Money to make the world go around

Vital statistics

Lizzie Williams
Age: 31
Lives in: Cape Town, South Africa
Occupation: Hotel manager
Earns: £3,600
Mortgage: £65,000
Debts: Credit card £2,000, outstanding service charge £1,400
Investments: With-profits endowment, 200 Halifax shares
Pension: Has made no payment to personal pension since 1995
Aims: To sort out her UK financial affairs

Lizzie Williams left the UK to go travelling in March 1995 and never returned - at least not to live. She now works in South Africa as a hotel manager and that is where she intends to stay for the foreseeable future.

She is currently back in London for a couple of months to sort out her financial affairs and sell her flat, which is on the market. She has had the property in Bethnal Green in London since 1988, when she bought it for £65,000 with a 100 per cent endowment mortgage.

She is hoping the flat will fetch between £115,000 and £120,000. After paying off her mortgage, fees and her debts, she would like to invest the remainder here before she leaves.

She is prepared to tie up the money for five years but then wants it to be accessible in case she decides to return to the UK and wants to buy another property.

She is not sure what her options are as a non-taxpayer and is looking for an investment that she can leave here without having to manage it.

She would also like to have some money available in a bank account, say £2,500-£5,000, in case she decides to continue her travels.

After selling her property, she is wondering what to do about her mortgage endowment policy with Legal & General. She is prepared to keep up the £78 per month premium payments for the full term, but is not sure whether it is worthwhile now that she has seen the bad press endowments have been receiving.

She also has a personal pension with Legal & General, which was started when she opted out of Serps in 1988. Her National Insurance contribution rebates were paid into the plan until she left the UK in 1995. She is curious to know what has happened to this plan.

She is also concerned about making more provision for her retirement since she has no pension scheme in South Africa.

She says: 'I have been advised that I cannot start a pension here [UK] as a non-taxpayer. Is this correct?'

She is interested in her tax status generally, and would like to know what would happen if she returned to the UK to work.

She says: 'I don't expect to be eligible for any [tax] rebate for my last year of work in 1995 as it was so long ago, but would like to know where I stand, considering I quite literally disappeared.'

Her only other remaining financial interest in the UK is 200 Halifax shares which she wonders whether to keep.

In South Africa her wages are more than adequate to maintain her standard of living and her accommodation and bills are paid for.

Adviser 1: Tony Shah
Providing Lizzie has not entered the UK on visits of more than 183 days in a tax year or 90 days on average, she will be regarded as non-resident for tax purposes and does not need to pay UK tax on assets held abroad. As she left the UK five years ago, she will be able to sell her UK property without paying capital gains tax.

The net proceeds from the sale of the flat should be invested offshore so she can benefit from the funds growing free of tax. There are many offshore investments available from UK institutions, but she needs to consider several factors, such as the term of the investment.

Her attitude to risk is another consideration. Does she want to invest in cautious funds that can reduce volatility but also limit returns, such as with-profits funds, or is she prepared to invest in stock markets?

When Lizzie returns to the UK, she will become liable for UK tax again on a worldwide basis. So if she wants to use the proceeds of her investment bond for home purchase, she should make sure she sells it beforehand rather than waiting until the tax year in which she returns.

She should keep her Legal & General endowment going as the surrender value will be poor.

It is true that she cannot take out a UK pension while living away, and nor can she do much with her Serps pension. She will need to sort all that out on her return.

• Tony Shah works for financial adviser Towry Law.

Advisor 2: Robert Rackcliffe
For the money Lizzie raises from the sale of her flat, we would normally consider offshore investments, where interest can be paid gross without deduction of tax.

There are a number of excellent offshore investment bonds designed to run for at least four or five years but which allow the investor to withdraw up to 80 per cent of capital without penalty. This should provide Lizzie with the access she needs should she return to the UK and want to buy another property.

As an investment bond does not produce any interest, it would not need to be declared for income tax purposes in South Africa. Another advantage of an offshore bond is that it can be considered similar to an offshore pension fund. If Lizzie returned to the UK, she would have the option of taking withdrawals from the investment as income.

If Lizzie invested £40,000 in an offshore investment bond, she could place the balance, say £5,000, in an offshore high-interest current account.

Her existing pension with Legal & General should remain invested to provide benefits at Lizzie's normal retirement age. We would recommend that she continue with her endowment policy, as 25-year maturing policies are still yielding excellent returns and surrender values are generally poor mid-term.

• Robert Rackliffe works for financial adviser Jackson Battern .

• Advice is for guidance only.