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Moving abroad? Why your investment portfolio may need rebuilding

A portfolio that works for a UK resident is often wrong for the same person eighteen months later in Dubai or Singapore. What you invest in travels well. The containers it sits in (where your funds are based and which version of a fund you hold) don't.

Can US shares cost your family money when you die?

Yes. If you're not a US person and you hold US-situs assets, you're exposed to US federal estate tax above an exemption of only $60,000. "Situs" just means "location": the US treats shares in US-incorporated companies, including ones you hold directly, as sitting in America, wherever you live. The rate reaches 40%.

A belastingverdragDouble tax treatyEen afspraak tussen twee landen over wie waarover belasting mag heffen, zodat u over hetzelfde inkomen niet twee keer volledig belasting betaalt. between your country and the US may raise that threshold. Many nationalities have no such treaty.

The fix is usually simple, and worth doing early. Hold your US exposure through non-US-domiciled funds, typically Irish-domiciled UCITS ETFs. (A UCITS ETF is a type of fund, traded like a share, that's regulated for sale across Europe.) The fund is the shareholder, not you, so the situs problem disappears.

Irish funds also benefit from the US-Ierland treaty rate of 15% on dividend withholding, against 30% for many other domiciles. Withholding is tax taken from a dividend before it reaches you.

What to do: check whether you hold any US shares directly, and look at moving that exposure into non-US-domiciled funds before you move abroad.

What if you're (or might become) a US person?

If so, ordinary non-US funds become a tax headache. A US person is a US citizen, a green-card holder or someone who meets the substantial-presence test (a day-count test for time spent in the US). For you, non-US pooled funds count as Passive Foreign Investment Companies, or PFICs.

The default tax treatment is punitive. Excess distributions (payouts above the usual) are taxed at the highest marginal rate for the relevant year, plus an interest charge. You also have to report each year on Form 8621.

Notice that the last two rules pull in opposite directions. The Irish fund that protects a non-US person is the wrong choice for a US person. We see this error more than any other in mixed-nationality families: a US-citizen spouse holding the Irish UCITS that is correct for the non-US spouse.

What to do: if anyone in your household is or may become a US person, check their holdings separately from everyone else's.

Waar zitten de grijze gebieden?

Little here is truly contested, with one exception. The article's currency advice on hedging is a judgement call rather than a rule, and so is its view that equity currency exposure largely corrects itself over long periods. Both depend on your situation.

Which currency should your portfolio be in?

The right base currency is the one you'll spend in, not the one on your passport. Say your children will be educated in the UK and you plan to retire in Portugal. Then sterling and euro costs dominate, wherever you earn your income today.

We map out your future spending first, by currency and year. Then we hedge the fixed-income sleeve back to base currency. Hedging means using a financial contract to cancel out currency swings, and the fixed-income sleeve is the part of your portfolio held in bonds. Equities are generally left unhedged, since currency exposure inside a global equity index is partly self-correcting over long horizons.

What to do: write down where you'll spend the money over the next decades, then choose the base currency to match.

How much do dividend taxes quietly cost you?

More than the fund's factsheet will ever show you. Dividend withholding is a real, permanent cost, and the same global equity exposure can leak between roughly 0.2% and 0.6% a year depending on fund domicile and share class. (Domicile here means the country where the fund is based. A share class is a version of the same fund with different features.)

Over a 20-year horizon, that gap is comparable to the entire management fee.

Accumulating share classes, which reinvest dividends rather than paying them out, also simplify reporting in most jurisdictions. The notable exception is the UK. There, reporting-fund status and the offshore income gains rules need checking before you buy.

What to do: compare funds on domicile and share class, not just on the headline fee, and check the UK rules first if you're UK-taxed.

In what order should you build a portfolio?

Work through these five steps in order, and only move on when the one before is settled.

Most investors do this list backwards, starting at step five. The allocation is the part the market rewards, but the first four steps are the part your tax authority notices.

When should you review your portfolio?

An annual rebalance (resetting your mix of investments to its target) is fine, but a review triggered by an event matters more than one set by the calendar.

Those are the moments when a correct portfolio can quietly become an incorrect one without anyone noticing.