Andrew Milne met Caroline Adams in a West End bar last May. The couple were
engaged soon afterwards and now the 36-year-old, who teaches PE and games at
Dulwich College, spends the equivalent of £400 a month on travel to Chicago,
where his fiancée, an American citizen, is a high-school science teacher.
That expensive routine will end next spring when Andrew moves to the Windy
City to marry and settle down. But the shift may not be straightforward. He
has no job to go to “and no idea how to make the necessary financial
arrangements”.
His main preoccupation is what to do with the three-bedroom Victorian house he
owns in Coulsdon, South London. He has a £60,000 repayment mortgage on the
£270,000 property and is thinking about remortgaging to free up capital for
the year he expects to spend out of work while his paperwork is sorted. The
property has a rental value of about £900 a month and Andrew says: “Even
with a remortgage, the payments on the house would be less than the rental
value. But would I pay tax on the profit in the UK?”
An alternative would be to sell the house to take advantage of the pound’s
strength against the dollar. “It is ideal for a professional couple or young
family and would sell immediately if put on the market,” he says.
Either way, Andrew will need enough money to cover £350 a month in
contributions to the mortgage that Caroline is paying on her two-bedroom
townhouse. On top of the cost of the move, he must also factor in £3,000 for
immigration red tape and a contribution of £15,000 towards the wedding. That
is before day-to-day spending.
His savings of £1,500 will not go far towards these costs, but he is keen to
know how he will be able to open a new deposit account in Chicago – and make
other important financial transactions – without a credit history in
America. He has no investments and no debt beyond a car loan with a few
months to run. He does not possess any credit cards.
After mortgage payments of £410 a month and a similar spend on his
long-distance romance, outgoings are modest. His one extravagance is the
£58-a-month subscription to Sky TV and an additional sports channel. Other
monthly expenses include £200 on council tax and utility bills, £83 on home
and car insurance and £40 for his mobile phone.
Since 1994 Andrew has been paying into Prudential’s Teacher’s Pension scheme.
His fund is now worth an annual pension of £4,665 and a tax-free lump sum of
£14,000. He has paid some paid additional voluntary contributions into the
scheme, which are now worth £6,905. “The pension is a good one,” he says,
“but what do I do with my pension payments if I am resident in the US?”
He is also unsure what to do with the endowment policy that runs alongside his
mortgage and is targeted to provide £54,100 at maturity. It is now worth
about £11,314.
Andrew is confident that his experience of British and American games will
secure him a high-school position once his visa status is settled. In the
medium term, he and Caroline would like to buy a second home in the country
or upgrade to a larger townhouse.
Financial CV Earnings: £45,000 a year
Savings: £1,500 in Alliance & Leicester’s PlusSaver account
Investment: None
Pension: Andrew has a Teacher’s Pension with Prudential. The
final-salary scheme is guaranteed and inflation-proofed
Objectives: To free up cash to fund a year out of work on arrival in
America. Andrew wants to capitalise on the strength of the pound but is
unsure whether to remortgage or sell his UK home
Andrew Milne: what the experts say
PROPERTY
Jerry McLoughlin, Punter Southall
“The key area of advice for Andrew is what to do with his property and the tax
implications of his decision. If he decides to retain his house and let it,
the income received will be taxable. But there is a double taxation
agreement in place with the US, which will normally mean that he will not
pay tax twice.
“However, if after moving to America, Andrew decides that he will definitely
stay and wants to sell the property, the US tax authority, the IRS, would
likely seek to tax the whole gain over the full period of ownership.
Considering the level of growth that the UK property market has experienced,
this could be considerable. Ideally, he should make a decision about his
long-term intentions before he becomes accountable to American tax.
“If Andrew sold the property now, while a UK resident, there would be no
capital gains tax to pay under the rules of principal private residence
(PPR) relief. If he retains the property and if things did not work out, he
could return to this country within three years, become UK resident for tax
purposes again and still be able to qualify for full PPR.
