Wealth Check: the Pommy planning to transport his cash pile home
Sunday 03 December 2006
The problem: An expat's assets have to be transferred to the UK
Having worked in market research in London for four and a half years, James Johnstone decided it was time to take a career break - and so set off on his travels.
Nine months later, he ended up in Sydney, Australia and secured a job in the same line of work with a company that now sponsors him on a business visa.
Today, 29-year-old James has no immediate plans to return to the UK. But he wants to sort out some financial planning to ensure he is set up for the short and longer term when he does decide to come home.
His main objective on his return in the next few years will be to purchase a property. This is likely to be either around London or along the M4 corridor. He plans to buy a three-bedroom house and rent out two of the rooms.
At present, James earns around £40,000 and expects to earn at least this much when he returns. He has been disciplined about building up his cash reserves in a selection of UK and Australian accounts, and currently puts away £1,500 a month.
He has £24,000 in a mini cash individual savings account (ISA) with the Principality building society, paying interest at 4.7 per cent, and £500 in a savings account with the same provider.
There's also £13,000 in premium bonds and a further £10,000 in a variety of savings and current accounts.
Further to this, he has £16,000 in an internet account with the Australian provider Bankwest, and £1,500 in a National Australia Bank current account.
As well as accumulating cash savings, James has been investing in equities. He currently has £2,000 in the Aberdeen Far East fund and £1,000 in Jupiter Emerging Europe, both held in ISAs.
"I'm keen to start building up a portfolio as soon as I can," he says. "But I'm concerned that because I want to use my cash reserves to buy a property in a few years' time, this is too short a term to put too much of my cash into shares."
James, who rents in Sydney, has never had a pension in the UK, although he does have one in Australia. This is worth about £2,600 and he is keen to transfer it back without incurring a 45 per cent tax charge.
"Once I've purchased my property, I then want to build up my retirement savings, as I'm making quite a late start."
James would like to find out the most efficient way of transferring his cash savings back to the UK and whether he should be making up his missed national insurance (NI) contributions.
The cure: Convert your savings when the rate is right
If James buys a property within the next few years, he shouldn't look to invest in shares or unit trusts with any of the money he might need for a deposit, says Anna Sofat from independent financial adviser (IFA) AJS Wealth Management.
"The term is just too short and the risk of the market going against him is too high. He should look to retain his holdings in cash - although he might want to consider fixed-rate cash accounts or fixed-rate bonds."
She says he also needs to think about the currency risk. James should monitor the pound/Australian-dollar exchange rate and forward purchase sterling whenever he is comfortable with the rate, using a company such as Moneycorp or HiFX.
"He should look to convert his savings every three to six months, depending on the currency rate," says Ms Sofat.
She advises him against tying up capital in a pension before he can determine what he needs for a property purchase.
And she adds: "New UK pension rules mean he can contribute up to 100 per cent of earnings, so there will be plenty of scope for pension funding from surplus savings - or any cash he receives from his pension in Australia."
Ms Sofat recommends James look at moving his savings to more competitive accounts, as much of his money is tied up in ones paying less than 5 per cent interest. "He should switch his ISA with the Principality to National Savings & Investments, where he can get 5.3 per cent, or the Halifax, where he gets 5 per cent," she says. "But he might want to leave the £500 with the building society in case of any future windfall."
Also worth considering is Icesave bank, whose no-notice account pays 5.2 per cent.
Given that his main objective is to buy a house, James should not be saving further in equity-based investments, says Danny Cox, of IFA Hargreaves Lansdown.
"He has a relatively short time to save for his deposit," he points out, "but equity investments need a minimum of a five-year term to give them the best chance for growth."
Once James is ready to tie up his money for the longer term, Julie Hedge of IFA Christie Scotts says he should be looking to create a portfolio of different investment types, rather than just picking a few stocks and shares, "which could be quite risky".
"As James won't have completed 10 years' residency in Australia, he won't be entitled to an Australian state pension - nor will he get any NI credit in the UK," says Ms Sofat.
However, he will be allowed to take the pension contributions he paid in Australia as cash - but with a tax charge. "On his return to the UK, James should [then] look to pay this sum into a pension scheme of his own," Ms Sofat continues.
If he does this, he will receive tax relief of 40 per cent in the UK on this payment - assuming he does earn £45,000 or more on his return. This should mean his position is fairly neutral: he will pay tax in Australia but get tax relief in the UK."
Ms Hedge says that, with regard to the state pension scheme, James should investigate the possibility of paying voluntary Class 3 NI contributions, as this will safeguard his right to state benefits. The taxman provides guidance on this subject on the hmrc.gov.uk website.
Mr Cox stresses that the larger the deposit James can raise, the better the deal he will get on his first-time buy - which could cost anything from £250,000 to £400,000. He adds that lenders like to see evidence that employment is stable, and may not lend until he has completed a probationary period with a new employer back in the UK.
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