significant possibility for a 40 year old woman, otherwise in good health, now.

* by thinking in real terms we can avoid the issue of forecasting inflation. We can assume the Basic State Pension will rise by at least inflation (it's currently faster than that) until retirement.
maylikesun, at the moment, I have no interest in investing in anything directly in China. As a foreigner, there is way too much bureaucracy and problems to do anything here. Even sending money home is a massive pain in the bum. I can't imagine what it would be like setting up financial accounts.
You have too much correlation with the Chinese economy as it is. The only thing you might buy in China is a property (and I am sure even that is not straightforward (or maybe possible?) for a foreigner. Note that the Chinese themselves have shown a huge appetite for property in Australia & Canada-- and that probably tells us something (it's rational portfolio diversification for them, given those countries' immigration and higher education policies).

Valuethinker
Posts: 35318
Joined: Fri May 11, 2007 11:07 am

Re: UK expat in China, new investor, help needed, please :)

Post by Valuethinker » Thu May 24, 2018 3:57 am

Deats1980 wrote:
Thu May 24, 2018 2:39 am
Tedswippet, sorry for the late reply. I have looked into several etfs and to keep it simple, I would ideally like one fund that follows the world market. I am not really sure how this affects the taxation situation though, as obviously one world fund has stocks from multiple countries with multiple taxation laws, right? I am pretty settled on using Internaxx to start off with.

Here is my take on the 4 'domiciles' and I hope you can correct me if I am wrong.

1) my domicile (UK) and residence (China) - I owe no taxes
2) broker - if I use Internaxx in Luxembourg, I believe there are no taxes, right? But if I use IB, for example, won't I pay US taxes? I certainly wouldn't want to hold in excess on $60,000 in cash with IB due to inheritance tax laws. But, do you think that only applies to cash, and not funds? Surely if US law would make me pay US taxes on any cash I have with them, then won't I also pay additional taxes with them on things like dividends?
3) if I buy etfs from Ireland, I don't owe taxes to Ireland, I think - so a world fund with Irish domicile.
4) I am a little confused here... If I buy global equity index, then how much would I owe in taxes? Would I have all taxes on US stocks withheld automatically? EU stocks, maybe no and ROW, I have no idea?? Would this be a good reason to buy more funds related to Europe rather than the US?
If you lived in the UK there is a box your broker fills out for foreign dividend income (which has a different tax treatment than UK dividends). You just put that in your tax return. The ETF managers do the rest, but there can be unrecoverable foreign withholding tax.

I don't know how it works in China but that's basically it.

If you own Accumulating funds, in the UK you still also pay tax on those dividends (even though cash is not paid out). Conversely, in a tax exempt account like a personal pension or ISA, Accumulating funds (rather than Distributing) are easier because you don't have to reinvest small amounts of dividends.

Also, if I buy just one fund, it often seems a little more expensive to manage the fund e.g. https://www.vanguardinvestor.co.uk/inve ... _fund_link is 0.25. Could I get a better deal by mixing and matching myself? Is it worth the hassle? Would buying and selling several funds end up costing the same when I have to re-balance my holdings every 6-12 months?
One fund is the optimal solution if:

- it covers Emerging Markets as well (there's a case that since you live in the largest EM, you should not invest in EM for diversification reasons (your labour income is correlated with the Chinese economy, and that also affects raw materials producing countries that export to China)). EM is a nice to have but not a must have (roughly speaking EM is about 15% of world stock markets)

- it is OK from a tax perspective (Ted Swippet may have some ideas). This really depends on Chinese taxation of investment capital gains and dividend income - and that's why the domicile of the fund can be crucial. For an American citizen for example (they pay tax on their global income) they have to avoid Irish funds like the plague.

The extra cost is small. 10 basis points (0.1%) on £100k is £100 p.a. Granted that's compounded (to figure out the impact 25 years from now) but on £1m it is only £1000. Compare that to say £10 for every trade for rebalancing.

A simple to run system that in effect corrects itself (rebalancing) has much to say for it, and you would save dealing costs.

