Sailing with the Tides

Embarking on a financial plan is like sailing around the world. The voyage won’t always go to plan, and there’ll be rough seas. But the odds of reaching your destination increase greatly if you are prepared, flexible, patient, and well-advised.

A mistake many inexperienced sailors make is not having a plan at all. They embark without a clear sense of their destination. And once they do decide, they often find themselves lost at sea in the wrong boat with inadequate provisions.

Likewise, in planning an investment journey, you need to decide on your goal. A first step might be to consider whether the goal is realistic and achievable. For instance, while you may long to retire in the south of France, you may not be prepared to sacrifice your needs today to satisfy that distant desire.

Once you are set on a realistic destination, you need to ensure you have the right portfolio to get you there. Have you planned for multiple contingencies? What degree of “bad weather” can your plan withstand along the way?

Key to a successful voyage is a good navigator. A trusted advisor is like that, regularly taking coordinates and making adjustments, if necessary. If your circumstances change, the advisor may suggest you replot your course.

As with the weather at sea, markets can be unpredictable. A sudden squall can whip up waves of volatility, tides can shift, and strong currents can threaten to blow you off course. Like a seasoned sailor, an experienced advisor will work with the conditions.

Once the storm passes, you can pick up speed again. Just as a sturdy vessel will help you withstand most conditions at sea, a well-diversified portfolio can act as a bulwark against the sometimes tempestuous conditions in markets.

Circumnavigating the globe is not exciting every day. Patience is required with local customs and paperwork as you pull into different ports. Likewise, a lack of attention to costs and taxes is the enemy of many a long-term financial plan.

Distractions can also send investors, like sailors, off course. In the face of “hot” investment trends, it takes discipline not to veer from your chosen plan. Like the sirens of Greek mythology, media pundits can also be diverting, tempting you to change tack and act on news that is already priced in to markets. A lack of flexibility is another impediment to a successful investment journey. If it doesn’t look as though you’ll make your destination in time, you may have to extend your voyage, take a different route to get there, or even moderate your goal.

The important point is that you become comfortable with the idea that uncertainty is inherent to the investment journey, just as it is with any sea voyage. That is why preparation and planning are so critical.

While you can’t control every outcome, you can be prepared for the range of possibilities and understand that you have clear choices if things don’t go according to plan.

If you can’t live with the volatility, you can change your plan. If the goal looks unachievable, you can lower your sights. If it doesn’t look as if you’ll arrive on time, you can extend your journey.

Of course, not everyone’s journey is the same. Neither is everyone’s destination. We take different routes to different places, and we meet a range of challenges and opportunities along the way.

But for all of us, it’s critical that we are prepared for our journeys in the right vessel, keep our destinations in mind, stick with the plans, and have a trusted navigator to chart our courses and keep us on target.

The Seven Roles of an Adviser

What is your financial adviser for? One view is that your adviser should have unique insight into the markets to give you an advantage. But of the many roles your professional adviser should play, fortune-teller is not one of them.

The truth is that no-one knows what will happen next in investment markets. And if anyone really did have a working crystal ball, it is unlikely they would be plying their trade as an adviser, a broker, an analyst or a financial journalist.

Some people may still think an adviser’s role is to deliver them market-beating returns year after year. Generally, those are the same people who believe good advice equates to making accurate forecasts. But in reality, the value a professional adviser brings is not dependent on the state of markets. Indeed, their value can be even more evident when volatility, and emotions, are running high.

A professional financial planner plays multiple and nuanced roles with their clients. They focus on the needs, risk appetites and circumstances of each individual and irrespective of what is going on in the world. None of these roles involves making forecasts about markets or economies. Instead, the roles combine technical expertise with an understanding of how money issues intersect with the rest of people’s complex lives.

There are at least seven hats your adviser wears to help you, and none of them involves staring into a crystal ball: –

The expert: Now, more than ever, investors need advisers who can provide client-centred expertise in assessing the state of their finances and developing risk-aware strategies to help them meet their goals.

The independent voice: The global financial turmoil of recent years demonstrated the value of an independent and objective voice in a world full of product pushers and salespeople.

The listener: The emotions triggered by financial uncertainty are real. A good adviser will listen to clients’ fears, tease out the issues driving those feelings and provide practical long-term answers.

The teacher: Getting beyond the fear-and-flight phase often is just a matter of teaching investors about risk and return, diversification, the role of asset allocation and the virtue of discipline.

The architect: Once these lessons are understood, the adviser becomes an architect, building a long-term wealth management strategy that matches each person’s risk appetites and lifetime goals.

The coach: Even when the strategy is in place, doubts and fears inevitably will arise. The adviser at this point becomes a coach, reinforcing first principles and keeping the client on track.

The guardian: Beyond these experiences is a long-term role for the adviser as a kind of lighthouse keeper, scanning the horizon for issues that may affect the client and keeping them informed.

These roles are a world away from the old notions of selling product off the shelf or making forecasts. Knowing your adviser is independent, and not plugging product, will help to build trust in someone with whom you can share your greatest hopes and fears.

