Wealth Check: Expatriate comes home to a tricky financial position

Nicola Farnhill is returning to the UK with hopes of building a business after 10 years living in Spain. Our experts pass on some useful advice...

Nicola Farnhill is looking to move home in the next six to 12 months

The Patient

Nicola Farnhill currently lives in Alicante, Spain, but is looking to move home in the next six to 12 months, and is keen to get her finances in order before she repatriates back to the UK.

The 42-year old has lived abroad for 10 years and loves the Spanish lifestyle, but feels it's time to return so she can focus on building her new business.

Nicola is in the process of setting up a business which will involve her working as both a life coach and counsellor. She is also just about to finish four months of studies which will lead to her being a fully-qualified strategic interventionist. The course, which Nicola is studying long-distance with the Tony Robbins and Cloe Madanes training centre, based in California, cost her £2,500.

“I'm now gradually getting my own coaching business up and running,” says Nicola. “While I'm not earning a huge salary from this at the moment, this kind of work can eventually be pretty highly paid – up to £150,000.”

Alongside this, Nicola has a part-time job working as a dog groomer.

“For some time now I've been earning between €12,000 (£10,254) and €16,000 a year running my own business,” she says. “This has just been sold.”

Nicola lives on her own in a two-bedroom house in Torrevieja, and pays around €300 a month in rent and as she has had to contend with the faltering euro, she no longer has any savings.

Equally, Nicola is in the fortunate position of having no debts to worry about. When she returns to the UK, Nicola hopes to move to Brighton.

Nicola's main focus at the moment is building her business.

“I've got ideas about setting up workshops for women, such as increasing confidence and beating addiction,” she says. “Eventually, I'd like to be able to run these both at home and abroad. I have plans to travel to both Europe and the States – as coaching is very big in the US.”

Nicola is not paying into a pension at present, but does have around £27,000 in a government pension from a previous job. This is now frozen. At present, Nicola does not have any protection policies in place.

The Cure

Our panel of independent financial advisers agree that Nicola is in quite a tricky financial position as while she has no debts, she also has no savings or assets – apart from the sale of the dog-grooming business. They urge her to plan very carefully as she is about to embark on two significant life changes by relocating back to the UK and launching a new business. They agree that the key will be to try and build an asset base at the same time as building the business and avoiding incurring debts. In addition, they point out that while saving for the short term should be her immediate priority, she can't afford to put off saving for retirement.

Build an emergency fund

James Robson from Plutus Wealth Management urges Nicola to build an emergency fund.

“Generally, this should be equivalent to three months' outgoings, but Nicola may need to put aside as much as six months' outgoings, as there can be a considerable lag between invoices and payments when starting a business,” he warns. “The sale of the dog-grooming business could provide a kick-start to these savings.”

Scott Gallacher from Rowley Turton recommends Nicola puts this money into a cash individual savings account (Isa) as all returns are tax-free.

“Once she's built an emergency fund, she can then think about adding to her savings to build the sizeable deposit that will be required to buy a property in Brighton,” he says.

As and when Nicola is in a position to think about longer-term savings, Danny Cox from Hargreaves Lansdown suggests she consider a stocks-and-shares Isa.

Consider renting before attempting to buy

Mr Gallacher warns Nicola that she may find it hard to get a mortgage given her current situation.

“Her ability to get a home loan will depend on how much she receives from the sale of the business,” he says. “As she is also starting a new business, I doubt she will be in a position to get a mortgage on a UK property until she has completed at least her first year. Renting would definitely seem a much more realistic option at the moment.”

Mr Robson adds that when Nicola does come to buy she will need to secure a minimum of 10 per cent of the purchase price, and will then have to add on legal fees, stamp duty and surveying costs.

Seek tax advice

As Nicola's plans include living and working in various countries, Mr Cox recommends she consults a tax specialist to establish her best options for tax residency and to minimise the tax she pays.

He adds that Nicola also needs to consider whether she sets up as a self-employed sole trader or as a limited company.

“With expectations of her earnings (profits) being around £150,000, trading as a limited company is more tax efficient,” he says.

Moving her money home

When it comes to moving her money home, Nicola needs to plan carefully to ensure she gets a good service and competitive rates.

Her two main options are a bank or non-bank foreign-exchange specialist; the latter almost always works out cheaper overall. An online site can help Nicola find the best deal on international payments.

“Nicola should watch out for currency companies who boast of 0 per cent commission or 'fee-free transfers' as the hidden fee is always going to be the mark-up added to the real rate of exchange,” warns Daniel Abrahams from currency comparison site MyCurrencyTransfer.com. “She should also only transact with a specialist authorised by the Financial Conduct Authority.”

Build a pension fund

While saving into a pension may not feel like a priority for Nicola, this is something she can't ignore.

“As she's been living in Spain for a number of years, she may have an incomplete national insurance record,” warns Mr Robson. “This can have an impact on the level of state provision, so she should request a state pension forecast immediately.”

She can do this by visiting Gov.uk/state-pension-statement.

“As the Government pension is a guaranteed, index-linked pension, this can – and should – be left until retirement age,” says Mr Cox. “In terms of other pension savings, once Nicola returns to the UK, she should consider a private pension such as a stakeholder or low-cost Sipp (self-invested personal pension).”

Review protection policies

Upon her return, Nicola should consider insuring her financial situation against illness or injury, according to Mr Cox.

“In the short term, an accident and sickness insurance policy is a good option to consider,” he says. “In the longer term, once her earnings from her new business are clearer, an income protection policy is a better solution.”

Subject to affordability, Mr Gallacher adds that Nicola should also consider critical illness cover.

In addition, she should look into the need for public liability or similar insurances in a business capacity.