Usually I focus on expat financial matters, but it is of course the case that many expats return home. I would like to give a few tips for UK expats who have returned to the UK, about how to maximise their finances in 2016:
1). Use ISA allowance
The ISA allowance is now over 15,000GBP per year, which means that you can save about 1200 tax free. Over ten years, that is a lot of money, and will reduce your costs considerably. Assuming you have 3-6 months living costs in the bank, invest monthly into the markets in a diversified portfolio and ignore overblown fears about the market. Whatever happens, the chances are that you will be up come retirement age, so enjoy it if the market goes down – it means you are buying cheaper!
2). Think about your pension more
Saving is important, but pensions can have significant tax advantages. From April 2016 however, the pension lifetime allowance will be £1 million, which is a decrease from £1.25 million. Anybody who exceeds this will pay a 55% tax charge. It also has to be remembered that anybody who earns more than £150,000 will see their pension allowance reduced by £1 for every £2 of income earned above £150,000. As a former UK expat, moreover, you probably saved overseas. Speak to your adviser about the options, but usually it is still worthwhile to contribute into the overseas plans.
3). Remember the capital gains allowance.
If you own investments in ISAs and pensions you have an allowance of £11,100 before you pay Capital Gains Tax. Remember, that regardless of whether you sell an investment after 5 minutes or 50 years, the same allowance applies. Therefore, somebody who sells all their investments at once after 40 years of investing, will have a big tax bill, even though inflation has contributed to the gains. Plan accordingly for this tax, by gradually selling if you are close to retirement and need the money.
4). Move assets to somebody you trust
It is legal to give gifts of up to £3,000 per year per person tax free and of course, cash cannot be traced, so it is easy to transfer more. We will all die one day, and everybody wants to transfer assets to their kids before the state takes taxes for the old people’s home!