bdhSterling Essential Finance: Savings & Assets: Growing Your Wealth

Jess:
Hello and welcome to the second episode of Essential Finance a video content series in partnership with bdhSterling focused on providing financial advice for the Australian expatriate community in the UK.

I’m Jessica Sullivan the member engagement and project manager at the Australia – UK Chamber of Commerce. The second edition in our 6 part video series will focus on savings and assets, growing your wealth, and how to best equip the repatriate and expatriate community with the tools and advice to build their wealth.

Our valued sponsor for this series is bdhSterling, and they are a key partner for our chamber member networking, given their considerable experience in financial planning and wealth management.

Today Stephen Ford, Head of Financial Planning for bdhSterling joins me for our episode on Savings and Assets: Grow Your Wealth. Stephen is a fellow Australian so truly understands the challenges and pitfalls ex-pats face with respect to managing their finances, between the UK and Australia.

Stephen has vast professional experience across strategy, marketing, and commercial finance, which gives him a broad perspective on financial planning and investment. It’s my pleasure to speak with you today, Stephen, welcome and thank you. How are you faring on this sunny but wintery day here in the UK in April?

Stephen:
Oh good, Yes, I’m looking forward to the turn in the weather. It’s always deceiving being an Aussie isn’t it, you look out the window and it’s lovely and sunny, it’s beautiful outside but it’s basically freezing the other day it was snowing even, it’s very very difficult.

Jess:
It’s a cruel trick that the spring plays on us often teasing us with the sun.

Stephen:
Yeah, it’s tricky to calibrate, isn’t it?

Jess:
Yeah, it is, well hopping right in now Stephen. Let’s talk about setting yourself up, and growing your wealth. How can I secure my finances, so that they are protected for the long term?

Stephen:
I think the main thing is to have a plan. I think that’s often something that people don’t have at all. I’ll be honest about my own circumstances when I did come to Britain, I thought I was just coming for three to five years to come with a temporary mindset. I was early 40s, no particular plan about what I do next and a real appetite for understanding and if I’m honest, a big fail. So, I think really, I encourage people to have a plan and it does take some organisation.

I genuinely talk about the plan being in three stages the sort of here and now, for the next five years. There’s the middle section and then there’s later life. Really you need to pay due regard to each of them. Even if you’re a young person in your 30s, saving. We find it quite a lot, to do a little bit now adds up to an awful lot in retirement.

It’s largely having a sound plan. The other one is having a sound savings plan so: A, saving a bit. B, using your pensions and or superannuation if you’re in Australia to make sure that money is getting tucked away and respecting those periods. But mainly that you have got those, in what we call tax wrappers, that’s a bit of jargon but basically means how that particular investment is going to be taxed.

There’s quite a different range of those, so it’s making sure that you are using each of them wisely. Particularly respecting the fact you may move between the countries so that you understand that. The other thing is the quirks of the system as you move, so for example we can access, this tax-free in Australia. If you want to bring it to Britain, HMRC wants to start taxing it. So, you’ve got to understand I guess what changes once your status changes.

Jess:
Hey, you’re not wrong there and we’ve got a tax question further along which we’ll get to in a second.

But as you’ve mentioned it’s a bit of a minefield for ex-pats with respect to ensuring we’re tax compliant and have everything set up accordingly. What taxes do we need to be aware of if we’re to move between both countries?

Stephen:
I think it’s all of them. I think that the difficulty, certainly I found, I suppose is unique in Britain is pretty similar to Australia they say similar things in terms of taxation, but it’s really quite different. I think the first thing is, appreciate that.

I know, as an example, when I came over. A, I thought I was going to go back in five years, so what’s the point of having a UK pension? I was paid quite highly I was in the 40% tax brackets. I didn’t put anything in the pension for the majority of my corporate life here.

That was a huge mistake on two levels. One is there’s the tax relief I would have got if I was staying in Britain which is the plan. Where if I wanted to move that UK pension eventually to Australia and take it out tax-free I could avoid ever paying a great deal of tax. So, always understanding the pension and superannuation arrangements is key.

There’s the investments. So unlike Australia where it’s a little bit more of a simplified environment, and everything is run through your own income tax statement. In Britain, there’s different buckets, you have a personal allowance, you have a capital gains allowance, a dividend allowance or a savings allowance. There’s all these different little buckets that you can put money in that have a different tax consequence, and really the art is knowing which ones to put in one box.

The other one is just a pure income tax on employment. So, how does that work? Even the way originally when I understood, I thought was similar to Australia, but it wasn’t quite the same at all. So even just those subtleties need to be well understood.

If you stay in Britain too long. Once you get to 15 years in Britain you’re subject to inheritance tax, which we don’t even have in Australia. So, you have to start acknowledging that that’s the case. I think the simple thing that everyone doesn’t understand and in fact I got caught a little bit myself because the rules changed, and I wasn’t really aware, was that once you arrive in Britain, you actually have to pay tax on your Australian assets.