Over time your adviser, the listener, becomes the teacher, the architect, the coach and ultimately the guardian. Just as your needs and circumstances change over time, so the nature of the advice service evolves.

None of the roles of your adviser is dependent on forces outside your control, such as the state of the investment markets or the point of the economic cycle. However you characterise these various roles, good financial advice ultimately is defined by the building of a long-term relationship founded on the values of trust, independence and knowledge.

Source: Jim Parker, Dimensional Fund Advisers

The Evolution of International Money Transfers – From Barter to Bitcoins

The Evolution of International Money Transfers – From Barter to Bitcoins

As a medium for exchanging value, Money is probably the most important invention that has had a such a deep impact on the way the humanity has evolved. It will not be an exaggeration to state that the shape of world today is largely a result of an amazing invention, which has been an integral part of human history for more than 3000 years!

As a concept, money is not meant to stay static or idle. Money serves its purpose only when it moves from one hand to another and from one place to another, reflecting economic activity that benefits its participants. The concept of exchange of value, which originated as a system of barter – exchange of goods and services for other goods or services – has evolved over time taking various forms such as clay tokens, agricultural products, livestock, metal coins, paper notes, plastic cards, electronic/mobile records, cryptocurrencies, with each new form aiming to eliminate the pitfalls of its earlier forms.

International Money Transfers for trade payments as well as for individual remittances, too, have evolved over time with the changing shape of money and breakthroughs in industry and technology.

As a provider of digital international money transfers, InstaReM, look back in the past to understand how the concept of money transfers has evolved since the ancient times.

Barter System – 3000-600 B.C. The earliest long-distance trade is recorded between Mesopotemia and Harappan civilization of Indus Valley around 3000 B.C. For a long time, the trade between nations was largely based on the barter system. For centuries, the traders from the East and the West exchanged gold, silver, ivory, precious stones, spices, musk, camphor, sandalwood, wine, tea, salt, wool, silk, muslin etc. in barter trade.

Metals & Metal Coins – 600 B.C. to 16th Century AD The earliest coins – made of gold and silver alloy – are recorded to be minted between 610 and 600 B.C., as national currency in Lydia, a region that is part of today’s Turkey. As international trade expanded, gold and silver ruled the roost as the currency of trade. The invention of money made trade between nations simpler, as traders could negotiate though the medium of exchange.

Currency Exchange/Trading– Ancient Times – 4 Century AD Currency trading and exchange first occurred in ancient times. Money-changers (people helping others to change money and also taking a commission or charging a fee) lived in the Holy Land in the Biblical times. During the 4th century, Byzantine government kept a monopoly on the exchange of currency.

International Banking – 15th to 18th Centuries AD During 15th century, the Italian banking family Medici opened banks at foreign locations to exchange currencies on behalf of textile merchants. To facilitate trade, the bank created nostro ("ours" in Italian) account book which contained 2-columned entries showing amounts of foreign and local currencies.

Forex Market in Amsterdam – 17-18 Century AD During the 17th (or 18th) century, Amsterdam maintained an active Forex market. In 1704, foreign exchange took place between agents acting in the interests of the England and Holland.

Birth of the US Dollar – 18th Century When the British colonized America, the government restricted the colonists from minting currency. But the colonists used any foreign currency they could get their hands on. Particularly popular was the large silver Spanish “Dollar”, which gained significance during the American Revolution. The US adopted the Dollar in April 1792, which over time became the best-recognized currency in the world.

Western Union – Mid-19th Century The New York & Mississippi Valley Printing Telegraph Company was founded in 1851 - renamed the Western Union Telegraph Company in 1856. In 1872, Western Union launched Wire Transfer - a method of electronic funds transfer from one person or entity to another - on its telegraph network, changing forever the way money moved within and across the borders.

International Wire Transfers Become Mainstream – Late 19th Century With a boom in globalized industrialization, Wire Transfers became increasingly popular in the late 19th century. As more and more people started working with contractors and innovators overseas, banking became increasingly globalized, including how people sent and received funds internationally on an individual basis. This had never happened before.

International Payment Network (SWIFT) – Late 20th Century Global network the Society for Worldwide Interbank Financial Telecommunication (SWIFT) facilitates international payments. Founded in 1973, SWIFT does not actually move money; their network transmits messages between banks that allow the banks to make transfers. Used largely for business and banking-related transfers, SWIFT handles about transactions worth $5 trillion per day.

PayPal Revolutionizes Money Transfers – End of 20th Century At the fag end of the 20th century, PayPal emerged as the first online money transfer company to get into the limelight. PayPal made online money transfer possible, that too at a fraction of the cost that larger money transfer companies and banks were charging. In 2017, PayPal’s annual payment volume amounted to US$ 451.27 billion.

The Money Transfer Industry Today The world has become an entirely globalized place, where people’s careers, travel, and general way of life is much more nomadic than it ever has been before. With evolution in technology, options for money transfer have also become more advanced.

