There are investment ideas foreigners can’t explore in the UK except they are citizens. To stay within the ambits of the law, you want to be sure you don’t dabble into such businesses. In the same manner, there are investments you can make without overstepping your boundaries as a foreigner.
In today’s article, we shall focus on the investment ideas foreigners have the liberty to do in the UK. The ones we are going to discuss will help you achieve your financial goals.
Some of them are suitable for high-net-worth individuals and some of them can be handled by medium-net-worth individuals.
To achieve portfolio diversification, it is advisable to balance alternative investment options such as private equity and property, venture capital, equities, and bonds to manage the level of risk and target returns within your overall investment portfolio.
In order to build a personalized, growth-focused portfolio, it is beneficial to explore the investment opportunities available to UK foreign investors. Here are 9 investment options you don’t want to miss out on as a foreign investor in the UK
Profitable Investment Options for Foreign Investors in the UK
Please note: the information in this blog is not advice or a recommendation to invest or to stop you from investing in any platform or industry. The information listed is for information purposes only.
1. Property Bonds
Property bonds also known as loan notes are issued by developers to raise capital from investors in the form of loans. These bonds are usually issued for a fixed period of time, typically between two to five years. You can use property bonds to finance the development of commercial or residential property projects.
Target interest rates offered by the UK property bonds currently range from 4% to 15%, this goes to say that this investment route can be an attractive option for foreign investors seeking a more direct method of accessing the property market.
The competitive higher interest rates offered by property bonds can make this investment option a better option as against government bonds which have a comparatively low interest rate of 4% in recent years.
2. AIM ISAs
The Alternative Investment Market (AIM) is a smaller branch of the London Stock Exchange launched to replace the Unlisted Securities Market in the year 1995.
AIM enables both local and foreign investors to buy and sell shares of relatively early-stage and small companies, via a minor stock exchange. The companies listed on AIM have been noted to display high growth potential, compared to other more established firms quoted on mainstream stock markets.
An ISA (Individual Savings Account) allows investors to invest up to £20,000 annually across the full range of ISA products (including the Stocking and Shares ISA, Lifetime ISA, Innovative Finance ISA, and Cash ISA) and receive any income free of income tax and capital gains tax.
Although ISAs can be beneficial for investors from the tax perspective during their lifetime, some investors are oblivious to the potential inheritance tax (IHT) implications that come with investing in an ISA.
3. Venture Capital
Venture Capital, sometimes called VC for short involves investing in unlisted startups with with strong growth potentials. VC is a highly rewarding investment option for high net worth individuals and experienced foreign investors.
Venture Capital opportunities can provide local and foreign investors with the ability to support young and innovative early-stage businesses. The target is to get very high financial returns, which in turn facilitates social, economic, and environmental change.
Investors can receive considerably high financial returns from VC investments due to discovering and accessing budding companies at their development stage as opposed to more mature private equity opportunities.
However, be aware that venture capital is a high-risk/high-return investment strategy. Nevertheless, some of the associated risks can be mitigated to an extent if the investment qualifies for generous tax reliefs offered by certain investment schemes like the EIS and SEIS.
4. Traditional Listed Equities
Traditional listed equities, alongside bonds, are one of the most followed routes in investment schemes taken by investors. This is because they are viewed to be relatively less risky than investing in AIM-listed companies and Unlisted companies. This is because traditional listed companies are usually more established.
Investing in Traditional Listed Equities a.k.a stocks or shares is the most common and popular investment portfolio. It is the most suitable option for many investors.
5. Private Equity
Private equity, also known as PE is the wilder asset class that surrounds Venture Capital (VC), as well as other private investments in later-stage companies. As a foreign investor, this is an important investment option to add to your portfolio after conducting extensive research.
In broader terms, Venture Capital can be a high-risk/high-return profile, as against equities listed on major stock markets. This is because you are representing more mature companies. Private Equity is oftentimes seen as a less risky investment than those in the Venture Capital route.
6. Joint Venture Property Investments
Joint Venture (JV) property investment is another form of indirect property investment that has proven to be an increasingly popular option for investors in recent years. When investing in a joint venture property, base case returns can usually stand at around 1.5x money-on-money (or 50%).
Providing investors with the opportunity to combine theirs with the seasoned industry expertise of property developers, joint venture property investments usually involve two or more parties working to fund and build much-needed properties, offering the investors an indirect route into the alternative asset class.
7. EIS- and SEIS-qualifying companies
In 1994 and 2012 respectively, the UK government introduced the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). The aim is to attract private investors to UK-based startups.
Both schemes have been widely successful. EIS alone attracted £25.6 billion of capital for almost 37,000 companies since its inception. On the other hand, SEIS attracted £1,5 billion in investment for almost 16,000 early-stage startups in the last 10 years.
The schemes act as an incentive to invest in emerging UK businesses by offering local and foreign investors a range of tax reliefs, including capital gains tax exemption, inheritance tax relief, and up to 50% income tax relief.
8. Real Estate Investment Trusts (REITs)
Real estate investment trusts (REITs) are investment schemes that own, and often times operate income-generating real estate properties. Investing in REIT allows investors the opportunity to indirectly invest in property without having to directly own any real estate.
This sometimes includes shopping centers, office complexes, other commercial properties, and sometimes special properties like hotels and restaurants.
You require REITs to distribute a major share of their taxable income to shareholders. This makes them an attractive investment option for regular income-seeking investors, similar to dividend-paying stocks.
9. The Stock Market
Stocks and shares are stakes that you own in a company. You can choose to buy, retain, or sell them in the stock market. Stocks and shares earn or lose you money depending on the performance of the company. In the United Kingdom, you can buy stocks/shares in public limited companies (PLCs)
Over time, they earn you money through capital growth or dividends, quite similar to investment funds. However, shares are riskier than investment funds as there is no professional fund management, risk-pooling, or diversification involved. But if you know how to invest properly, the cost of investment is lower than in investment funds.
How Foreigners Can Choose the Best Investment Ideas in the UK
As you conduct your research for the most suitable investment portfolio for you as a foreigner in the UK, it is important to identify and choose opportunities based on their suitability for your portfolio.
You have to look out for the following criteria to determine the best investment option:
- Do you have knowledge or expertise in that investment field?
- Are you seeking long-term or short-term investments?
- Are you able to tolerate the risks that come with certain investments?
- How much are you willing to invest?
- What are your investment return targets?
Conclusion
Foreigners in the UK can take advantage of tax-efficient investment ideas as much as possible, or watch out for hidden fees, taxes, and complications. Also, take note of how specific opportunities within certain portfolios might benefit you in the future.
