There is no doubt that many youngsters leaving school this summer are clueless about their finances. It is important to have some financial knowledge to safely negotiate the adult world so here are some points that every young person should know about money.
Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
Charles Dickens – David Copperfield.
Why do I need to have a budget?
From many conversations that I have with people across the UAE, emails I receive and messages whilst on air at Dubai Eye it seems that many people really need to address the issue of how to manage their personal budgets. Does your money run out before the end of the month?
If you need a little help, then read on.
Quite simply, if you don’t know what your outgoings are, how do you know if you are overspending? How do you know how much you are free to spend each month?
Building up a costly overdraft or running up credit card debts because you cannot make ends meet is not a healthy way to live. Once you have organised a budget you know exactly where you stand from a financial perspective and can relax in the knowledge that you are living within your means.
What are the steps to go through?
Once you have a net figure you can then allocate monies for savings and investments and ‘fun’ money. Ideally you need to run a budget for a few months to take into account variables and anything that has been missed. It will need to be tweaked a few times to make sure that it works for you.
There are various programmes that you can download if you are the sort of person who likes to use spreadsheets, but I don’t think it is necessary and you can do it on a sheet of paper. It doesn’t really matter how you do it as long as you take control and manage your money.
Practical ideas
If you find it hard to keep tabs of what you are spending, you could give yourself a weekly allowance. Once you know how much you can spend, after fixed and essential expenses and savings, you should know roughly how much you can spend each week. Withdraw that amount in cash at the start of the week, don’t use any credit or debit cards, and make that cash last. Once you know that’s all you have and you have the notes and coins in your hands, you’ll think twice about buying unnecessary items.
If you need to cut back on expenditure consider things like reducing the number of take away coffee or drinks you buy; bring your own lunch to work a few times a week; try cheaper brands at the supermarket and locally grown vegetables at lower prices; compare prices at supermarkets as they can vary considerably; use loyalty and discount cards when shopping.
What else should I do?
Build up some cash savings so you can meet any unexpected bills without ruining your budget. If there is leeway to repay debts faster that is always a good idea. Another good plan is to set aside a little money every month to cover extra expenses such as holidays and birthdays.
Admittedly this is not an exciting thing to do, but it is worth spending a couple of hours each month checking your expenditure. That way you won’t run out of cash before the end of the month and will avoid worrying about paying bills.
Work is a reality for most of us, but establishing a proper budget allows you to enjoy yourself in the knowledge that you can actually afford to do so. Make sure that you manage your money; don’t let it manage you.
2011 has certainly been an interesting year in terms of the financial world. Political upheaval, natural disasters and banking issues has lead to a great deal of volatility in investment markets and I suspect there is more to come in 2012.
Whatever stock markets do, you still need to plan for your future and protect your family whilst making the most of your money. With this in mind I plan to run some seminars in 2012 to help people do just those things.
I am now taking a break until January and wish everyone a very Happy Christmas and a healthy and prosperous New Year.
Keren
The May issue of Good Taste magazine (free in branches of Choitrams) has a two page article on pages 34 and 35 all about Wills. If you haven’t seen a copy, the pages are shown below and you simply click on the image to make it larger.
Holborn Group offers a professional will writing service run by a lawyer with years of experience in family law.
If you haven’t a will this is something that should be addressed. Please contact me for details of how I can assist.
Here is the podcast of the radio show broadcast on 29th March 2011. Our topic was Money and Gender and we discussed whether the sexes have different attitudes towards money, if they handle it different and view risk and investing in different ways.
We also touched on the recent ruling from the European Court of Justice which announced that insurance companies are acting illegally by using gender to calculate insurance premiums as it is deemed sex discrimination.
http://dubainightline.blogspot.com/2011/03/keren-bobker-on-your-finances.html
As usual, a serious topic, but treated in a fun and light-hearted manner.
The next radio show will be on 19th April.
I am sure that many readers have received unsolicited calls from various financial sales companies, claiming their details were passed on by a friend who thought they would be interested in buying certain products. This kind of hard sell is both unprofessional and unwanted.
Banks and other institutions regulated by the UAE Central Bank have been banned from cold calling customers to market loans and investment products. The unexpected ban, which took effect on 20th March, has surprised quite a few financial companies who work in this way, but does not apply to financial advisory firms that are licensed by the UAE’s Insurance Authority. The circular does not mention fines or any other punishments for those who flout the ban, but it is to be hoped that action will be taken by the Central Bank.
It is generally believed that the Central Bank was responding to numerous complaints from UAE residents about the number and manner of cold calling practised by banks keen to sell products and services, although there are probably as almost as many complaints about broker firms. I hope that in time the Insurance Authority will issue a similar directive.
