ETFs - Easy and cheap investments for expats

FTSE listed companies are paying out a record £94 million in dividends before the end of the year and ETFs are seen by many investors as a great way to jump on to the gravy train.

ETFs – exchange traded funds – are popular because they come with low costs and are easy to trade.

An ETF is an open-ended investment fund listed on a stock exchange.

For many investors, ETFs come with the same considerations as building an equity portfolio but without the hassle of monitoring individual stocks.

Investing for income through ETFs is a fast-growing sector of the market – which is where the dividend bonanza comes into play.

Cheap and cheerful tracker funds

The funds are cheap in comparison to other commodities, diversified and liquid, which are benefits every investor looks for when building a portfolio.

But investors also must lift the bonnet to see how each ETF works as they do not all run off the same blueprint.

One of the key differences is the indices they follow and how this can impact returns.

Typically, an ETF will track an index, with the unit price rising and falling in line with the parent value.

The fund allows investors to buy in to markets like cryptocurrency, company stocks, gold and oil without holding the underlying assets.

Tax advantages for UAE investors

But when comparing performance, investors need to look at which index the ETF is tracking as a direct comparison will often throw up an error.

It’s easy to look at a UK ETFs and assume that the tracking target is the FTSE – but even the FTSE is split into several indices and the UK has many other indices that are less well known.

For expats, investing in ETFs throws open a huge number of opportunities across the globe.

For those permanently living in the United Arab Emirates or other Gulf states, direct investing into ETFs is tax-free as there are no capital gains or taxes on dividends.

For others on more temporary assignments who remain UK tax resident, dividends are subject to income tax after breaching a £5,000 threshold this year that drops to £2,000 in 2018. Capital gains tax is also due on any gain in value of more than £11,300 this year and £11,700 next.

Sheltering from tax in an ISA

Returning British expats will find trading ETFs through ISAs beneficial as investments and withdrawing cash are both free of tax.

ETFs are also available through QROPS and SIPP pensions.

The ISA saving limit remains unchanged at £20,000 for 2018-19 following Chancellor Phillip Hammond’s Autumn Budget 2017.

For a couple, that gives a tax-free growth cap of £40,000 a year for ETFs and other investments.

Even celebrated investors like American billionaire Warren Buffett extol ETFs – he regularly tells investors to buy low-cost tracker funds as they are the cheapest and most effective way of investing in markets.

In the UAE, the Dubai Financial Market has opened an ETF trading platform.

Please note: If you are a UK non-domicile then you cannot contribute into an ISA.

Tags: Investing ETFs