Bitcoin/Blockchain/Cryptocurrencies – 21st Century Bitcoin is a digital currency of 21st century. It uses a peer-to-peer system and the transactions take place between users directly without an intermediary. Transactions are verified by network nodes and are recorded on a publicly-distributed ledger called blockchain. Based on the blockchain technology, Bitcoin was invented in 2009 by Satoshi Nakamoto as an open source technology. Today, the Blockchain is increasingly being adopted by fintechs for facilitating fast cross-border money transfers.

Looking Ahead With fintech firms increasingly taking on banking sector with efficient and cost-effective offerings in financial services, the future of the International Money Transfer industry looks exciting. While we see increasing adoption of Blockchain by the Money Transfer companies, with breakthroughs in Artificial Intelligence and Machine Learning, there are immense possibilities in Voice-based cross-border transfers.

Article by: InstaReM, Asia-Pacific’s leading digital cross-border money transfer company was set up in 2014, offering convenient, cost-effective and efficient money transfer to a vast majority at a fraction of the costs of the traditional Money Transfer Operators.

Understanding which step you are at when planning your expat finances

Step 1 - Why

Why are you doing this? Is it for retirement? Is it for savings? Is it because you want to buy a house or send your children to university. There is always a reason why you are doing this in financial services

Step 2 - How

This is the vehicle that is used to do the planning in Step 1. This could be an investment portfolio; it could also be a property. If you want to retire, then you may use a conventional pension, a state pension and property to achieve this. If you want to protect your dependents from you dying, then an insurance policy will do this. The cost of the vehicle is key here

Step 3 - Where

This is the detail in step 2. Where do you allocate your investments? Is it in equities or bonds? Where do you buy the house? is it in the UK or Europe or Asia? How much cover do you need for the insurance to provide for your family if you are not there?


Is a trade war really ‘easy to win’ for the US?

Who wins in a trade war? Donald Trump believes that trade wars are ‘easy to win’, but what does winning look like?

Trade wars have seldom had good outcomes and at worst, have prompted global recession In trying to shore up US manufacturing, Trump is threatening the consumer economy There is a significant risk that American businesses will lose contracts to sell overseas China’s initial response to US trade tariffs appeared relatively restrained. However, in recent days it has launched retaliatory tariffs on a range of US goods and the trade war looks set to escalate, with all the associated repercussions for global stock markets.

The markets are right to be nervous. Trade wars have seldom had good outcomes, no matter what Donald Trump thinks. In extreme cases they have prompted significant inflation and led to global depression. Economists cite protectionist trade policies as one of the key factors accelerating the Great Depression.

Trump’s view is that China has been unfairly flooding the US with cheap goods and nicking its intellectual property. He wants to repatriate US manufacturing, shoring up the forgotten rust belt that forms his core vote. However, this is likely to come at a high price.

It takes time for new production to come on stream. In fact, US aluminium manufacturers have said they don’t have the capacity to replace production from China. In the short-term – and possibly the long-term as well - aluminium costs are going to rise. That means the price of cars, appliances and anything else that uses aluminium is going to rise.

This is a sledgehammer to crack a nut. In trying to shore up US manufacturing, Trump is threatening the consumer economy on which the US economy has been so successfully built for so long. Inevitably there will be some demand destruction as consumers hold off on new purchases or upgrades.

Then there is the flip side -all those American businesses that will lose contracts to sell overseas. Building a business in the crowded and capricious Chinese market is not easy. To have ploughed resources into building exports to China only to lose those contracts because the White House would rather revive old industries than support new ones is likely to be particularly galling. Their customers are likely to find more dependable suppliers, based in countries with more rational and reliable governments.

There is also the issue that while countries amass Dollars through the sale of goods to the US, they have an incentive to buy US government bonds. If they’re not amassing those Dollars, then they won’t. If demand drops for US debt, that creates a problem for a government with a huge deficit. Winning? I’m not so sure.

What Do Expats Need to Know When Buying a Home Overseas?

A significant number of expats who move overseas are more than happy living on rent, although there are others who prefer owning their own homes. While buying a home requires that you pay attention to different aspects, if you plan to buy one outside of your home country, matters may get even more complicated. Fortunately, a little groundwork will hold you in good stead.

Consider the Trade-offs:

When you move to a new country, buying a home largely limits your ability to explore new regions, which you get to do if you’re renting. The money you pay as down payment stays invested in the house, and you cannot use for other investments such as stocks and bonds. Besides, the cost of servicing your new home loan might end up being a burden, especially if you have an existing mortgage in your home country.

Pay Attention to Local Regulations:

Start by determining if you’re allowed to buy the property of your liking in your new country of residence. For instance, if you wish to purchase a property in Singapore, the Residential Property Act (Chapter 274) has a bearing on whether you may or may not qualify to buy it without government approval. While you may purchase properties categorized as “non-residential” or “non-restricted residential” without government approval, buying a “restricted residential property” as an expat requires that you get government approval.

If you plan to buy a property in India, regulations require that you qualify as a ‘person resident in India’. Buying a home in the United States or the United Kingdom, on the other hand, comes with very few restrictions.