It is my opinion that professional advisers do not, and should not, cold call to obtain clients. It is against company policy at Holborn Assets to do this and all my clients are referred to me or find via this site, my newspaper column or radio broadcasts.
On 7th February I appeared in my usual guest slot on the Nightline show on Dubai Eye 103.8FM.
This month we talked about the most popular topics in the letters and emails I receive from readers of my newspaper column, as well as medical insurance in the UAE and what you need to know.
Use the link below to listen or download the podcast of the show (40 minutes)
http://nightline.podomatic.com/player/web/2011-02-08T01_09_25-08_00
It is a lighthearted show, but contains useful information and facts presented in an easy listening way.
Please contact me if you have any queries related to these topics or any other issues.
Many people make New Year resolution, but how many of those are about your finances?
It makes sense to get your finances in order and deal with the priorities so you can get on with enjoying your life. On 3rd January I guested on the Nightline show on Dubai Eye 103.8FM and as well as doing a round up of 2010 we spoke about what you should do to get yourself organised financially.
A link to the podcast can be found below so have a listen. It’s a serious topic but presented in a light-hearted way. I hope you find it useful.
Your financial priorities and goals change as you age and during different phases of your life. This was the topic for a radio show broadcast on Dubai Eye 103.8FM on Sunday 28th November.
The podcast of the show can be found here. Nightline podcast 28.11.10 It’s informative, somewhat irreverant and easy listening.
Do have a listen and let me know if you have any questions.
This post has been superceded by another with more up to date information. Please go to http://financialuae.me/2011/05/23/guidance-for-british-expats-updated-may-2011/
Taxes
British expatriates are generally not liable for UK income tax on their earnings whilst resident in the UAE, but specific rules apply. The date from when overseas income is not taxable depends on when a person leaves the UK and how long they remain non-resident. The UK tax year runs from 6th April to 5th April and if someone leaves the UK part way through a tax year they may remain liable for UK income tax for the remainder of that year. This is particularly the case for anyone who intends to remain overseas for just a few years as after a period in excess of five years living overseas you become more than temporarily non-resident for tax purposes and any partial years become exempt from UK income tax. At this time there is also no liability to Capital Gains Tax.
When leaving the UK, HMRC (Her Majesty’s Revenue & Customs) form P85 should be completed. This is an application to be treated as non-resident for tax purposes.
Should a non-resident Brit receive income in the UK, this is subject to UK tax, although only in excess of the Personal Allowance (£6,475 for the tax year 2010/11). Even if employed overseas, income could be received from savings accounts, investments or from property. Anyone who owns a property in the UK and rents it out should complete the paperwork for the HMRC Non-Resident Landlord Scheme which is basically an arrangement for taxing the UK rental income of non-resident landlords. Generally tax will be deducted at source, although it is possible to apply for gross payments with the landlord then being liable for self-assessment. This is often preferable as certain costs, such as maintenance charges, may be offset against the rental income. If a property is jointly owned, then two sets of Personal Allowances can be used in order to reduce the tax payable.
Non-residents can apply for income on savings accounts to be paid without the deduction of savings rate tax by completing HMRC form R85, but the income received is taxable. It is therefore often more practical to move savings offshore.
Brits can spend up to 90 days in the UK per tax year without liability to UK tax. Provided a person is non-resident for tax purposes in a particular tax year there should be no liability to tax on monies earned overseas but remitted to the UK.
Pensions
UK pension legislation is complex and several areas need to be considered. To start with; state pensions. UK national insurance contributions can be paid whilst living overseas, provided that certain eligibility conditions are met. There are three classes on contributions that are relevant to non-residents, Classes 1, 2 and 3, but classes 2 and 3 are those that can be made voluntarily in order to help maintain a national insurance record, which could affect entitlement to the basic state pension and other contributory state benefits. Class 1 is usually payable when a person has been posted abroad by their employer for a specified period.
British adults have the option to pay voluntary national insurance contributions, as either Class 2 or 3 dependent on their circumstances and it is necessary to pay 52 voluntary national insurance contributions in a tax year for that year to be a qualifying year for UK state pension entitlement..
An individual will need to consider their entitlement to state pensionbased on their existing national insurance record in order to find out if there is any benefit in making voluntary national insurance contributions. This is simply done by sending in form BR19 to HMRC and a response is usually issued in a few weeks. Individuals wishing to make voluntary national insurance contributions whilst abroad should apply using form CF 83 which is attached to the guide Social Security Abroad (NI 38), available from the HMRC website.
In most cases only limited ongoing pension contributions can be made whilst someone is non-resident. Provided a personal pension or stakeholder scheme is already in force, an individual can continue to make contributions of up to £3,600 per annum for up to five years after their departure from the UK. With tax relief the cost of contributions would reduce to £2,880.
