Jakob Pfaudler, managing director of Lloyds TSB International, answers questions from Financial Time journalist Lucy Warwick-Ching on what people should do about their finances when they are moving abroad.
1. Which are the most popular destinations for people to move to from the UK?
Overall, the most popular destination for British expats is Australia with a total population of almost one million. In addition, research amongst our customers has shown that there is also a large working expat contingent in the USA, Hong Kong and UAE whilst retirees tend to favour Spain, France and Canada.
Increasingly, the BRIC countries (Brazil, Russia, India and China) are becoming more and more appealing to expats due to their rapidly growing economies and subsequent enhanced career and lifestyle prospects.
2. What should people do first in terms of their finances when they are moving abroad?
Aim to pay off your debts back home and notify your bank that you will be leaving; you should also allow time to research and set up an international account with an international bank before leaving the country. Choosing a bank with international reach allows you to access your funds as soon as you arrive and most importantly, means you can bank in multiple currencies.
It may also be a good idea to obtain a letter of reference from your current bank as this may be needed to allow you to rent property in your new location, do this around two weeks before you leave. Considering your tax affairs is vitally important and you should also investigate the best jurisdiction for savings and investments.
3. Should I make provisions for coming home in case I don't enjoy living abroad? What can I do to prepare?
Maintaining a link to the UK can provide an invaluable safety net should you need to return back to your home country. And planning for any eventuality is another key component of a successful move abroad ñ and that means considering a number of factors that might lead to an unplanned return to the UK, including those that are out of your control such as a downward turn in the economy or a major political event.
If your finances allow, avoiding selling up completely in the UK can be useful. Even if you sell your main property, investing in a smaller apartment allows the option to return home easily should, for example, a work placement come to an end earlier than expected. You should however consult a tax advisor on the impact of maintaining a residence in the UK.
With Lloyds TSB, you are also able to maintain your UK bank account alongside your international account, so should you decide to return back to the UK for any length of time, youíve got an account ready and waiting.
4. Is it easy to get a mortgage overseas?
Getting a local mortgage, i.e from a local bank, can be difficult without a credit history, but applying for an international mortgage, is an easier process. The application process for an international mortgage is very similar to the UK in that we will initially send the criteria guidelines together with interest rates. Subject to approval and verification of the information contained within the application form, we will issue a decision in principle which is valid for three months. We will then arrange for the property to be valued.
Subject to satisfactory receipt of all required documentation we will issue the mortgage offer at which point the customer will need to make arrangements to pay required fees. Solicitors are then instructed to commence the legal work and request funds from us when they are in a position to complete.
The timescales for completion do vary depending upon the chosen location. It typically takes four to six weeks to complete your mortgage in Great Britain, Australia, New Zealand, Dubai, Hong Kong and Singapore. Buying within the USA, Canada, France and Spain typically takes up to eight weeks to complete. These timescales are indicative only and will vary depending upon the length of any property chain involved and speed of your solicitor.
5. If youíre moving to Europe then should you open a sterling or euro account? Why?
If you are paid in euros and based in a eurozone country then a euro account will probably be your first choice for a currency account. If however you have regular dealings with the UK then a sterling account is a helpful addition to make moving money between other currencies easier. Also, if you have a genuine concern about the stability of the euro as a major currency you might like to look to dealing in other currencies like Sterling. But tread carefully, as the strength of the pound has fluctuated over the last year and whilst it has regained some strength against the euro things can always change.
6. How can you transfer your money overseas?
There are a number of ways to transfer money overseas; you could for example use an international current account like our Premier International Account. With such an account, itís easy and secure to send and receive payments overseas, manage your finances online 24/7 and transfer money to your family or back to the UK for regular payments on mortgages, investments or savings. Whichever method you choose, you should be able to manage your account in whatever capacity suits you – vital when it comes to moving abroad.
7. Which offshore savings account can get you the best rates?
Currently the best offshore savings rates tend to be long term fixed rates. Lloyds TSB International currently offers a fixed rate of 4 per cent for customers happy to put their money away for five years
If you'd like to be able to access your money however, then another good option is a variable rate account with easy access. This type of account provides flexibility to withdraw or move all of your money if you choose to, and many offer a great return given the current low base rate. We recently launched the Lloyds TSB International Incentive Saver which rewards customers with 2.42 per cent during months you donít withdraw, but allows access should you need it.
8. What about moving your pension overseas? Is this possible?
For state pensions, you need to get a State Pension forecast to check your entitlements while living abroad. Once you have applied for a forecast of your state pension, if there is a shortfall in your record, you will be invited to consider making additional voluntary contributions to enhance your credits to the required 30 years to obtain the full entitlement according to current rules. These can be paid annually up to six years in arrears and may well be worth considering.
You should also inform HM Revenue and Customs National Insurance Contributions Office (International Services) and the Department for Work and Pensions of your contact details when you move. Your state pension can then be paid direct into your international account. If you are receiving income from a private pension, you should check whether the scheme will pay into an overseas bank - and if you will have to pay charges for payments into overseas accounts.
Whilst it is not possible to transfer your state pension benefits abroad, for company and personal pensions, UK pension law changed in 2006 to incorporate EU legislation and enables individuals to transfer UK pension benefits abroad to 'recognised' schemes. This manifested itself in the acronym QROPS standing for Qualifying Recognised Overseas Pension Schemes. These arrangements are designed to benefit those moving abroad permanently or indefinitely who require more flexibility in taking pension benefits, for example drawing their pension in Dollars or Euros. However it is essential to take tax and financial planning advice from both the UK and new home country point of view as the rules are complex. While there are many advantages in taking the transfer option, there are pitfalls for the unwary and the penalties for getting it wrong are severe.
9. Should I worry about my tax status?
One of the most complex areas to resolve for individuals moving to another country is their tax status ñ both in the UK and in the country to which they are moving. There are many factors that require careful planning to ensure that these individuals pay a correct amount of tax in the right jurisdiction. Issues such as how long they intend to remain resident in the country to which they are moving, how much of the year they intend to be resident in the UK or the country to which they are moving, are only the starting point.
They will also have to consider the tax implications for some of their assets, such as investments and property. It's not only income tax, but also Capital Gains and inheritance tax that these individuals must plan for. Add to this the complexity of individual country tax regimes and the interlocking effect of different tax systems, and the array of decisions becomes bewildering. This is why we almost always advise our international clients to take professional tax advice, especially as their financial arrangements are often complex and change and because tax regimes seem to change with increasing speed and regularity.
10. What do expats look for in a bank?
We've conducted extensive research amongst expats to ensure we understand the challenges and opportunities of an international lifestyle, and are developing products and services which meet our customers' needs. Our findings show that essentially, expats want to be with a bank that offers help on how to make the most of the international opportunities available to them.
Specifically, expats are looking for a bank that provides quality customer service first and foremost. They also highlight the importance of banking with a provider that offers international expertise and has a solid global reputation. Account functionality must be straightforward and due to their mobile lifestyle, reliable internet and phone banking is essential and travel insurance is also preferable. Lastly, expats also emphasised the value of transparent fees, illustrating that banking without any catches is a priority.