Q, We retired to Paphos last year and at the time, decided to keep our home in the UK, rather than immediately purchase in Cyprus. 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. The proceeds of our house sale was 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 really want to generate around £5,000 or more ?
A, Having decided to settle in Cyprus, it is quite common 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. Renting is certainly a sensible option although bargains are to be had for those wishing to buy. By selling up in the UK, you have released a large amount of capital that even after making allowances for your rent; you have released equity with a view of creating additional income for travelling 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 then I would generally advise you to maintain a balance of £20,000 – £40,000 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 investments that we recommend are yielding around 4-5 per cent which is far more than you are presently receiving. Whilst there are no guarantees, historically they have consistently outpaced cash rates and inflation.
Based on a yield at the lower end of 4 per cent then using a figure of £220,000 for investment purposes, this should be providing a regular income in the region of £8,800 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 local or foreign income tax. Thankfully, you will be pleased to know that we offer ‘tax efficient’ structures to hold your savings and investments that are exempt from both the EU Savings Tax Directive and local Defence Levy. The return quoted of £8,800 above is therefore not reduced but is the full net return to you. We have been offering these structures for over ten years and understandably they have become extremely popular in view of the terribly low interest rates offered elsewhere. For anyone looking to generate an investment income above cash rates and inflation then we have a tried and tested solution.
Rate of exchange
Another issue for you to consider is whether you should be converting the house proceeds from sterling into euro. Most of your expenses will be in Cyprus so it is natural to presume that your capital should also be invested in euro. The decision has however been clouded since Brexit with the pound falling over 15% against the euro since June. I would suggest that your emergency fund of £20,000 – £40,000 is converted to Euro. We could see further weakening of the pound this year but I feel that now is not the time to convert a substantial amount as I am sure the euro will start to show signs of cracks soon also meaning that we could see the pound rise next year – although significant uncertainty exists.
By having a financial adviser qualified in investment management, he/she will guide you as to the types of investment to hold and periodically update you on developments, not only on your income portfolio but on other events that will effect your financial position. This should include views on exchange rates and local taxation. Selecting your financial adviser is therefore key to the success of your financial goals, especially as 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.