TedSwippet
Posts: 1763
Joined: Mon Jun 04, 2007 4:19 pm

Re: UK expat in China, new investor, help needed, please :)

Post by TedSwippet » Thu May 24, 2018 4:32 am

Deats1980 wrote:
Thu May 24, 2018 2:39 am
2) broker - if I use Internaxx in Luxembourg, I believe there are no taxes, right? But if I use IB, for example, won't I pay US taxes? I certainly wouldn't want to hold in excess on $60,000 in cash with IB due to inheritance tax laws. But, do you think that only applies to cash, and not funds? Surely if US law would make me pay US taxes on any cash I have with them, then won't I also pay additional taxes with them on things like dividends?
If you hold US domiciled ETFs, your US tax liability will be the same in both brokers -- 10% China treaty rate on all dividends paid out by them, withheld by broker, and potential(*) US estate tax risks. If you hold Ireland domiciled ETFs, also the same -- 15% withheld internally to the ETF by the US on US source dividends, other rates for other countries, the rest comes your way with no additional Irish or US tax interference, and no US estate tax risks. If you hold over $60k in cash, no US tax worries with Internaxx but the potential(*) for US estate tax risks with IB.

Yes, none of this makes any real sense. That's US tax law for you.

(*) Remember that your UK nationality may get you round US estate taxes up to $11MM even though you do not live in the UK.
Deats1980 wrote:
Thu May 24, 2018 2:39 am
3) if I buy etfs from Ireland, I don't owe taxes to Ireland, I think - so a world fund with Irish domicile.
Right.
Deats1980 wrote:
Thu May 24, 2018 2:39 am
4) I am a little confused here... If I buy global equity index, then how much would I owe in taxes? Would I have all taxes on US stocks withheld automatically? EU stocks, maybe no and ROW, I have no idea?? Would this be a good reason to buy more funds related to Europe rather than the US?
If you buy an Ireland domiciled global equity ETF, say Vanguard's VWRD, the ETF will internally pay some withholding taxes on the dividends it receives, based on the country that is paying the dividend. So it would suffer 15% withholding on US stocks, zero on UK ones, and so on, based on whatever double-tax arrangement Ireland has with each country. From there on out though, you receive everything that remains.

Clearly, with so many countries involved it is pretty much impossible to calculate from the outside how much effective tax you would pay (strictly, would be paid by the ETF before you receive whatever is left). However, you have no further tax liability to Ireland on this, and of course none to the US either.

If you buy a US domiciled global equity ETF, you will pay 10% China treaty rate to the US on every dividend it pays out. That is a bargain relative to the 15% you would suffer on the US component of the corresponding Ireland domiciled ETF, but a deadweight loss on the non-US component.
Deats1980 wrote:
Thu May 24, 2018 2:39 am
Also, if I buy just one fund, it often seems a little more expensive to manage the fund ... Could I get a better deal by mixing and matching myself? Is it worth the hassle? Would buying and selling several funds end up costing the same when I have to re-balance my holdings every 6-12 months?
I have always been a bit mystified that VWRD charges visibly more than its component parts. You might perhaps also look at iShares IWDA/SWDA at 0.2%, or the new (and exciting, and untested long-term) Lyxor LCUW at 0.12%. Worth noting with the latter that there is a bit of a question-mark over the US tax withholding for Luxembourg funds -- it might be 15% as with Ireland, or it might not; there are varying views. Given that the US is 50% of world markets, worth trying to tease that one out (so far, I have not succeeded fully).

For what it is worth, I have an OEIC portfolio that is made up of five trackers -- US, EU, Japan, Pacific ex-Japan, and UK. It is definitely cheaper to run than a single fund, and for me provides a saving of a few £100's per year, so worth doing. In practice I have only had to rebalance twice in around a decade. Maybe that was just luck, but overall I would not call rebalancing once or twice a year a huge burden. Particularly if you live in a country where there are no tax ramifications for doing that (so not the UK, then!). I guess it just depends on how much you value your time versus how much the extra simplicity will cost you.

In your particular case, you can get a US withholding rate that is lower than the Ireland domiciled ETF would pay internally, so your optimum course tax-wise, as already noted, is to use US domiciled ETFs for your US stock asset allocation, and non-US domiciled ones for everything else.

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