What is the best option for holding foreign currency in NZ?

[Fuzzywuzzy]

Hi! I have sold a property in the UK and want to put the funds into an NZ account of some sort. The ASB do a foreign currency account but offer no interest on the funds.

Are there any other banks or better options?

Many thanks!

[elguapo]

If you want it to stay in GBP outside the UK you won't get any interest. The BOE reserve rate is just 0.5%.

[Rosco]

Since you mentioned selling a UK property, I thought I would mention the possible tax problem.

Say you purchased for 300,000 pounds, and debt of 200,000. Exchange rate when purchase say 0.33, so debt was equivlent to $600,000 NZD approx.

Now sold for say 400,000 pounds, and debt is still 200,000. Exchange rate when sold say 0.50, so debt is $400,000 NZD.

This means there has been a currency/exchange gain of $200,000 which is taxable in NZ.

There is different rules around this, and you might have had to pay a portion each year as the exchange rate changed, but many investors are cash basis so just pay on the sale.

Also if you have just moved to NZ, there is a 4 year exemption that might apply to you.

Ross

[Fuzzywuzzy]

If you want it to stay in GBP outside the UK you won't get any interest. The BOE reserve rate is just 0.5%.

Thanks Elguapo. The intention is to hold the money in a NZ account. BNZ and ASB offer 0.00%

[Fuzzywuzzy]

Thanks Ross. Sorry I should have been clearer in my original question. I am the recipient via a legal will of the proceeds from a property sale in the UK. I want to hold the money as British sterling in a NZ bank account or foreign currency acc as they called by the banks. The reason for this is the poor exchange rate or economists tell me that the rate is set to worsen if anything. Wouldn't mind some opinions on this. I am a kiwi citizen and have a family trust set up. No gifting now unfortunately. Just exploring options.

Thanks for your legal explanations, anyway.

[elguapo]

The reason for this is the poor exchange rate or economists tell me that the rate is set to worsen if anything. .

Just be aware this means your now speculating on the future GBP/NZD exchange rate. Your forgoing 3-4% in interest for this, so to hold GBP, it will cost you quite a bit to hold what is in effect a short on the NZD.

[Fuzzywuzzy]

Just be aware this means your now speculating on the future GBP/NZD exchange rate. Your forgoing 3-4% in interest for this, so to hold GBP, it will cost you quite a bit to hold what is in effect a short on the NZD.

Good point. May as well transfer into a NZ term deposit. One economist emailed me and thought that the rate would decline over the year even though the UK economy is improving.

[J_J]

The first thing that you need to consider is what do you ultimately want to do with the funds?

If you want to invest in the UK, there is little you can do as interest rates are at around zero in the UK.

If you want to spend or invest in NZ, why don't you convert now? I suspect that you are holding out for a better exchange rate. This may never happen or might take a very long time so you have to consider the opportunity cost of not being able to invest in NZ while you wait. ie. You might miss opportunities.

If you are looking to invest or spend in NZ, I would suggest that you open a foreign currency account with one of the big banks and average the exchange rate over a period of time. This reduces the chance that you will transfer it at the wrong time. The benefit of this strategy is that you get the funds back to NZ dollars so you can focus on making investment decisions that will grow your funds as opposed to speculating on exchange rate movements.

[gavinc]

Since you mentioned selling a UK property, I thought I would mention the possible tax problem.

Say you purchased for 300,000 pounds, and debt of 200,000. Exchange rate when purchase say 0.33, so debt was equivlent to $600,000 NZD approx.

Now sold for say 400,000 pounds, and debt is still 200,000. Exchange rate when sold say 0.50, so debt is $400,000 NZD.

This means there has been a currency/exchange gain of $200,000 which is taxable in NZ.

There is different rules around this, and you might have had to pay a portion each year as the exchange rate changed, but many investors are cash basis so just pay on the sale.

Also if you have just moved to NZ, there is a 4 year exemption that might apply to you.

Ross

Ross this interests me - please clarify - I as a layman see it this way -
I send $600,000 over at the time of purchase to buy outright a 200,000 pound house at exchange rate of 0.33
Five years later I sell for 300,000 pounds at an exchange rate of 0.5 which equals NZ$ 600,000 The currency amount I send back to NZ is the same amount as what left NZ - same in same out no tax?
Also in your example the intention of sending the money over as to buy a house, it was not currency speculation so why is it taxable?

[spaceman]

FWIW....I'd convert the money now, as elguapo said.....you're gambling on the exchange rate....it might get better ....it might get worse...or stay the same.....there is no way to tell.

I had a friend in the start of 2003 with a big wad of US$ who said he wouldn't change it until the exchange rate dropped below 0.66 again....if he did wait he needed to wait for years and act quickly as it's only been at that level for short periods of time.

Cheers
Spaceman

[Rosco]

Sorry I should have been more clear.

It is the reduction in the loan value that is taxable. So it is because the loan was $600k NZD and now is only $400k NZD, so the loan has reduced by $200k due to the exchange rate change.

Ross

[Fuzzywuzzy]

"The first thing that you need to consider is what do you ultimately want to do with the funds?"

Looking to invest in an Auckland rental property, JJ. As it turns out, today I discovered that my broker has been unable to secure funding from any of the major banks despite two salaried incomes and an LVR of 75% from my properties. May as well use the loot for a deposit.

[Leftette]

HSBC have a good forex account setup, all online. If you are a premier customer you can also tfr between countries and currencies FOC. As has been said, regardless of physically where the money sits, if it's in GBP's you'll get no/little interest.

[Eugene]

HSBC have a good forex account setup, all online. If you are a premier customer you can also tfr between countries and currencies FOC. As has been said, regardless of physically where the money sits, if it's in GBP's you'll get no/little interest.

Also a Direct Broking multi-currency account
and
Macquarie Bank

[elguapo]

If you are a premier customer you can also tfr between countries and currencies FOC.

They may not put a 'charge' on it, but I'm sure get plenty out of you on the rate! If you want a decent swap rate you need to use a non-bank exchange service. If your moving a big lump, it can save you thousands.