Foreign Currency

20122013

I have some foreign currency in an overseas bank account and the interest is less than 1 % but tax free. Notes inflation will eat into it and I have maxed out my ISA.

I no longer require this money in a foreign currency and looking to save and invest it  as it is part of my retirement fund. 

I am trying to work out what my options are to make it work harder for me :
 

1. Covert it into GBP (no fee) but any gain (from bank interest or investment) will be taxable. As I have CGT to pay 2025/26 and I would have use up all my allowances)

2. Leave it as it is

3. Convert into USD and leave it in this overseas bank as no tax to pay

4. Still thinking what to do with it (to make it tax efficient if possible)

InvesterJones

Swapping currencies isn't an investment option, it's a speculation on how you think the currencies will move relative to each other.

So the only 'putting it to use' option is to invest it in something, with whatever conversion needed for that - can you convert enough to stay below the allowances and invest that, then next tax year repeat?

eskbanker

The standard advice on here is to maximise net return, rather than fixating on avoiding tax, i.e. it makes no sense to earn less than 1% just because it's tax-free if you can comfortably exceed that while paying some tax on it.

CGT wouldn't appear to be relevant, but any interest earned on the money (outside tax wrappers such as ISA or pensions) will be liable to income tax, subject to your personal allowances.

However, in your shoes, if you're a UK resident and planning to stay that way, I'd get it over here and get it into a pension, although it isn't clear if you have headroom for the sum involved in pension contributions....

friolento

Are you sure your foreign interest / capital gain is exempt from UK tax?

QrizB

20122013 said:

I have some foreign currency in an overseas bank account and the interest is less than 1 % but tax free. Notes inflation will eat into it and I have maxed out my ISA.

How muh money are we talking about here, in GBP terms? Hundreds? Thousands? Hundreds of thousands?

1% taxfree is equivalent to 1.25% after tax for a 20% taxpayer.

I would imagine that you could earn considerably more than 1.25% on the money if you converted it to GBP and put it in a UK savings account.

poseidon1

friolento said:

Are you sure your foreign interest / capital gain is exempt from UK tax?

My thoughts as well.

Can't see why any foreign currency interest would be tax exempt for a UK resident tax payer. Couple that with a miserly 1% interest rate and uncertainty of currency fluctuations can't see the rationale behind this 'investment' decision at all.

As for conversion to dollars rather than sterling, unless hoping for future gains by virtue of stirling depreciation ( ie currency speculation) that option also a little baffling.

Agree @eskbanker, there is ( in my view) an unhealthy fixation amongst some OP's to avoid/ reduce tax  exposure to the detriment of better investment/savings  returns ( net of tax).

20122013

friolento said:

Are you sure your foreign interest / capital gain is exempt from UK tax?

- Yes, due to the double taxation agreement as as the bank account I hold pays no interest (and had not moved it to the less than 1% interest account) so there will be no tax to pay. 

- My CGT is taxable as it is a property in the UK. 

20122013

InvesterJones said:

Swapping currencies isn't an investment option, it's a speculation on how you think the currencies will move relative to each other.

So the only 'putting it to use' option is to invest it in something, with whatever conversion needed for that - can you convert enough to stay below the allowances and invest that, then next tax year repeat?

Agree. to invest it in something for minimum 10 years, perhaps a different index tracker. I was thinking of gilts or bonds but not sure now. 

20122013

poseidon1 said:

Can't see why any foreign currency interest would be tax exempt for a UK resident tax payer. Couple that with a miserly 1% interest rate and uncertainty of currency fluctuations can't see the rationale behind this 'investment' decision at all.

As for conversion to dollars rather than sterling, unless hoping for future gains by virtue of stirling depreciation ( ie currency speculation) that option also a little baffling.

Agree @eskbanker, there is ( in my view) an unhealthy fixation amongst some OP's to avoid/ reduce tax  exposure to the detriment of better investment/savings  returns ( net of tax).

Because this overseas bank account pays no interest so nothing to be taxed. (see my post above).  

Appreciate all the helpful  reminders about 'tax' 

eskbanker

20122013 said:

I have some foreign currency in an overseas bank account and the interest is less than 1 % but tax free.

20122013 said:
the bank account I hold pays no interest (and had not moved it to the less than 1% interest account)

20122013 said:

Because this overseas bank account pays no interest so nothing to be taxed.

It would perhaps have been worth being accurate in your first post, although technically 0% is less than 1% I suppose!

jimjames

20122013 said:

poseidon1 said:

Can't see why any foreign currency interest would be tax exempt for a UK resident tax payer. Couple that with a miserly 1% interest rate and uncertainty of currency fluctuations can't see the rationale behind this 'investment' decision at all.

As for conversion to dollars rather than sterling, unless hoping for future gains by virtue of stirling depreciation ( ie currency speculation) that option also a little baffling.

Agree @eskbanker, there is ( in my view) an unhealthy fixation amongst some OP's to avoid/ reduce tax  exposure to the detriment of better investment/savings  returns ( net of tax).

Because this overseas bank account pays no interest so nothing to be taxed. (see my post above).  

Appreciate all the helpful  reminders about 'tax' 

Just because it pays no interest doesn't mean it is tax free. I think that's what has caused the confusion.