Earning abroad, sending money back to UK- how to maximise interest.

dothebartman

Hi everyone,

Just trying to get my head around how to maximise interest on my earnings. I am currently living abroad and am fortunate enough to be earning enough to send back about £1000 a month to the UK. I have an ISA for this tax year that so far has £2k in. My plan is to continue to send money back to the UK. I have just read the savings guide on here and have a query about Regular Savings Account. I am with HSBC and have a premier account, as such i think i can open a R.S account for about 6-8%interest. My question is, will i make more interest in filling up my ISA first or putting the maximum monthly allowance into the RS account and then the overfill into the ISA until its full? Also how does tax work if i am earning overseas (NZ) and paying tax here? If i am not paying income tax in the UK then can i put more into the RS account until i have to start paying tax on it?? or is that completely wrong. I also have a regular savings account over here for 4.5%(taxed so about 4% afterwards).
My ultimate plan is to try to save up a house deposit for when i move back to the UK in a year or so and i would like to have my money safe earning as much interest as possible! Thankyou all!!!

dothebartman

From what i can see i will be able to open this account with HSBC:

Effective date Amount Net% Gross% AER%
07.02.11 £25 - £250 per month 6.40 8.00 8.00

So if the net interest is 6.4% then wouldn't my money make more interest here than on my cash 'isa at 3.5%? bit confused....help please!

innovate

Use the Regular Savers calculator to figure out the real return you can get from a Regular Saver. If you can only pay £250 each month into a savings account, any Regular Saver above about 4% will be a better bet than the best cash ISA right now.

However, I think you need to review whether you are eligible for savings accounts in the UK. Bottom line is that you should be asking the HMRC for advice.

I don't know what your tax status is whilst you work abroad temporarily; there are usually double taxation agreements which make sure you only pay tax in one country.

I also don't know whether you are eligible for continued contributions to your ISA - the HMRC FAQ suggests you might not be.

Similar applies to other savings accounts - usually you have to be "resident and ordinarily resident" in the UK to open a high street savings account. An alternative could be offshore accounts but you don't get the FSCS protection on those.

On all savings accounts bar ISAs, banks automatically withhold 20% tax from the interest you earn. If you live in the UK, you can apply with an R85 to receive your interest tax free. If you don't live in the UK, different rules apply, and you really need to ask the HMRC for guidance.

doubleJackD

i don't think you can open an ISA if you are resident abroad....

rockitup

You should also have completed and returned a P85 form to HMRC before you left UK to live and work in NZ.

When HMRC receive this form they will write to you and let you know your tax resident status, if Non-resident then no ISA can be opened or added to, but existing ones opened and funded whilst in the UK can be kept open

dothebartman

Hmmmm interesting replies, looks like i need to do a bit more digging. I think that legally i am still classified as a resident of the UK as i am here on a work visa and have not applied for residency so am not resident of NZ, therefore i would assume (?) that i must remain resident of the UK? I completed a p85 before i left so i will phone the 'rents to see if they have a letter from HMRC with status on it.

perth_worker

so if you have uk citizenship and passport but live abroad and have residency for another country, you can't open an isa?

rockitup

perth_worker wrote: »

so if you have uk citizenship and passport but live abroad and have residency for another country, you can't open an isa?

You have to be a UK resident for tax purposes to be able to open an ISA.

As a UK Citizen you do have an annual tax free allowance and can earn up to that amount in interest income, rent etc before income tax is levied. Trouble is depending where you live, that country may like to tax you on worldwide income. Check out the Double Tax Treaty on HMRC/CNR website (Centre for Non Residents)

Some countries do not tax on income earned from outside of that country

bigadaj

dothebartman wrote: »

From what i can see i will be able to open this account with HSBC:

Effective date Amount Net% Gross% AER%
07.02.11 £25 - £250 per month 6.40 8.00 8.00

So if the net interest is 6.4% then wouldn't my money make more interest here than on my cash 'isa at 3.5%? bit confused....help please!

If your earning in kiwi dollars then exchange rate is a risk, so need to take a view on that. I k ow the Aussie dollar is seriously strong currently, and so converting back to sterling may or may not be the best decision now or in the future, would be of interest to check what future spot rates brokers are quoting and take a view.

dothebartman

So checked with HMRC and am actually classified as a non-resident. So looks like i shouldn't of opened an ISA this tax year. So now thinking that i will have to close it. Also sterling has become stronger since i transferred the cash from NZ, so thinking i will transfer it back to NZ and make a bit on the exchange rate, and my NZ savings account actually earns more interest than a UK ISA (even taking into account that its taxed). Will also have to phone up HSBC and see if i have to close my UK regular saver account. Hmmmm Thinking this may not be a bad time to move my money out of the UK and into NZ with the scary economic news from Europe? and I'm thinking sterling will loose value against the kiwi dollar over the next year or two as the Euro continues to hit crisis measures. thoughts?

rockitup

dothebartman wrote: »

So checked with HMRC and am actually classified as a non-resident. So looks like i shouldn't of opened an ISA this tax year. So now thinking that i will have to close it. Also sterling has become stronger since i transferred the cash from NZ, so thinking i will transfer it back to NZ and make a bit on the exchange rate, and my NZ savings account actually earns more interest than a UK ISA (even taking into account that its taxed). Will also have to phone up HSBC and see if i have to close my UK regular saver account. Hmmmm Thinking this may not be a bad time to move my money out of the UK and into NZ with the scary economic news from Europe? and I'm thinking sterling will loose value against the kiwi dollar over the next year or two as the Euro continues to hit crisis measures. thoughts?

Thought you would be assessed as Non-Resident, not sure how you go about closing your ISA though. I think the bank will have to void it and you would probably receive the net interest instead, possibly minus a charge....

You should be alright with HSBC, I know expat customers who moved abroad and still have the HSBC accounts running.

Taking a gamble on the currency markets? I bought USD to buy a house in the States in 2008 getting just over the $2 back in Summer 2008. When I was looking at homes there the financial markets went in to free fall and I bottled out and kept the greenbacks in the bank. 6 months later the dollar regained it's strength and I made 42% on the deal so converted back.

I doubt I will ever see luck like that again and if I try again the results could really head the other way. By all means take a nice profit if it is staring you in the face, but if you expect to go back to UK in a couple of years then you really are taking a gamble if you move all your funds out.

If you get 2% extra interest each year for 2 years but the currency slips by 5% the wrong way, then you are negative 1%.

Be lucky, but most of all be careful