The problem: The financial challenges confronting expatriates
Daniel Shalom and his girlfriend Emily Stears run a language training business in Zurich, Switzerland, where they have lived for nearly two years.
With a combined salary worth the equivalent of £80,000, the couple are keen to build up their savings and investments for both the short and longer term.
"We've managed to squirrel a bit away but have no real assets to speak of," says 26-year-old Daniel. "First and foremost, we plan to continue amassing an emergency cash reserve - but are unsure about the best saving accounts available to expats, as we are no longer UK residents for tax purposes."
Daniel already has £3,000 in a tax-free mini-cash individual savings account (ISA) with National Savings & Investments (NS&I) at an interest rate of 5.5 per cent, and another £3,000 in a NatWest savings account earning 3.7 per cent.
Emily has £6,000 in a Halifax Websaver account, which pays interest at 4.75 per cent, and is in the fortunate position of having no debts. Daniel owes £12,000 in student loans.
The couple also want to begin building up their pension savings as, so far, they have made no provision for retirement.
"One problem is that we are basically self-employed, which means there is no possibility of an outside boost to our pension contributions," says Daniel.
They pay £650 a month between them to rent a flat. "Within the next few years we would like to begin investing in buy-to-let properties, either in the UK, Switzerland or wherever makes good financial sense," he adds. "We plan to stay in Switzerland for another two years or so."
The couple have critical illness cover and health insurance with Avanex, a Swiss provider, at £62 each a month.
The cure: Reduce the loans, get more from your savings
For the long term, the couple simply need to put less money into their cash savings and more into pensions and equity funds, says Philippa Gee of independent financial adviser (IFA) Torquil Clark. They should only do this, however, once they have bought a property.
More pressingly, Daniel and Emily need to address some of the financial hitches facing them as expatriates.
Daniel's cash ISA with NS&I has one of the best rates on offer, but Ms Gee points out that he cannot make any further contributions to it as he is not a UK resident for tax purposes - although he can continue to hold his tax-efficient account while he's away.
Jonathan Fry of IFA Jonathan Fry & Co says that for expat savings - paying tax at Swiss rates - the current "best buy" is Bradford & Bingley's international, internet-only eAccess, paying 5.35 per cent. "The account offers instant access to funds but the rate does include a bonus of 0.4 per cent until the end of next March," he adds.
Alternatively, he picks out the Zurich Reward account, from Zurich Bank International, paying 5 per cent with no short-term bonus.
Daniel's student loans should not be a cause for concern, given that the rate of interest is low and linked to the rate of inflation in Britain, says Ms Gee.
"[But] as he is living abroad, he will be making payments direct to the student loans company, rather than via his salary. He will need to do this in sterling, which means he will have to factor in a margin for currency movements."
Mr Fry points out that Daniel's loans will count against him if the couple intend to borrow funds in the future to purchase a buy-to-let property. So he recommends that Daniel try to reduce the outstanding amount once the couple have built up a sizeable sum in savings.
Foreigners living in Switzerland can buy property there but are usually limited to a loan no greater than 80 per cent of the purchase price, says Mr Fry.
"There are also local [state] requirements to spend a specified minimum time at any Swiss property, so a buy-to-let may not be feasible," he warns. "Typically, borrowers have to pay around 5 per cent of the price in 'notary' [or legal] fees, along with the usual costs levied by the mortgage provider."
Nor is it straightforward to secure a deal with a British bank or building society. A number of UK lenders will look less favourably on applications from non-UK residents, adds Mr Fry; the amount they are allowed to borrow can be lower, varying between 70 and 90 per cent of the value of the property.
"Some concerns have also been voiced about the possibility of the UK buy-to-let market becoming overheated. A glut of properties can affect rental yields, along with the other issues of void periods, rental default and property damage."
One of the big attractions of a UK personal pension plan - the tax relief - will not be available to the couple, warns Mr Fry.
"The new pension rules introduced in April no longer require an individual to be resident when contributing to a registered UK pension scheme," he says. "But tax relief is allowed only where the individual has been a member of a scheme in the past five years and is either a UK resident or has had their earnings [subject] to UK tax." As Daniel and Emily have not contributed to a pension before, this will make them ineligible to receive tax relief on contributions.
However, the two can still make payments and, when they return to the UK, qualify again for relief.
Mike Pendergast at IFA Zen Financial Services recommends the couple check the premium they are paying for their critical illness cover and health insurance to ensure it is still the most cost-effective.
Mr Fry says they should look into taking out income protection. "This is particularly important as their income would be hit if either of them were unable to work due to a lengthy but non-serious illness or injury where critical illness cover would not help," he explains.
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