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Finances 101 for UK Immigrants

Updated 28 Feb 2020

If you are immigrating to the UK to live and work, you will be learning a lot of new day-to-day tasks: you may be driving on the other side of the road, speaking another language and, certainly, walking unfamiliar streets. At the same time, you may need to learn new ways of managing and using your money while you are living in the UK, which is why this guide covers everything from converting your currency to retiring in your new home country.

Before you Immigrate to the UK

While the UK is a part of the European Union, the island continues to use the British pound sterling as its currency, so regardless of where you’re emigrating from, you are going to have to convert your money into British pounds and pence.

Opening an international bank account before you move can make the conversion less stressful. This will allow you to manage your finances in both the UK and at home and will eliminate the need to carry large wads of cash around upon arrival.

If you were to try to open a bank account upon your arrival in the UK, you would need to provide several forms of identification. However, by opening an international account before you leave, you simply need to provide a certified copy of your passport and one document that acts as proof of your address.

If you do decide you want to open an international bank account before you leave, choose a financial institution with a branch in both your home country and in the UK, and make a time to meet and discuss your options and needs with a member from your local branch.

Opening a Savings Account in the UK

As a non-UK citizen living in the UK (but who has the intention of ultimately returning home), you are classified as an RND, or Resident Non-Domiciled. This means that you can base your UK bank accounts offshore and that you can take advantage of tax benefits if your account is held in the Isle of Man, or Jersey.

On the other hand, RND status also comes with its own drawbacks. For one, it means that you arrive in the UK with no credit history and will, therefore, be viewed by most banks as a risk. Thus, for the purpose of building credit, it does pay to compare the local financial institutions and do what you have to in order to open a simple savings account onshore.

What’s more, opening a local bank account will make it easier to access your money without worrying about international transaction fees, and in most cases, you will need a local bank account where your employer can deposit your wages if you are immigrating to the UK for work.

Therefore, use the following steps to help you easily apply for a UK savings account:

  • Ask for assistance: If you are immigrating for work, ask your employer if they can offer you any assistance in opening a savings account because if they employ a large number of non-UK workers, they may have established a relationship with a local bank, and this will act as a reference for you to reduce your risk. Similarly, if you are immigrating to study, ask your university if they have any information or partnerships.
  • Compare banks: Some of the names of the banks in the UK may be familiar because they have international branches in your country. While it can be tempting to simply opt for a familiar name in the sea of unfamiliar faces in a new country, you do need to spend the time comparing the banks and their accounts. Also, look for a bank with branches close to your home or office so you can easily go in to make deposits and ask questions. Furthermore, before you go searching for a new bank, do some research online to find out which banks offer the types of accounts which will suit you. This will also help you formulate questions to ask as you visit each bank. Also, make sure you ask for printed material on each of their accounts so you can compare your options clearly later.
  • Check accessibility: Ask each bank you compare about their network of ATMs; in most cases, if you use an ATM which your bank owns, your withdrawals will be fee-free. Also, make sure you find out about online banking services, which can not only save you time and money as you manage your finances but can also make it easier to transfer money between your accounts internationally.
  • Check documentation: The documentation required to open a savings account will differ from bank to bank, so make sure you check whether you can source the necessary paperwork for your application.
  • Don’t count on your credit history: When you immigrate to a new country, your credit and banking history do not travel with you. Therefore, when you immigrate to the UK, it is like you are starting again from scratch, which can be good if you have a few marks on your credit report, but it is not helpful in the way that you are viewed as a risk by UK banks. As a result, the savings account you open in the UK may have high monthly fees and low or no interest; however, if you can keep this first account for a year, you can build up a banking history and move to a better account down the track. Alternatively, you may be offered a very limited account that allows you an ATM and debit card but no cheque or credit facilities.
  • Provide documentation: While you will have checked the requirements in your search for a savings account, when you go to apply for your savings account, bring the primary documentation you need: your passport, a utility bill, and any other documentation you have in case it is needed. You may also need to provide contact details for your employer, as well as the details of someone in the UK, and in some cases, someone with an account at the same bank who can verify your identity.
  • Keep your bank statements: Make sure you retain all of your original bank statements as they may need to go into the Home Office, and if you need to extend your visa in the UK, you are often asked for bank account history. Also, make sure you keep your address current with your bank.

Applying for a UK Credit Card

Your lack of UK banking history can make getting a savings account hard, and it can make getting a credit card even harder.

Therefore, instead of starting your UK credit report with a series of rejected credit card applications, consider applying for a credit builder credit card. Credit builder credit cards are specifically designed to help you build credit because they are more accessible than a normal credit card, although they do often have higher interest rates and lower available credit limits.

However, as an immigrant to the UK, you may have to use a credit builder credit card to show that you can responsibly borrow and repay money, to allow you to transfer to a more attractive card when you have established your credit.

A credit builder credit card is much like a standard credit card, and you will be comparing the following features:

  • The interest rate: A credit builder credit card will often have an annual interest rate of between 30 and 40 percent, so you will need to do some shopping around to find the best rate. At the same time, remember that a higher interest rate will encourage you to pay off your balance sooner to reduce the interest charged.
  • Credit limit: It is common to use a credit card as an emergency source of funds, especially when travelling; however, credit builder credit cards often have a much lower limit than standard cards. So be aware that you can quickly “max out” this credit with your everyday purchases.
  • Fees: Just like your standard credit card, you will be charged a late fee if you miss a monthly repayment. Since you are using your credit builder credit card to establish a credit history – and you want to develop a good one – set up an automatic repayment each month to your credit card from your savings or transaction account so you never miss a payment.
  • Cash advances: You can withdraw cash from your credit builder credit card; however, you are charged a much higher interest rate again, plus a cash advance fee, which is typically 3 percent of the transaction amount, on top of your interest charges. Therefore, avoid using cash advances if you can, as they will cost you a lot more in the long run in both interest and in building good credit.

