September 2, 2014

Repatriating Funds

The repatriation of funds is a very comprehensive topic and I’m constantly surprised to hear how many buyers are not completely aware of the process and what it involves. Basically, it means to move money from one country to another or, in this context, to sell a property overseas and transfer the profit back to your home country.

 

This may seem like a small subject but it is not just a matter of ringing up your bank and transferring the money back home. The reality is that a whole range of different, and sometimes absolutely crucial, issues are involved.

To begin with, in some countries you aren’t able to repatriate your funds freely. Within the EU today, we are used to transferring money from one country to another without any restrictions, but in the past even within European countries there were legal restrictions on the transfer of money cross-borders.

People have now become much more adventurous than they used to be and are buying in all sorts of countries, making it more important than ever to identify whether you are allowed to take money out of the country once you sold your property or not. After all, you have sold for a good reason and if you can’t get the money out of the country, you are limited as to what you can do with it.

In some markets you are free to repatriate the funds back to your home country, providing that you have properly registered the money when you brought it in. The authorities need to know that the money came from a legitimate source. This shows the importance of forward planning and doing things properly from the beginning.

Secondly, there are not only restrictions on the process of getting your money out of the country but also on the amount of cash you are able to transfer. Frankly this should not cause you any problems because anybody who is involved in taking large amounts of cash in and out of a country should expect to explain to customs why this is necessary.

Also, I’d like to touch on the increasingly highly discussed topic of money laundering. Even though it may become technically easier to repatriate money, the requirements in terms of proof that the money has come from a legitimate source are getting more rigorous. This changing will probably get tougher over the next few years.

The next issue to think about is the exchange rate and the right time to sell. Don’t underestimate the savings (or losses) that can be made by converting the money at the right (or wrong) time. Just ask those people wishing to buy or sell in the USA at the moment whether they are getting a good deal. I am sure they will tell you very different things!

Some people have sold properties in countries and technically made a profit but by the time that they convert the money back into their home currency, they have actually lost money. Conversely, some people have actually made more money from the conversion than they have from the sale of their property. The trick is to sell the property at a profit and also sell at a time when the currency is working in your favour!

In our office we have been using currency dealers to send money abroad for many years and are constantly amazed by the savings that can be made – not only in terms of the exchange rate, but also in costs. On a £100,000 transfer the savings just in exchange rate differences could be as much as £3,400 which goes a long way towards legal fees, furniture or even a car! With regard to costs in a recent transaction, we saw a bank charged £535 for a transfer of £100,000 abroad whereas a currency dealer would probably only have charged £10.

On a final note, there is the question of tax. It is a common misconception that you only pay tax if you bring the money back into the UK. Therefore some people consider selling a property in Spain, for example, and then either keeping the money in Spain or moving it to another country (Gibraltar or Switzerland seem to be common countries mentioned). If you are tax resident in the UK, there are only certain circumstances where you won’t have to pay tax on the profit of a property abroad so make sure that you investigate this carefully before you buy the property.

Of course, with the expansion of the Euro some of these problems are disappearing. Selling a house in Spain and buying one in France is much easier as both are in Euros.

So yes, think about buying a property abroad but also think about the exit strategy – how to sell and how to get the money out of the country when you do.

The author, John Howell, is a senior partner at the International Law Partnership.


First published in January 2008.
Some information contained within this article may have changed since it was first published. Homes Overseas strongly advises you to seek current legal and financial advise from a qualified professional.

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