Financial tips for living in the UK?

[MrCash]

On my website, I have started a section where I collect financial advice from people all around the world.  Our Cash House - Finance Around The World - United Kingdom  And I'm currently looking for advice for the UK. 

Do you have any advice you would like to share?  When submitting advice, include the category (e.g. housing, investing, commuting, etc.).

Thanks!

Mr. Cash

[warfreak2]

(This is from the perspective of a young person who doesn't have a family to look after.)

Housing/commuting: the cost of this can vary enormously even over relatively small distances. Most cities have "nice" (expensive) areas and "poor" (cheaper) areas, where in practice you're just paying a premium for nicer architecture and a higher proportion of white people. It's therefore very often possible to live within walking or cycling distance of the centre without paying through the nose for it. Many places are perfectly fine to live without owning a car, though a lot of car addicts will tell you otherwise. Commuting by rail is rarely worth it, as the trains are less reliable in occasional bad weather, and ticket prices routinely go up above inflation. London is probably the only place where it makes financial sense to commit to commuting by train, although these trains will normally be totally packed.

Transport: We have some of the most expensive train tickets in Europe, but it still makes sense to use them for longer journeys if it means you don't have to own a car. For ~£30 a year you can buy a railcard, which gets you a 33% discount on all tickets (down to a minimum of £10 on tickets for travel before 10AM), this is very likely to more than pay for itself if you travel a few times a year. Tickets can also be gotten considerably cheaper by buying in advance, getting two singles instead of a return, or even four or more singles for longer journeys, because the triangle inequality frequently doesn't apply. There are also a lot of coaches and buses, but nowadays these are rarely better choices than trains or cycling/walking.

Investing: You can contribute somewhere around ~£10,000/year (and it's going up) into an ISA (Individual Savings Account), which can either hold cash or stocks/shares/ETFs/&c. This is totally tax free except for a 10% of dividends. You can invest up to 100% of your income in a SIPP (Self-Invested Personal Plan) which is similarly tax-advantaged but there is no legal way of accessing it before you are 55. Therefore your ISA should take priority. Some public sector jobs (like teaching) come with quite generous pension schemes. Our Lending Club equivalent is called Funding Circle, and only lends to businesses; currently, loan defaults can't be deducted from returns for tax purposes, but this might change in the near future.

Real Estate: The 1% and 50%/2% rules are rarely, if ever, going to apply in the UK. However, expenses for a landlord are lower because the UK doesn't have true property taxes; Council Tax is paid by the tenant, not the landlord, and is determined by which Council Tax band the property is in, rather than the value of the property directly.

Groceries: Normally it's best to split your grocery shopping between a family-run supermarket and a chain supermarket; most basics can be found cheaper at some family-run supermarket, but a few things aren't available there, or are more expensive than at a chain supermarket.

Health Insurance: For most people, this is not an issue at all. We have universal healthcare, free at the point of use, paid for by general taxation. Most of us are very happy about this. Private health services are available, but unnecessary except for occasional one-offs.

[daverobev]

Investing - ISA - it is 100% tax free; warfreak2 are you talking about the 10% *credit*? That's not the same thing. All income inside the ISA be it dividend, cap gains, whatever - it's all tax free. Going up to 15k in July AND IT IS AWESOME. Use it.

I disagree about commuting by train; season tickets are considerably cheaper than the walk-up fare. Admitted it is not cheap, and perhaps slightly more expensive than driving, but the difference is that the time is your own rather than being stuck in traffic. I commuted from Leighton Buzzard to Watford for a few years and while, yes, delays are annoying, it's still better than driving in rush hour.

Shop around for internet, and mobile phone; you can get very cheap service for both. There is no need to sign a contract, I think, at least with the phone - SIMs are often free.

I can't comment on family supermarkets, but the range of organic stuff available in your average Sainsbury's or Tesco's is fantastic. I would suggest going to a 'proper' full-sized supermarket rather than a small convenience one though; the latter only stock one or two lines, and rarely the cheaper ones at that.

As with anywhere, if you're single, sharing a house is by far the cheapest option.

[MarcherLady]

Hi daverobev,  warfreak is correct, you pay 10% tax on the dividends earnt in S&S ISAs.
http://www.which.co.uk/money/savings-and-investments/guides/stocks-and-shares-isas-explained/what-is-a-stocks-and-shares-isa/

[warfreak2]

http://www.theguardian.com/money/2006/feb/22/isas

When Isas were first launched investors could reclaim the 10% tax paid on dividends (income paid to people who hold shares) so stocks and shares Isas were completely tax free. However, in April 2004 the 10% dividend tax credit was scrapped, so for basic-rate taxpayers dividends are taxed as outside the Isa wrapper.

http://www.uswitch.com/investments/investment-tax/

Furthermore, the dividends paid from a stocks and shares ISA still carry the 10% tax credit – you only receive 90% of the dividend, and you cannot claim back the 10% tax that has already been deducted.

http://www.morningstar.co.uk/uk/news/69535/what-is-an-isa.aspx

*Note, that ISAs are not completely tax immune. Dividends generated from equity, both inside and outside an ISA, will automatically have a 10% tax skimmed off the top by the government.