Just the choice of how you’re going to get that calculated. You have obligations in both countries that you can’t just put your head in the sand and ignore that sort of stuff.

The last little main point is in Australia, we have what we call de facto relationships which means you’re just cohabiting but you’re not married. You get voted for the same rights as a married couple, but in Britain, that’s not the same. So, you’ve got to understand also if you are a couple. What that means for a number of the taxation elements. But also there’s an opportunity, so it’s just about in every area, you need to have some working knowledge of that.

Jess:
Definitely, there’s a lot of assumptions that you can very easily make that get you into strife very quickly. We don’t want to be in HMRC or ATO’s bad books.

Stephen:
It’s strife and its opportunities, so it’s both. You can be really in a lot of trouble if you haven’t done something wisely but you also miss a lot of opportunities. Like me, not putting money in the pension was a huge opportunity I’ll never get back again. So, it’s been an expensive mistake but the opportunity sat there to be taken if I’d done it.

Jess:
That’s exactly right and it is that planning that you need and that foresight to be able to set things up but, you have to know the short term and long term goals too. This is particularly relevant and timely given that we’ve we’re in a new financial year here in the UK and the close of the Australian financial year is not too far away as well.

This past year has tested us in many ways and I am all too familiar with dear friends who’ve repatriated home, some of whom I never thought would leave the UK anytime soon. What advice would you give to those who have not yet decided whether or not to move back to Australia? And how can they put things in place financially to make it a little bit easier?

Stephen:
I think it does depend a lot on your age and age is a pretty key factor in all financial planning. So if I contrast two ends. If you are, let’s say nearer retirement age. So, in your 50s or whatever, there’s a significant opportunity as we said to put more and more money in your UK pensions. You’re close to being able to access them. So, in the UK pension system you can go back for the current tax year and you can go back three more years, and top up, up to 40 grand potentially in each of those years.

That’s £160,000 you could stick in the pension. And if you’re in the 40% tax bracket, you do not have to pay any of that tax that’s significant. Then move that money across to a superannuation scheme, when that’s possible and take it out. So there are simple activities like that, if you’re in your 30s often you can do the same thing. I’m here in my 30s, making a lot of money either as an independent person or a couple. I could put away a lot of money in my pension, leave it there for 30 years to compound growth. It will be fantastic, you’ve almost squared away your retirement income in that five year period, which takes the stress off what you do in your mind.

I think there are other tools that people need to be aware of and that’s like offshore bonds. Once you’ve held them for 10 years, they are tax-free in Australia so it’s a bit like an ISA in the UK where it’s a tax-free investment on growth and withdrawal.

So, if you’re not going back for three or four years and maybe you start putting your money in that type of investment. Because you know that three or four is ticking along if you don’t need it for a house deposit or something like that. Back in Australia, it can become an important part of your tax-free income in retirement, or perhaps when you get back to Australia you want to purchase a house.

The big question is do you buy a property? A lot of people want to get on the property ladder, I might go home in five years and so I really need to weigh this up. Because you’re going to waste money potentially on stamp duty then selling costs to get rid of it. Then unwind all that and go back and you don’t guarantee you would have made the money on the property anyway. So, those kinds of questions are difficult to judge.

The last one is you’re setting yourself up, knowing  you might be planning a transition, to know what to sell, when. Because you kind of have two statuses, you have a UK resident, or I can eventually be a foreign resident in the UK. Then I’ll become an Australian tax resident and each of the conditions are different. So, sometimes it might be better waiting to leave, sometimes it’s best before.

There’s a number of those considerations, they just need to be weighed up and that’s where each person’s unique circumstances and objectives need to be really understood.

Jess:
Magnificent. Thank you again, Stephen, the essential planning base that we’ve discussed today can really put us in good stead for the future and it’s something we probably don’t give enough time and brain space to. But with careful consideration actually can have great long term benefits. With that all in mind, how do our network, get in touch with you and your colleagues at bdhSterling so they can work through these plans?

Stephen:
The simplest way to contact us is perhaps through our website. So, you’ll find the contact details there. The website is www.bdhsterling.com if you jump on there, you will see a lot of information and a lot of topics and reports, etc. You’ll also find the contact information so, send us an email or find the phone number and just call in.

Jess:
Magnificent, thank you so much again Stephen it’s been a real pleasure. We will get property questions which is actually coming up in episode five so we hope that you’re all going to tune in for them.

In our next video though I’ll be speaking with Paul Davies who’ll be focusing on ‘Pensions Act Now – Benefit Later’ so very pertinent to what we just discussed with Stephen. Stay tuned for the next edition of Essential Finance with our partners bdhSterling.