Money Makeover: Home and dry with her mortgage, but offshore funds are a bet too far

Jill Hendry, 30, is a South African working for a financial services company in London. She bought her house in Twyford, Berkshire, three years ago and has a two-year, fixed-rate deal at 4.2 per cent with the Nationwide: her repayments are £480 a month.

Jill lets out her property for £600 a month and rents in London to save £265 a month on commuting. But she has to pay £150 a week rent so she is out of pocket. Jill worries that her mortgage repayments are too high. "I feel I'm being ripped off," she says.

In March 2000, she gave Lloyds TSB £8,000 to invest: £5,000 went into a Prudential international investment with-profits bond - worth £5,552 last February. The remaining £3,000 was invested in capital growth and the UK via two offshore Lloyds TSB funds. This is now worth £1,670.

Jill's pension arrangements are on a sounder footing. Her company invests 12 per cent of her salary into her pension.

Investment

Jill's savings and investments are a concern because they are based offshore and performance and interest rates are mediocre. As Jill is a UK tax resident there is no advantage in being offshore.

The little bank interest she receives must be declared on her annual tax return with tax paid as necessary. Holding her with-profits bond offshore potentially offers some advantage as returns can accumulate gross and will not be taxable until she encashes the bond or makes withdrawals. But dismal returns and the small amount invested mean tax benefits are negligible. Offshore with-profits bonds are also more expensive than onshore.

The life companies which run with-profits funds have significantly reduced equity holdings as they haven't got sufficient financial reserves to take on much risk. This means these funds could miss out on medium-term stock market recovery. But while it may be tempting to encash the bond, Jill is likely to face two types of penalty: an early contractual exit penalty and a market value reduction (MVR). The net effect could be expensive so she should stay put for now. Exit penalties typically cease after five years so she should check whether this is so. MVRs should also fall if there is a sustained market upturn.

Jill's Lloyds TSB offshore funds have performed poorly so she should sell them, reinvesting the proceeds in a mini equity ISA via a fund supermarket. This will give her the flexibility to mix and match from a diverse range of funds: a good place to start is Framlington UK Select Opportunities.

Advice given by Justin Modray IFA Bestinvest Brokers, 020 7321 0100 or www.bestinvest.co.uk

Mortgage

Jill worries about being ripped off but this isn't the case: she has a great mortgage deal. If it reflects the fact that she has told her lender she is renting out her property, she won't get a cheaper mortgage elsewhere. If she hasn't notified her lender, she should do so.

Advice given by Simon Tyler managing director of broker Chase de Vere Mortgage Management, 0800 358 5533 or www.cdvmm.co.uk

Pension

Jill should check whether she has a final salary scheme: the 12 per cent contribution is pretty good. But if it is a money purchase scheme where she is responsible for investment risk, she should find out where it is invested and ensure it suits her tolerance to risk. At her age, it makes sense to go for growth.

Jill might consider topping up her employer's contributions - even 2 per cent of her salary would make a difference. Stakeholder pensions from Standard Life and Norwich Union are also worth considering, as is a self-invested personal pension.

Advice given by Tom McPhail, pensions research manager at IFA Hargreaves Lansdown. Contact 0117 988 9880 or www.hargreaveslansdown.co.uk

Interviews by Sam Dunn