Wealth Check: Lucy can make her trip abroad a lot less rocky
A snowboarder with the travel bug hopes her savings will be enough to make her six-month stay in Canada go smoothly. Interview by Harriet Meyer
Sunday 01 March 2009
Lucy Hares, 27, is emigrating to the Canadian Rockies in two years' time to enjoy the "outdoor lifestyle". Yet while it's an exciting move for the keen snowboarder, from near Minehead in Somerset, it's also financially nerve-racking as she will have to search for work and a home and cope with an unfamiliar currency.
"To make the transition smoother, I'd like to sort out my various bank and savings accounts before I go," she says. "It's taking four years in total to complete the emigration process as there's a long waiting list. I'm halfway through, so I have a while to prepare."
For the past six months, Lucy hasn't been working, but she manages to make ends meet by dipping into her savings and staying with family and friends to avoid paying rent and household bills.
Previously she has worked in several jobs, including as a guide on bike tours and as an outdoor activities instructor for seven years in central Europe, leading tours from Prague to Vienna. "I have earned a mixture of euros and pounds in recent years, bringing in a salary of around £20,000 a year."
Before leaving for Canada, she hopes to study for a postgraduate certificate in education (PGCE) at Brighton University, starting the one-year course in September. "I am looking into the cost of this but I think a government bursary will cover it so I will just need living costs," she says. "I hope to find work over the summer to save towards this, as well as part-time work while studying."
For short-term needs, she has several savings accounts in place, including around £15,000 in an Abbey cash ISA paying 0.56 per cent, and contributes to this whenever she can. "I hope to put this sum towards buying a house in Canada when I get there," she says. Additionally, she has £6,000 in a one-year fixed-rate savings account with Lloyds Banking paying 4 per cent, opened in July last year.
For everyday use, she has a Lloyds current account, with around £1,000 in an easy access savings account linked to this, paying 1.6 per cent. "I use this to dip into for emergency funds when needed."
From her time working in Europe, she has €€3,800 (around £3,330) in a Lloyds offshore euro-denominated current account. "I'm waiting for currencies to shift in my favour so I can make the most of this money when I transfer it," she says.
She also has US$1,600 (around £1,100) in a FirstBank current account from a stint as a snowboard instructor in Colorado several years ago. "I plan to use this money for a trip around India next month."
The only debt she has is £10,500 in student loans. And while she uses a Lloyds credit card, Lucy makes sure to wipe out the balance each month. "And I rack up air miles by using this card," she adds.
With a reasonable level of savings and cheap debt to service, Lucy has a "sound base" for emigrating to Can-ada and funding a property purchase one day, agree our panel of independent financial advisers (IFAs).
Once settled, she will need to consider her long-term goals and start making provision for the future through pensions or other investments.
The £15,000 in the ISA could eventually be put towards a deposit for buying a home, says Ajmer Somal from IFA Positive Solutions. "However, as Lucy will become a UK non-resident, she must remember that she will be unable to hold this type of tax-efficient account once living in Canada."
In the meantime, as the Abbey ISA is paying a pitiful rate, Philip Pearson from IFA P&P Invest suggests she transfers to a fixed-rate cash ISA.
For example, Saffron building society is offering a two-year fixed ISA that allows transfers and pays 3.3 per cent. This will guard against further falls in the Bank of England base rate, currently standing at just 1 per cent.
Yet for use in an emergency, Lucy should keep around three months worth of expenditure on easy access. For this purpose, she could shift her savings from the Lloyds easy access account to one paying a better rate, although there are few attractive deals on offer at present.
As a precaution, Lucy should keep the Lloyds current account when she moves, and maintain a cash reserve in this. "This may be needed in case things don't work out in Canada and she needs to return to the UK," Mr Pearson points out.
Turning to the euro and dollar accounts, the advisers say now is a good time for Lucy to be buying sterling as it is currently weak against other currencies. "She could use the profits to fund next year's ISA allowance," says Mike Wellby from IFA Honeybee Financial Planners.
However, unless she needs this money to hand, an alternative would be to use it to buy Canadian dollars in preparation for her move, as this currency is weak against the euro at the moment.
As a priority, Lucy should calculate her income for the current tax year, ending on 5 April, and estimate what it may be for the next two years.
"If her taxable earnings are below the personal allowance threshold, currently set at £6,035, she can claim back any tax paid on interest earned on her savings," says Mr Wellby. "And the training bursary for a PGCE in primary education, at £4,000 for 2008-09, will not count as taxable income."
She can complete the HM Revenue and Customs form R85 to register as a non-taxpayer. "Also, if Lucy is a non-taxpayer, it may be advantageous to switch some savings from her ISA to an ordinary notice account if the rates are slightly better," adds Mr Wellby.
Until Lucy is earning a regular income, she should avoid repaying her student loans. The rate charged on this debt is currently just 3 per cent, rising to 9 per cent on any earnings over £15,000. "This will apply to any equivalent earnings in Canada, and Lucy is required to notify the Student Loans Company when she goes to live abroad," says Mr Wellby.
As she has a disciplined approach to credit card debt, she could take out a Nationwide credit card for use on her travels. The building society doesn't levy fees for withdrawals or card transactions, while high-street banks typically charge a "foreign loading fee" of around 2 per cent.
"As Lucy plans to purchase a house in Canada in a few years, she should look at the likely cost, including factors like local taxes and legal costs," says Mr Somal. Then she can budget ahead for this event if she decides to press on with it soon after her move.
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