Real Estate Agent Fees

Real estate agent fees tend to vary from one country to the next. In Singapore, sellers usually pay 2% for Housing & Development Board (HDB) properties as well as private properties. On the other hand, buyers pay 1% for HDB properties and nothing for private homes. In the UK, while sellers need to pay 0.75% to 3.5% as fees, buyers pay no fees at all. Buyers don’t have to pay fees in the U.S. Buyers’ fees in India may vary from 1% to 2%. In Germany, a buyer may end up paying 2% to 6%.

Getting a Loan

Eligibility criteria and restrictions for getting home loans tend to be region-specific. In Singapore, you may qualify to borrow up to 90% of the home’s value if you are in a strong financial position. If you’re unable to meet the criteria to qualify for the top bracket, you may still get a loan of up to 80% of the home’s value. If you have an existing mortgage, you can borrow up to 60% of the home’s selling price.

If you plan to purchase a house in the U.S. or the UK, expect to pay at least 40% of the home’s selling price on your own.

Making the Down Payment

Instances of expats making their down payments using foreign currencies are fairly common. Given that a down payment toward a house involves a large value transfer, it may be worth your while to compare different overseas money transfer companies. Like banks, the top players in this field such as InstaReM, TransferWise, WorldFirst, and OFX provide high levels of security. In addition, they also tend to offer better exchange rates and charge lower fees.


Buy a home in a foreign country may be simpler than you imagine, provided you meet the required eligibility criteria. With a steady source of income, you may even qualify for an expat mortgage. However, it is important that you start

Recent Market Volatility - A Bump in the Road?

As the markets tumbled, with the S&P 500 index showing its largest one-day fall since August 2011 and the subsequent drop across world markets that followed, many investors were shocked at the extent of the losses. At the same time, the VIC, the volatility index, recorded its largest one-day rise in history, showing just how deep the sell off was. There have been warning signs, in the bond market in particular, with yields rising from 2% in September 2017 to 2.8% today, reflecting the stresses within the markets as interest rates begin to rise.

Accelerating interest rates

This current sell-off seems to have been triggered by the Friday Non-Farm Payroll data, which came in firmly ahead of expectations. This strong showing indicates strength in the economy, which raised fears of faster interest rate rises than had been previously anticipated from the Federal Reserve, and with three rises in 2017, the possibility of more throughout 2018 concerned investors, particularly heavily leveraged ones.

Federal Reserve Chairman, Jerome Powell, faces a testing time in balancing this situation in the coming months, and the fear that caused this latest sell-off is only a small part of a broader issue he must contend with. Since the financial crisis in 2008, cheap credit has powered the markets, but we are now entering a new phase, with liquidity being pulled back from the financial system as uncertainty takes hold.

The big question

With signs of potential volatility being present for a while, the biggest question asked by this sell-off is a simple one, is it a one-time adjustment, similar to the one encountered in 2013 based upon the panic resulting from a reduction in quantitative easing, or is it something more significant, and the start of a bear market?

Our view on the road ahead

Looking at the broader picture, the sell-off and associated volatility is not something that would cause us to change our medium-term perspectives or asset allocations. Over the coming weeks, there will likely be more volatility, bringing instability and unpredictability as investors change their priorities depending on their thinking about future interest rates and inflation direction, and will likely create more attention-grabbing headlines and panic for the uninformed. However, with our long-term viewpoint we can approach these incidents for what they are, minor corrections during the upward trend, and simply sit tight with our positions.

Asian investors in London property risking hefty death tax bills

Overseas investment into the London residential new-build property market is dominated by Asian investors who may be overlooking UK inheritance tax in their financial planning.

using data from the UK’s Office for National Statistics (ONS) and Centre for Housing Policy, shows that an estimated £1bn ($1.4bn, €1.1bn) was invested in the London new-build property market alone in 2017 from Asian investors, predominantly based in Hong Kong and Singapore.

Asia accounted for 61.4% of total overseas sales; with the Centre for Housing Policy’s research showing that 31.5% came from Hong Kong, 20.8% came from Singapore, 5.4% came from China and 3.7% came from Malaysia.

The research also shows that it’s not just those with surplus cash who are investing in the UK property market, but serious investors are prepared to take a leveraged position; in Singapore 67.5% of property sales are from a mortgage, well above the average of 53.5%, and in Hong Kong 54.6% of sales are mortgaged.

This shows investors in Singapore and Hong Kong are more likely to borrow in order to invest in UK property compared to investors from other regions.

Inheritance tax exposure

With so much money flowing into the UK new-build property market, investors need to be aware of their potential exposure to UK inheritance tax (IHT). IHT is payable on death on any property or assets owned in the UK by the deceased.

This is irrespective of domicile status or whether the deceased lived in the UK or overseas.

UK IHT is set at an eye-watering 40%, so needs to be properly planned for.a high number of investors in the region, both individuals and company investors, could be left exposed if they are unaware of the potential IHT liability.

Over 30% of those surveyed overseas either didn’t know or didn’t realise there would be a UK IHT liability on UK property, and just 7% claim to fully understand UK IHT.

