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Offshore-Funded Purchases

You want to buy overseas property but mortgages are not available through the local banks and there is no financing from the developer’s side as well. So what do you do?

Before going to search for unfriendly lenders who all of the sudden have something else more important to do when they see a foreigner coming in, or when you call you’re your bank overseas and you are put on hold for nearly half an hour after they realize you are that adventurous expatriate who had the nerve to leave his country of birth to move to a sunnier climate, think again. Rather than looking to far, it might be worth looking closer at your asset column for an alternative way of freeing up funds that you can put to work elsewhere.

Releasing equity from your existing property is a well documented way of raising cash through a traditional re-mortgage facility. This might be worth investigating if you already have some equity as well as easy access to a friendly lender who is not allergic to expatriates. If not, then fortunately there are other ways to raise capital:

Asset backed lending from existing portfolio structures
Many expats and retirees living overseas will already have an offshore investment vehicle or Portfolio Bond that has over the years, with top ups and investment returns, risen to a valuation of 1 million USD or more. In many cases that can be used as collateral to get access to an advance secured by the portfolio itself. A lending ratio of 50% loan to value would, in this example, release 500,000 USD cash lent to the investor on a rolling term base. The underlying assets in the portfolio would have to be of a low risk nature at outset to qualify, and then be conservatively managed going forward, but even so can still provide a return higher than the interest cost of the loan.

There are risks involved if the portfolio valuation were to fall below a certain limit which could in theory lead to a margin call from the lender, so a word to the wise here is to avoid cross currency loans and risky stocks at all costs. That being said, the times of lending against highly aggressive portfolios are largely behind us as we enter a new world of cautious lending strategies being adopted by banks. Most banks will now only look to lend against low to moderate risk assts such as blue chip stocks, investment grade bonds, government gilts and professionally managed unit trusts.

An experienced investment professional should be able to structure your portfolio in line with the bank’s requirements prior to submission of an application, and so with proper monitoring and a full understanding of the risks involved and how to mitigate them, this can be a very powerful tool for high net worth investors looking for funding for new investment opportunities.

Overseas Pension Transfers
In April 2006, it was announced that individuals with UK pension rights who have, or will become, non-resident in the UK for tax purposes, can move their accumulated pension benefits to a ‘Qualifying Recognised Overseas Pension Scheme (QROPS)’ approved by Her Majesty’s Revenue and Customs (HMRC). You can think of it as an International Pension Plan or Offshore Pension Scheme.

The principal advantages of moving to an overseas scheme are:

  1. No liability to UK income tax taken (for those who are non UK resident for tax purposes).
  2. The ability to pass on the entire pension asset to the next generation without punitive UK tax charges (currently up to maximum 82% of the entire residual pension fund for those who have not purchased an annuity by the age of 75).
  3. The option to take up to 25% tax-free in cash as a lump sum.
  4. No requirement to purchase an annuity or alternatively secured pension.
  5. A wider investment choice including the acquisition of residential or commercial property, scheme loans, and self-investment options.
  6. Benefits can currently be taken at the age of 50, although this will be increased to the age of 55 from April 2010.
  7. A regular income can be paid from your QROPS direct to your bank account and assets can be held as well as payments made in many currencies helping you to manage the risks in exchange rate fluctuations.
  8. Those who wish to transfer their pension assets to a more flexible environment with fewer investment restrictions.
  9. Any UK national who wants their pension scheme to be potentially able to purchase overseas property.
  10. Any UK national who is moving overseas to live in a country whose pension rules are restrictive (i.e. France) and where they would be forced to purchase an annuity they do not necessarily want (most European States).
  11. Those who wish to preserve their lifetime pension funds for the benefit of their families.

Whoever could be interested should check out the possibilities of transferring their accumulated pension rights overseas as soon as possible. Not in the least because of the potential risk that the UK government could change or amend the rules, resulting in a missed opportunity.

Source: Private Portfolio Services Offshore

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