As for commuting to Watford by train, Watford is in London, and I did make an exception for London. Still, I wouldn't do your commute. It compares well to driving, but not to living nearer.

[daverobev]

Watford certainly isn't London! And I wouldn't want to live nearer to Watford than is absolutely possible ;)

Ok, I mis-spoke re ISAs; but the 10% being taken is entirely invisible. Or am I totally confused? I no longer have an ISA, so maybe you can tell me:

For my unregistered SBRY, divi listed is 5p a share, I had then 200 shares, and I got a payment of 10 quid exactly. Will I get effectively another 10% back at tax time..? Or if I held it in an ISA would I actually only get 4.5p a share?

Hmm I think I see.. I would get the same amount (5p interim) either in ISA or unregistered; but I'd get a tax credit when unregistered to offset any tax payable on the money I had already received (assuming basic rate tax payer). So effectively.. it'd be the same in or out of an ISA. What you see when you look up a company's (or ETF's) yield will be exactly as quoted, though - the 10% is not an additional 10% taken from the ISA.

Right?

[warfreak2]

Watford is on the Oyster map, and it's inside the M25.

Yes, the dividend tax is automatic. But it is tax. The yield quoted by an ETF sold outside of the UK is not going to be corrected for the tax in our one particular foreign country. Maybe where you are getting yield data for UK shares/funds, they're showing the net yield, but I doubt this is the norm.

[daverobev]

Um, Watford is not London, it is in Hertfordshire! It may well have a tube station, but that doesn't make it London!

I have a UK share account still. SBRY is not an ETF! Most ETFs are Irish domiciled when listed on the LSE, anyway, so I guess the 10% is actually withheld and disappears there. I'm getting info from the actual dividends I received; but on my tax statement I see the credit (which I don't 'get', it just offsets the tax I would otherwise have to pay in the UK) as a separate column.

[daverobev]

I believe the yield listed, the amount a company *say* they will pay you, is the 90%. They don't count the 10% you (don't) get later and that you don't get at all in an ISA.

So if a share is listed for 100p and has a 5% yield, you'll get 5p a share either in an ISA or in a taxable account. In a taxable account, the tax you would otherwise have to pay on that income is offset by the tax credit if you are a lower rate tax payer, but does you no good at all if you do not earn enough to pay tax.

Right?

http://www.hmrc.gov.uk/taxon/uk.htm

[warfreak2]

OK, the yield quoted by a dividend-producing equity investment. Shouldn't matter whether it's an ETF or not; just most people here will be buying ETFs rather than individual stocks.

London isn't only defined by political boundaries. I don't see the point arguing about it though.

[daverobev]

OK, the yield quoted by a dividend-producing equity investment. Shouldn't matter whether it's an ETF or not; just most people here will be buying ETFs rather than individual stocks.

London isn't only defined by political boundaries. I don't see the point arguing about it though.

Ok, but I don't know of any LSE-listed ETFs that are of UK domicile. The FTSE 100, 250 ones I use are Irish. So there is zero tax payable in an ISA. You would NOT get the tax credit on these, so to all intents and purposes the ISA is tax free, unregistered is not.

I have never heard anyone from Watford or that area refer to it as London. I think I accept your point, though - would you also consider Croydon, say, as London? I would agree with you more in that case. It's not London, but it behaves like London.

*Edit* Ah no Croydon is actually a London borough.

[warfreak2]

So there is zero tax payable in an ISA. You would NOT get the tax credit on these, so to all intents and purposes the ISA is tax free, unregistered is not.

Not for all intents and purposes - if we're comparing personal finance between different countries, as the OP is doing, then the differing rates of tax on dividends is one comparator. If you buy some equity which produces a dividend of £1, then in the UK you'll get 90p (and 90p may be what is reported to you as the after-tax dividend, rather than £1), but in a country with no tax on dividends, the same investment would get you £1, in a country with a 20% tax on dividends you'd get 80p, &c.

[daverobev]

So there is zero tax payable in an ISA. You would NOT get the tax credit on these, so to all intents and purposes the ISA is tax free, unregistered is not.

Not for all intents and purposes - if we're comparing personal finance between different countries, as the OP is doing, then the differing rates of tax on dividends is one comparator. If you buy some equity which produces a dividend of £1, then in the UK you'll get 90p (and 90p may be what is reported to you as the after-tax dividend, rather than £1), but in a country with no tax on dividends, the same investment would get you £1, in a country with a 20% tax on dividends you'd get 80p, &c.

Right... but what you are talking about is the domicile of the thing you buy, not where you are. If you buy UK-domiciled STOCKS then this is true; but ETFs tend to be Irish or Luxembourg domicile. An American buying LSE *stocks* (ie UK domicile) directly would lose the 10% too. The only person who does not lose the 10% is someone living in or filing a UK tax return, who is earning more than the tax-free allowance!