If an investor’s estate is hit with a UK IHT bill that they haven’t planned for, this could potentially create a real headache for their beneficiaries, who may not have the cash to pay the IHT bill and may not be able to sell the assets quickly enough to access what they need.

To help ease this headache, if investors know there is a future liability on their estate, they can put plans in place to provide their executors with the required funds.

For example, by writing a life policy in trust, or using appropriate IHT. trust planning alongside their investments during their lifetime.

Create your own tax haven: How to a generate a tax free income in the UK

There are a number of ways to create an income when you become a tax resident in the UK that is free of tax, in effect to create your own tax haven.

Everyone receives a tax free allowance of £11,500 per year (2017/18), this is the amount before you are subject to income tax. There are other allowances such as savings starting rate (£5,000) and dividend allowance (£5,000) before you would pay tax on those assets. There is also capital gains allowance (£11,300) that can be utilised every year. In total, this could be £32,800 per year income before any tax is paid.

Furthermore there is option to use offshore bonds to generate a further tax free income into the UK. Whilst you're overseas as an expat you can build up a fund in this investment vehicle that will allow you to withdrawal the capital when you're in retirement. Regular withdrawals can be taken from an offshore bond soon after investing or that decision can be deferred until a future date.

This can be done through the 5% deferred tax withdrawal facility, which allows you to turn your existing capital into a tax-efficient income stream. A growth investment strategy can be followed initially, with a subsequent switch into income generating investments if and when that is desired. With the 5% deferred tax withdrawal facility you can take regular withdrawals from your offshore bonds, accessing the capital in a tax efficient way by withdrawing up to 5% of each investment amount every year without an immediate liability to tax. This is a very valuable benefit for higher rate taxpayers.

This 5% amount can be taken every year for 20 years, or accumulated over a number of years and withdrawn less frequently without triggering a chargeable event for tax purposes. There are a few other allowances that can be used with the account depending on how long you have been a non-UK resident. the ability to assigned the plan to other people or a trust is helpful when conducting financial planning.

Why do US equities keep rising?

It’s tough to find an asset allocator with an overweight position in US assets. Most agree that the stock market is expensive, the political situation is precarious and the economy may be on the cusp of overheating. Inflation is moving higher and further interest rate rises are imminent. So why does the stock market keep moving higher?

US equities have continued their strong run since the start of the year, fuelled by Donald Trump’s tax increases However, equity market valuations look increasingly precarious and appear to anticipate strength in the next quarter’s earnings In the past few days, there have been signs that US indices are starting to wobble. According to MSCI, North American equities are up 4.57% since the start of the year (data to 17 January). This is more than the Far East, on a par with Japan, and materially ahead of Europe, where – in many cases – economic growth is just as high and stock market valuations far cheaper.

There are a number of possible reasons for this. First is that the US continues to make up a significant proportion of global indices and passive investors continue to be an important influence on markets. While active investors are nervous about valuations, passive investors are less sensitive and continue to push the US indices higher.

It may also be that the Dollar is taking much of the strain. Sterling recently hit post-Brexit highs against the greenback, and US stock market returns look far more lacklustre in sterling terms (2.46% against 7.89% for Europe). There are those who believe that as America’s power and influence on the world stage slowly recedes in favour of China, the Dollar will continue to decline.

It may also be that US equities are in the throws of a ‘last hurrah’. Bull markets tend to run on longer than most people expect and the US economic expansion may be mature, but it is still happening and may be prolonged by US tax cuts. Earnings for US companies are still improving, and – in many cases – justify the valuations.

However, there are signs that investors are finally pausing for thought. Volatility of US markets is increasing; there is increasing nervousness that markets have already anticipated any strong improvement in earnings this quarter.

Either way, there are vastly better opportunities elsewhere. Yes, the US bull market may limp on, but increasingly, the potential downside does not justify the potential upside. Fiscal stimulus may douse a little short-term fuel on the fire, but the petrol can is looking increasingly empty.

Burn Rate – The rate at which you burn through your money.

How does this happen? Tom Wolfe gives a steer in Bonfire of the Vanities. His banker protagonist, Sherman McCoy recalls where he spent last year’s paycheck, and it goes like this

“I’m already going broke on a million dollars a year! The appalling figures came popping up into his brain. Last year his income had been $980,000. But he had to pay out $21,000 a month for the $1.8 million loan he had taken out to buy the apartment. What was $21,000 a month to someone making a million a year? That was the way he had thought of it at the time-and in fact, it was merely a crushing, grinding burden-that was all! It came to $252,000 a year, none of it deductible, because it was a personal loan, not a mortgage. (The cooperative boards in Good Park Avenue Buildings like his didn’t allow you to take out a mortgage on your apartment.) So, considering the taxes, it required $420,000 in income to pay the $252,000. Of the $560,000 remaining of his income last year, $44,400 was required for the apartment’s monthly maintenance fees; $116,000 for the house on Old Drover’s Mooring Lane in Southampton ($84,000 for mortgage payment and interest, $18,000 for heat, utilities, insurance and repairs, $6,000 for lawn and hedge cutting, $8,000 for taxes.[…more expenses I don’t feel like typing out…] The tab for furniture and clothes had come to about $65,000; and there was little hope of reducing that, since Judy was, after all, a decorator and had to keep things up to par. The servants…came to $62,000 a year…the abysmal truth was that he had spent more than $980,000 last year. Well, obviously he could cut down here and there-but not nearly enough-if the worst happened!