“Another important consideration is the strength of the pound against the
dollar and the likelihood of continued growth in the UK housing market. If
he sold now, Andrew would capitalise on the gain achieved in his property by
selling it tax-free and also maximise this gain with the exchange of
sterling to dollars before moving.
“If he sells, it is questionable whether the endowment he started to run
alongside his mortgage is worth keeping. He could surrender it now and put
the money towards his moving expenses.
“If Andrew decides to let, rather than sell, he should remortgage on an
interest-only ‘buy-to-let’ deal, as this would be based on the rental yield
of the property.”
Action plan
Consider the likelihood that the move is permanent.
If it is, think about selling now to capitalise on the strong pound and avoid
a bigger tax bill later.
PENSIONS
Laith Khalaf, Hargreaves Lansdown
“Andrew is very lucky because, as a teacher, he has become enrolled on a
pension early in life. His Teacher’s Pension should be left where it is. He
may consider transferring it to a scheme in the US in future, but this seems
premature at the moment because, if he comes back after ten years, he could
end up playing transatlantic tennis with his pension.
“Once he has left his job, Andrew will still be able to obtain tax relief on
UK pension contributions up to £3,600 gross a year for a maximum of five tax
years after leaving the country. He must have a pension set up before he
moves so he can receive these payments. Transferring his additional
voluntary contributions (AVCs) to a new personal pension, or stakeholder,
would do the trick.
“As he is moving abroad, online access to his pension is desirable. Scottish
Widows and Standard Life both offer this.
“Even if Andrew does not want to transfer his AVCs, it is vital that he makes
a contribution, however small, to a new pension before setting off.”
Action plan
Keep Teacher’s Pension scheme money where it is for the time being.
Start a new personal or stakeholder pension in the UK, possibly using money
now in AVCs.
Pay into this, from the US, to claim tax relief for five years.
FINANCIAL PLANNING
Dennis Hall, Yellowtail
“Before doing anything else, Andrew needs to obtain a social security number
and US driving licence and establish a credit history. Without these, he may
as well be invisible.
“Establishing a credit history is hard, but could be easier if he has his UK
credit history. Both Equifax and Experian provide a full credit report for a
payment of £2.
“In Chicago, an introduction from his future inlaws may help to open a bank
account – the first step in creating a credit history. Not having a job for
a year will complicate matters, but Andrew should persevere.
“In the meantime, he should retain his UK bank account and any associated
cards. He can also look at opening a Nationwide FlexAccount, as the debit
card offers free use abroad for cash withdrawals and purchases. For large
transfers, he would be better off using a specialist foreign-exchange
company. Compared with the high street banks, Caxton FX recently saved me
more than £2,800 when purchasing $100,000 (£49,000).”
Action plan
Obtain credit history from Experian or Equifax and take this to the US.
Open a bank account in Chicago, using an introduction from inlaws.
Open a Nationwide Flex Account in the UK for free withdrawals and purchases
overseas.
LINKS
Punter Southall: 020-7839 8600, www.psfm.com
; Hargreaves Lansdown: 0117-900 9000, www.hargreaveslansdown.co.uk
; Yellowtail: 020-7933 8670, www.yellowtail.co.uk
Andrew’s response
“There was some really good advice and it brings home just how much I have to
do.
“I hadn’t seriously considered selling my property, but the tax implications
have sown a seed in my head. Of course, I am emotionally attached to my
house over here, but is that really a way to start a marriage?
“Mr Khalaf’s advice was helpful. I am thinking about surrendering my endowment
and putting that money, rather than my AVCs, into a new pension with online
access.
“I will also send off for my credit report. I have never checked it, so I am
very curious. I hope that, with an introduction from my inlaws or my brother
in Washington DC, it will help me to open a bank account. Mr McLoughlin’s
tip on Caxton FX is something I will act on and I am thinking about opening
a Nationwide FlexAccount, which should make transactions easier.”
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