Questions about tranferring money overseas

March 17, 2008 6:39 AM

Need to transfer a large amount of money from US to UK and have a few questions about currency brokers and taxes.

I'm going to be transferring 100k from a US savings account to a UK saving account and want to be sure I get the best exchange rate. Should I use a currency broker for this rather than my regular bank? If so, can anyone recommend a good reputable broker?

Also, what are the tax consequences of a transfer like this? Will I have to pay UK taxes on the money I'm bringing into the UK?

posted by gfrobe to work & money (6 answers total)

I can't talk about the tax situation, but I can recommend Custom House for the actual transfers. I moved a fairly huge amount of money from the UK to Canada over the last two years with them, and my dad has used them for Canada - US exchanges for years. They've been awesome, and the rates I've got have consistently beaten my bank's rates.
I can almost guarantee that your bank won't have a competetive rate for you, but it's always worth checking. Remember to check their rates vs. XE, and remember to include service fees in your calculations.

As a side note, do you absolutely have to do this now? The US dollar has tanked so badly that I'm polishing up my 'How much is that in Real Dollars?' jokes for a trip that I'm taking to Colorado at the end of the month. If you can wait, you could be significantly better off keeping your money in the States for a few years.
posted by Kreiger at 8:57 AM on March 17, 2008 [1 favorite]

* competitive *, dammit.
posted by Kreiger at 9:08 AM on March 17, 2008

Thanks for reply. As for timing, we're buying a place so, in effect, have chosen to invest in UK property rather than leave it in US dollars. Not sure if this is the wisest move at the moment but the way I see it the dollar could be even worse in a few years anyway.
posted by gfrobe at 9:45 AM on March 17, 2008

Think twice before transferring this money now. Historically, there is a strong argument that exchange rate fluctuation is cyclical. There may be a flaw in my logic, in that it assumes continuity between the past and the present, but I think most people would agree that as foreign manufacturers find it harder to sell their suddenly very expensive widgets in American, their governments will eventually have to implement policy to sink their currency relative to the US dollar. I would say buy dollars now, if possible, and sell them again after the election or a couple of years down the road for a huge profit!

For years banks have taken advantage of the fact that people don't know much about foreign currency exchange. As with any task requiring expertise, those with the information protect their own interests, namely profit, at the expense of those with less information. Here's how this plays out. Say you go to your bank wanting to make this transfer and essentally buy $100k worth of British Pounds, deposited in Such & Such bank. Great, but you haven't specified whether speed is a factor, nor have you nailed down how much British money you're buying. You've left yourself open on at least two fronts: intermediary bank fees, and an unpredictable exchange rate. Since you haven't specified how quickly you want the money there, the "default setting" is going to be whatever is more expensive. So the transferring bank is going to assume you need it there fast and leave the door open to the use as many intermediary banks as necessary to get the money there as fast as possible and each intermediary bank can take a $40 to $100 fee! (this may be less of an issue for you in this particular case since the UK is the foreign currency capital of the world, but for people reading this who are transferring to other foreign countries, beware!) So you can actually lose hundreds, if not thousands of dollars this way. Instead, do this: make your agent write up the transfer in foreign currency, not American dollars. This closes the door to people trying to take advantage of the uncertainty, and locks in the exchange rate. Essentially, you specify from the word "go" how many Pounds Sterling your $100k is worth. Then, tell your bank to write on the paperwook "do not use intermediary banks". That way your money will probably take longer to get to your English bank, but at least intermediary banks won't dip into it. The only other fee, other than the one you pay to initiate the transfer, will come out of your English account for receiving the internation wire, usually about 30 pounds or less.

It is impossible to answer your tax question with the information you provided. In theory, you shouldn't be required to pay income tax twice, so if this money was already taxed in the US, it should not be subject to tax in England. Unless you're English... then you probably will be required to pay taxes on it. But there are a variety of situations where this might not be correct, so you need to see a tax adviser or ask a government official.
posted by tosteka at 9:58 AM on March 17, 2008

Thanks for that Tosteka. So when you say "make your agent write up the transfer in foreign currency", is the agent a US currency broker?

As for nationality, I wasn't English when I moved here but am now a dual citizen. And my wife is British so I guess this could be tricky. Will talk to a tax adviser.
posted by gfrobe at 10:23 AM on March 17, 2008

Yes, whoever does your transfer for you in the US, I've called this person your "agent". You should demand of this person, the person who initiates the exchange, whether it be a banker or the representative you deal with from the above suggested brokerage, that the exchange rate and foreign currency amount to be deposited in your UK account is explicitly written on the documentation. Leave nothing to chance. Don't just say I want $100k worth of Pounds Sterling. Say, "tell me how many Pounds this $100k will buy me today, and write up the wire transfer in UK currency." Do this because there is a lag time between initiating the wire transfer and it actually arriving to the destination account, so in the intervening time, if you don't specify, the amount will change. So the rule is leave nothing to chance, because if you do you'll just be another sucker holding the short end of this stick.

If you earned and paid taxes on this money in the US before you became a dual citizen, you shouldn't have to pay taxes on it again. But your marriage further complicates the matter. Talk to a tax adviser in the UK.
posted by tosteka at 11:46 AM on March 17, 2008