Sherman was on the hedonic treadmill. It’s very easy to get on and very difficult to get off.  When you’re on it, you find yourself not just wanting but needing certain things. Things you think you can’t do without. A better house, a better car, holidays on far-flung locations, nights out, new clothes, a second home etc etc

Don't get stuck on the treadmill

Expats selling UK homes must meet CGT reporting deadline

Non-residents selling property in the UK who fail to report their capital gains tax liability to HM Revenue & Customs within 30 days will be hard pressed to plead ignorance, despite precedence, following two recent tax tribunal judgments.

The 30-day requirement was announced in the 2013 Autumn Statement and implemented in April 2015. Sellers have to file a non-resident capital gains tax (NRCGT) return within 30 days of the disposal of a UK residential property. A return still has to be completed even if no CGT is payable.

Failure to notify HMRC within the specified time originally carried:

an initial penalty of £100 ($135, €113) in all cases; plus a 5% charge of the tax due or £300 for returns over six months late; plus a 5% charge of the tax due or £300 for returns over 12 months late; plus a £10 daily penalty for returns filed between three and six months late. According to the Society of Trust and Estate Practitioners (Step), this gave rise to a large number of complaints when HMRC tried to enforce the penalties.

As a result, the daily penalty was withdrawn, along with past penalties issued against late filers.


In mid-December, the First-Tier Tax Tribunal released decisions on two cases that centred on the late submission of NRCGT returns.

Both cited the case of Rachel McGreevy who resides in Australia and successfully overturned a £1,600 penalty for submitting an NRCGT a year after selling her UK property in 2015.

McGreevy said her understanding was that the CGT, which was nil, would be payable as part of her annual self-assessment. After discovering this was not the case, she completed the form and submitted it to HMRC, appealing the fine as “she had absolutely no idea” it was a requirement and had “received no previous advice to do this”.

The UK taxman rejected her appeal on the grounds that she had “no reasonable excuse”. It said it was McGreevy’s responsibility to ensure that an NRCGT return was submitted on time, as all the relevant information had been clearly publicised on the UK Government’s website.

McGreevy successfully appealed, with the tribunal judge determining in September 2017 that HMRC had not publicised the 30-day deadline widely enough, relying instead on the chancellor’s Autumn Statement and “an obscure document” on its website.

The judge stated: “I therefore consider that [Greevy] had a reasonable excuse for not filing a NRCGT return on time.”

Her success, however, has not meant that others have been as lucky, as two similar cases from December demonstrate.

Ignorance is not bliss

In one case, Mr Welland, who resides in Thailand, decided to sell three properties in the UK. He did not complete an NRCGT under the belief, like McGreevy, that he was to make the declaration in his annual self-assessment.

He claimed that it was only when he started to complete the self-assessment form that he became aware that the NRCGT had to be submitted within 30 days.

No CGT was due from the sale, as the profit was within his annual allowance.

However, after HMRC stripped out the daily penalties, Welland was left with a penalty of £1,800.

In a similar case, David and Jennifer Hesketh live in Singapore having been non-resident in the UK for many years. They sold a jointly-owned London property in December 2015 but did not file an NRCGT until January 2017.

Again, no CGT was payable on the sale of the property.

In January 2017, HMRC imposed a late filing penalty of £100 on both Heskeths, plus a £300 late filing charge each and £900 of daily penalties. After withdrawing the daily fines, the total penalty the couple faced was £800.

The same judge made both decisions and determined, having consulted the McGreevy ruling, that ignorance of the law was not a reasonable excuse for not complying with it.

The penalties were upheld, although Welland’s was reduced to £700 to reflect the quick succession in which he sold his properties. Had they been spaced apart, the judge said it was likely that he would have learned of his non-compliance and not made the same error with the subsequent sales.

Source: International Adviser

High-flying equities; but for how long?

As we approach the end of another year, the equity bull market shows no sign of abating. Nine years after the financial crisis, equities have been on a stellar run with a seemingly constant move higher with little volatility, in what is becoming known as the most hated bull market in history.

When Quantitative Easing was announced by central banks, many suggested it should be called ‘the Great Financial Experiment’. While the overall aim was to underpin the economy and ensure that credit continued to flow to businesses to promote growth, one of the implications has been the rapid advancement of technology, fuelled by access to very low financing costs and the exceptional performance of growth stocks, particularly in the technology space.

As a result, when looking at investment styles during 2017, growth investing has significantly outperformed value investing, and since the financial crisis growth has outperformed value in seven out of the last nine years*. Unsurprisingly, this has meant that value investing as a style has fallen hugely out of favour, with only the value teams at Schroders, Jupiter and JO Hambro really falling into the true value camp.

