The STERLING / EURO EXCHANGE RATE
We retired to the Maltese islands last year and, at the time, decided to keep our home in the UK rather than immediately purchase in Malta or Gozo. We have rented for the last year due to the uncertainty with the local property market and because we were unsure whether we would permanently settle here. We have recently sold our UK home and plan to continue to rent here as we love the island and feel very settled.
Our combined State and Private pensions generally cover our daily expenditure, including rent. Our house sale net proceeds were just over £250,000, and we wish to invest this to provide an additional income to pay for holidays and trips back to the UK to see our grandchildren. We are only receiving 0.4% interest on our savings, i.e., £1,000 per annum. What can we do to boost our income without taking high risks as we want to generate around £5,000 a year or more? We have considered local banks, but very little on offer seems to be available.
Having decided to settle in Malta, it is pretty standard for retirees to sell their UK residence to allow either a purchase of a new home here or to release capital to, in turn, increase their income. By selling up in the UK, you have released a large amount of money that, even after making allowances for your rent, you have released equity to create additional income for traveling, etc.
The first decision is to determine how much cash you wish to keep liquid to act as an emergency fund. Based on a capital sum available of £250,000, I would generally advise you to maintain a balance of £20,000 – £50,000 on deposit. The remainder should then be invested into a spread of income-producing investments that provide a combined yield above cash rates offered by the banks. Present conservative investments that we recommend are yielding around 4 percent, which is far more than you are presently receiving. While there are no guarantees, historically, they have consistently outpaced cash rates and inflation.
Based on a yield of 4 percent, then using a figure of £200,000 for investment purposes, this should be providing a regular income in the region of £8,000 per annum, much higher than the £1,000 you are currently receiving. You also have to consider your tax situation and whether any investment income you earn will be subject to Maltese or foreign income tax. You can potentially avoid local income tax on your investment returns unless payment is remitted directly to Malta by considering overseas solutions. Therefore, the return quoted of £8,000 above is not reduced but is the total net return to you. This is different from local bank interest and investment income taxed at 15%. We have been offering these structures for over ten years, and understandably they have become prevalent because of the continued low-interest rates offered elsewhere.
Rate Of Exchange
Another issue to consider is whether you should be converting the house proceeds from sterling into euros. Most of your expenses will be in Malta, so it is natural to presume that your capital should also be invested in euros. However, the decision has been clouded since Brexit negotiations, with the pound falling 15-20% against the Euro over the last couple of years. I would suggest that your emergency fund of £20,000 – £50,000 is converted to Euro as we could see a further weakening of the pound this year. With the continued uncertainty, it may be wise not to alter the remainder at present poor exchange rates.
By having a local financial adviser qualified in investment management, they will guide you on the types of investment to hold and periodically update you on developments, not only on your income portfolio but also on other events that will affect your financial position. This should include views on exchange rates and local taxation. Therefore, selecting your financial adviser is key to the success of your financial goals, especially since you appear not to have had any investment experience previously. Do not, therefore, be shy to ask for a reference or ask to speak to someone who has used their services already.
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