Applying for a Loan as an Immigrant to the UK

While having no credit history can make it difficult to apply for a savings account or credit card as a new immigrant to the UK, when you apply for a loan, you are able to offer property as security over the loan. A lender is able to repossess this property if you default on your loan repayments, and this reduces their risk.

If you are an immigrant to the UK, you can apply for:

  • A currency mortgage: You may have immigrated to the UK, but if you continue to receive your income in another currency, you can apply for a currency mortgage, which will help you save on high conversion costs. A currency mortgage allows you to repay your mortgage in another currency, typically US dollars, Euros, Swiss francs, Hong Kong dollars and Japanese yen.
  • Non-resident mortgage: Prior to 2008, if you were an RND (you had lived in the UK for 7 out of 10 years), you could take out an offshore mortgage on your UK home and qualify for tax breaks. However, this process has been abolished, and as such, there are no specific mortgage products for non-residents looking to buy property in the UK. Instead, you will need to find a lender who will offer you a mortgage as a non-resident and who offers no-credit-history loans.
  • Offshore residential mortgages: If you are living and working in the UK, but you were born in another country and don’t intend to stay in the UK permanently (and haven’t been in the UK for 7 out of 10 years), you can apply for an offshore mortgage. In this case, your loan account is held offshore, often on the Isle of Man, and can be paid with any offshore money you have.

One of the most important aspects of any loan is the interest rate, as it will determine how much you repay over the term of the loan.

Types of UK loans

  • Fixed interest rate: You may be advised to lock in a fixed-rate mortgage when buying property in the UK if interest rates are currently low and expected to rise in the short to medium term. Your interest rate will be fixed for a period of time agreed to by you and your lender, and at the end of the fixed period, your rate will revert to the standard variable rate of the loan, at which time you can choose to re-fix your rate, at the new fixed rate offer.
  • Standard variable rate: A variable interest rate allows you to take advantage of drops in official interest rates during your loan period. While the lender sets the variable interest rate, it tends to follow the movements of the Bank of England Base Rate. However, while you will save money as interest rates drop, your repayments can also increase if rates go up.
  • Discounted interest rates: Discounted interest rates are offered on certain loan amounts on a tiered basis; the more you borrow, the greater your discount. In other cases, the discount may be applied to your interest rate for a set period of time. After this discounted introductory period is over, your interest rate reverts to the standard variable rate of your loan.
  • Tracker rate: While most lenders adjust their interest rates in line with the Bank of England Base Rate, there are often times when the bank will make an independent adjustment based on their own earnings and times when they don’t pass on an entire rate cut from the Bank of England. However, some lenders will offer a loan with a tracker rate, directly linked to the Bank of England Base Rate and always matches official interest rates.

Taxes in the UK

As a new resident of the UK, you will be subject to a number of the country’s taxes, and it is important to familiarise yourself with those now to avoid getting on the wrong side of Her Majesty’s Revenue & Customs – the UK tax office.

UK Tax Types

  • Property tax: Property tax in the UK is also known as council tax and is calculated on a property’s value and the number of people living in the property. You are required to pay property tax whether you rent or own the property; however, the cost of the property tax may be included in the rent amount, so make sure you check your rental agreement. Property tax can be paid in monthly instalments to make the cost more manageable.
  • Income tax: Also known as PAYE (Pay As You Earn), income tax is deducted from every wage as a flat tax, and you are not required to fill in any paperwork unless you are self-employed. However, if you are immigrating to the UK but not planning to stay permanently, you can avoid being taxed in both the UK and your home country if the two nations have a double taxation agreement. That said, you may need the help of a tax consultant to make sure you pay the right amount of tax to the correct country.
  • National insurance: This is paid on top of your PAYE as a contribution to your pension fund and so that you can access free healthcare in the UK. When you start working in the UK, you will be issued a temporary National Insurance (NI) number and be put onto an emergency tax scale. Make sure you apply for your official NI number as soon as possible to avoid paying more tax than necessary. The process to be issued with an NI can take up to six months, and you will need to schedule an appointment for an interview. Once you receive your NI, you will need to write to Inland Revenue to claim back any extra tax you have been paying.
  • Sales tax: In the UK, sales tax is known as VAT (Value Added Tax) and is charged at 20%. VAT applies to goods and services, not including children’s clothes, and is already added onto the ticketed prices of everything sold in the UK, so you don’t have to make the additional calculations yourself.

UK Pensions for Immigrants

In most cases, anyone working in the UK will build up some state pension, and the amount you get back when you retire will depend on how many years of eligible National Insurance contributions you have made. Each qualifying year of NI counts towards your state pension, and you will typically qualify if you are:

  • Working full-time or part-time.
  • Self-employed.
  • Caring for someone for more than 20 hours per week.
  • Receiving a Child Benefit payment.
  • Participating in full-time training.

If you fit into any of the categories above, you will be making NI contributions from your income, or you will be credited NI contributions by the government. When you retire, you will no longer be making National Insurance contributions, but you may have to continue paying income tax. Your income tax obligations will depend on the amount of your taxable income.

To find out whether you are eligible to contribute to or receive the UK pension and decide whether to transfer your pension when you immigrate to the UK, discuss your needs with your financial advisor.

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