Those of you who, like me, remember the technology bubble in 1999/2000, will recall that equity valuations in growth sectors got incredibly stretched and many value managers of the day were being told they had lost the plot and needed to change their investment style to reflect a new world. Well, you may also recall that value went on to outperform growth in each of the following seven years!In those heady days of the technology bubble the mere hint of an internet connection saw a company’s valuation sky rocket. Things are different to today, but growth stocks are once again priced on very high multiples. Interestingly, November saw the elevation of online takeaway company Just Eat into the FTSE 100 Index and it now trades on a PE multiple of 73**. While I have no doubt that Just Eat is a great company that is capitalising on the changing way we are leading our lives, paying 73 times its current earnings to own a slice of it is a very rich price indeed.

The challenge for these highly valued growth stocks is that they must keep on growing at the same phenomenal rate to justify their valuations. With genuine growth seemingly hard to find, it is no surprise that some are prepared to pay these high prices to access such growth. However, it’s important to remember that there is no margin of safety and any disappointment in trading is likely to see their share prices hit hard.

It’s these valuation anomalies that are exciting value managers and giving them hope that the dispersion between value and growth has gone too far. With businesses such as Just Eat – which, remarkably, is now worth more than Marks & Spencer, J Sainsbury and WM Morrisons – priced for perfection, it is the old fashioned industries of mining, oil and gas extraction, insurance and telecoms that are currently the laggards and trading at significant discounts to their history.

While these businesses may not be exceptionally glamourous, and certainly not as exciting as ordering a takeaway on your phone while settling down in front of the Strictly Come Dancing Christmas Special, there comes a point when the valuation anomaly becomes just too great and these businesses get too cheap. When looking at the current dispersion between value and growth, it feels like this has been stretched to extreme levels.

As we enter 2018, the economic environment is changing, with inflation running high, the prospect of higher interest rates and a potential slowdown in the UK as the headwinds of Brexit begin to bite. If this spills over into the investment world, it will be interesting to see if it is those businesses priced on high PEs that provide the protection or whether it is cheap stocks that weather the storm the best. A look back at both 2000 and 2008 gives a clear pointer that if we do hit a period of turbulence in the economy and stock market, then value investing could well be the place to shelter.

Ryan Hughes Head of Fund Selection, AJ Bell InvestCentre 

Will we see a Santa Rally this Christmas?

After 11 months of decent returns from UK stocks*, you may think the market will wind down for the festive month of December. But this is unlikely—historically, investors have joined in the Christmas cheer.

The so-called “Santa Rally” has been observed throughout December in many previous years, but is typically most generous in the last week of trading. Analysis from J.P. Morgan Securities suggests that the Santa Rally has a 76% hit rate in the UK equity market (based on the FTSE 100) and has provided an average return of 2.8% over the month of December1.

There are a number of suggested reasons for the Santa Rally, many of which may well be spurious. For example, some may believe it is caused by investors buying stocks in anticipation of gains at the beginning of the New Year caused by another seasonal anomaly called the “January Effect”.

Others suggest that the Santa Rally may be driven by tax considerations, or even a feel good factor from investors due to the festive atmosphere.

These sort of anomalies are by no means guaranteed, but let’s cross our fingers that Santa brings a little extra return this Christmas to the UK stock market.

How to transfer a UK pension to Australia – The Australian Financial Review

Moving a United Kingdom pension to Australian superannuation is complicated enough after big changes over the past few years. But a further worry for those wanting to transfer their UK entitlements is how much it can cost to do this.

A reader has less than £100,000 ($177,000) in a UK pension plan managed by the Friends Life group since 2012 that he wants to add to his Australian super savings.

Originally a top-up plan for the UK basic state pension, he is concerned about the likely transfer costs. He’s also worried about what might happen to its value in the lead-up to the UK leaving the European Community – Brexit – in 2019.

His concerns are quite valid, says Brian Bendzulla, managing director of financial consultant Net Actuary. On top of potentially further changes to UK pension transfer rules, he will have to deal with the interaction between UK rules and Australia’s super reforms, including changes to Australian contribution entitlements.

Governments in both the UK and Australia have made major changes to retirement savings arrangements – especially at the retirement income end. They are changes that anyone planning to transfer UK pension savings to Australia must become familiar with.

When a UK pension amount is transferred, it is treated as a non-concessional (or after-tax) contribution to super.

Age restriction

As far as the UK is concerned, the most important of these changes is a restriction imposed from April 2015 on allowing transfers before a member has reached the UK minimum pension age (currently 55).

This is the most immediate condition the reader must satisfy.

If he can’t, says Sydney super adviser Liam Shorte of Verante Financial Planning, he will have to wait until he is 55.

Shorte says he has a list of about 10 people in their early 50s with UK pension savings they want to bring to Australia. They have an arrangement to come back to him when they turn 55.

Until then, he has advised them to ensure their UK super is managed properly. They should concentrate in particular, he says, on ensuring they don’t pay too much in fees and charges which can be a trap for many.