A UK employer can make contributions to a UK registered pension scheme for one of their employee’s who is working overseas. There must however be continuous employment and the individual must have a UK employment contract.Tax relief on such employer paymentswill be at the discretion of the Inspector of Taxes. In practice, it is rare for the Inspector of Taxes to deny or restrict tax relief.
Whilst non-resident it is possible to transfer existing pension benefits to other UK pension schemes, although independent advice should be sought regarding suitability.
At retirement the proceeds of UK pensions, whether state or personal, can be paid to a pensioner living overseas in accordance with the provisions of the plan. With a state pension, although this can be remitted overseas, if the individual is living outside of the EEA (European Economic Area) or in a country which does not have a reciprocal social security agreement with the UK, the amount of UK state pension they will receive each year will be frozen at the amount initially paid when it was first claimed. There are petitions to the UK Government on this subject each year, but in the current economic climate this is unlikely to change.
Offshore
British nationals may open bank accounts anywhere that they wish and whilst it is practical and indeed necessary to have a Dirham account, many will want an offshore bank account. In most cases these are subsidiaries of international banks with offices in one of the UK offshore jurisdictions such as the Channel Islands or Isle of Man. Advantages include no liability to UK tax on the interest earned whilst UK non-resident for tax purposes and the ability to time the repatriation of funds in a tax efficient manner.
Investment
For Brits living abroad, a number of investment options in the UK are available, but some are best avoided as there would be tax liabilities on growth or income. Existing Individual Savings Accounts (and PEPs) can be retained, but no new funds can be contributed to these plans. Investments can be made to bonds and unit and investment trusts, but the potential tax liability means that it is generally more advantageous to use offshore investments.
There are a number of well known insurance companies who have offshore divisions and these offer a range of plans to suit most circumstances, both for regular payments and lump sums. Generally these providers offer access to several hundred funds for each plan, many managed by well known international fund managers, so suitable portfolios can be constructed in accordance with an individual’s personal attitude to risk, preferences and timescale.
It is also possible to invest locally, but as assets in the UAE may be subject to Sharia law this may not suit all. A popular alternative to a savings account are National Bonds, which have been covered in detail by this newspaper. These are a little like Premium Bonds but with an annual return.
Protection
Many people have life assurance policies that they took out whilst resident in the UK, but in a few cases these become invalid after moving overseas, especially if the policy includes critical illness cover. Plans that were taken out after knowing there would be a move overseas are also invalid. It is often worth double checking to ensure that plans are valid.
Once you are non-resident it is not possible to take out UK life assurance policies, but offshore providers offer a range of policies to suit most circumstances, including term assurances, whole of life plans and critical illness cover.
All residents should have suitable medical insurance to cover them whilst abroad, but many people do not realise that once they move overseas they are not eligible for free treatment by the National Health Service (NHS). Under the Health and Medicines Act 1988, health authorities may set their own charges for non-resident patients and these are reviewed annually. The only areas for which there is no fee is for people admitted to Accident & Emergency Departments, but follow up treatments and admissions may have fees. The exact rules and costs will vary between health authorities. With this in mind international medical insurance policies that include the UK are recommended.
Estate Planning
Having a will is important for financial planning, but the rules relating to inheritance in the UAE are different to those that apply in the UK. Sharia law will take precedence over assets held in the UAE and although this is not necessarily overridden by a will, a properly written Will may mean that your wishes are taken seriously into consideration. More importantly a Will allows parents to specify guardians for young children and to make arrangements for monies to be set up in trust for the children should both parents die.
UK Inheritance Tax is payable on worldwide assets for those that are UK domiciled. Domicile is a concept of general law and is used to determine the system of personal law (dealing with matters such as marriage, divorce and Wills) that should be applied to an individual who has connections with more than one jurisdiction. Domicile is distinct from nationality or residence and you can only have one operative domicile at any given time.
Having a Will allows for assets to be distributed in accordance with the wishes of the settlor and if properly worded can also reduce the inheritance tax due. Wills should be written mainly in accordance with British law, taking into account assets held elsewhere, but these can be arranged in the UAE.
Returning home
British Nationals do not have to repatriate their assets should they return to the UK and may keep them overseas for as long as they wish. Any growth or interest however, will be subject to UK tax. In an ideal world a return to the UK is planned well ahead of time, particularly if there are considerable assets offshore or overseas that may have tax liabilities upon return.
As soon as someone takes up employment in the UK again they will come to the attention of the tax man and will usually be put on a, generally less favourable, emergency tax code whilst HMRC works out whether there is any outstanding tax liability. Form P86 ‘Arrival in the UK’ should be submitted upon return.