His additional advice is to build up their Australian super.

If the reader satisfies the age condition and wishes to transfer the UK pension, he will not be able to transfer this to his Australian super fund if it’s a retail or industry fund.

Red light

Another key change to UK pension transfer rules in 2015 was a host of big Australian super funds losing their right to accept UK pension amounts because they couldn’t unconditionally satisfy the age 55 restriction. That’s because their rules can allow early access to super on hardship and compassionate grounds.

To be able to accept a UK pension transfer, an Australian super fund must be registered with the UK pension regulator, Her Majesty’s Revenue and Customs (HMRC), as a Qualifying Recognised Overseas Pension Scheme (QROPS).

Self-managed super funds (SMSFs) can accept a UK pension transfer.

If the reader satisfies the age 55 condition and has an established SMSF, says Brisbane barrister Jeremy Gordon, the fund’s trust deed can be amended so that it complies with the QROPS rules.

Gordon offers a legal documents service that includes an online QROPS conversion kit for a cost of $145.

Using an SMSF is not a simple process, cautions Olivia Long, chief executive of Adelaide-based SMSF administrator SuperGuardian.

Get the deed right

To start with, she says, you must ensure the SMSF trust deed is worded appropriately to comply with UK pension regulations. In particular, there must be no access prior to the age of 55.

The next step is to lodge a request to HMRC to be registered as a QROPS. This application can be done online and includes providing SMSF details, information on SMSF legislation and the SMSF’s trust deed.

Applying for QROPS status requires patience, says Long, as this can take four to eight weeks to be acknowledged.

A key consideration for anyone contemplating the SMSF route is the likely cost, especially if specialist advisory services become involved. This makes researching the costs of any exercise a very important part of the UK transfer process. Some specialist services charge a per cent of the transfer amount plus the cost of establishing an SMSF.

While an SMSF is one option, there is an alternative in the form of a boutique public offer retail superannuation fund, the Australian Expatriate Super Fund (AESF).

Established just over 12 months ago with South Australian based Tidswell Financial Services Ltd as the trustee, managing director Dannie Fox says the AESF is the only public offer retail superannuation fund in Australia able to receive UK pension transfers.

Keep costs down

Judging by the reader’s balance, says Fox, it will likely be more cost-effective to transfer directly into a retail fund than to establish an SMSF for this purpose. The AESF has more than 100 members. For a pension transfer it initially charges $880 (including GST) to contact the UK pension scheme, obtain, assist and lodge the discharge paperwork and then receive the money.

Once it is in the fund, says Fox, the UK pension amount is treated like normal Australian superannuation for access purposes, although there is an annual $264 charged for QROPS reporting.

While some of those who transfer their UK pension to an SMSF run it as an additional super account, says SuperGuardian’s Long, others use this as a “means to an end”.

Many roll out the funds to a retail or industry fund at the first opportunity, or cash it out if they have met a condition that allows them to withdraw their super.

They use the SMSF, she says, as a vehicle to bring the pension funds across but don’t want to deal with the ongoing administration requirements of being SMSF trustees.

AFR Contributor, John Wasiliev, Fairfax Media

What is a death in service benefit?

Many Expats often make the mistake of believing that death in service benefits they have with their company and life insurance are the same thing, This however, is not the case. Death in service is an insurance offered through your employer, while life insurance is available through an insurer. Often the two types of cover differ significantly in terms of the benefits they can offer.

The major problem with the death in service benefits is that in essence its just a personal accident insurance. If we look at the scenarios that a life company will pay in the event of a claim, the majority of the cases likely to be after a period of illness. But if you look at the cover that death in service offers then you are unlikely to be employed as the firm has no obligation to keep you on after the a period of illness.

The expat employee contract will generally have a clause that entitles the employer to stop employing you after 3 months if you're too ill to work. If after this period you die then the death in service benefits cease to exist.

With death in service, if you were to move or lose your job, through redundancy or dismissal for example, any death in service benefits will be lost. Replacing this level of cover may not be easy, particularly if you were in poorer health, which could then leave your family at risk should anything happen to you. For this very reason, you should be aware that death in service insurance may not be sufficient to cover all of your needs, so it may be worthwhile to consider additional cover in the form of life insurance.

What is death in service?

Death in service insurance pays out a lump sum to your family, usually around three or four times your annual salary if you die while working for the company offering the insurance policy. Many employees are provided with death in service benefits through an insurance scheme set up by their employer. The cover is normally offered free of charge as part of a benefits package and goes some way towards protecting your loved ones financially should you die whilst employed. However, if you leave your job, get made redundant or are dismissed, the cover ends, which could then leave your family at risk financially if you were to die.

What is life insurance?

Life insurance pays out either a lump sum or an income if you die. You might want it to provide your family with an income to live on or to cover a specific regular expense. Or you might want them to receive a lump sum which they can then invest/use for income or to pay for something specific such as an outstanding mortgage or inheritance tax bill

For a quote for life and critical illness insurance