Money transfer for selling property abroad

The pandemic saw second-home purchases turn into something of a frenzy. Prices in the UK and abroad shot up, seeing overall increases of 20% in popular areas. People wanted space, home offices, gyms, and somewhere they could hole up for weeks and months.

The trend was not only driven by practicality, but the emotional toll that covid took meant people were also looking for a sanctuary, somewhere to protect themselves and their families. This phenomenon, combined with extreme-low interest rates, rising asset prices and bigger savings pots, making people feel wealthier, led to competition among the wealthy for easily accessible second homes outside the cities.

Prices rose, but with the feeling of affordability, many took out a mortgage on their primary home, and used the equity release to buy a second one.

Fast forward to today, and the picture is entirely different. We're returning to the office, travel has opened up again, giving us access to destinations closed off for the best part of two years, interest rates have shot up, and an inflation fuelled cost-of-living crisis is touching everyone but ultra-high net worth individuals.

As a result, many of our clients are looking to sell their overseas properties and uncertainty in the future of the UK and the global economy, as well as personal financial situations, is shifting the outlook of individuals again.

The knock-on effect on mortgage rates has impacted everyone, but the real-term cost could be in the thousands of pounds per month for those with bigger mortgages. This could mean a shift in priorities if you are now aiming to direct wealth towards mortgage payments over other portfolio objectives.

Because of the economic uncertainty surrounding the global economy at the moment, people are looking for more certainty in their own finances. At Moneycorp, we advocate for planning ahead and taking advantage of currency market expertise to ensure the best outcome for our clients with overseas interests.

Here are our top considerations for selling a property abroad:

Take the full picture into account.

As with selling a house in the UK, it’s important to consider the associated costs when selling abroad. These range from solicitor and estate agent charges to tax implications, currency costs, and legal and property inspection fees.

Working with a local estate agent who understands the requirements of selling to the local market and foreign buyers will help your client set expectations about prices and the market. Estate agent fees can range from less than 1% to as much as 3.5% +VAT of the price that the property sells for. There will also be solicitor or licensed conveyancer fees to handle the property sale's legal aspects.

The key is looking beyond the headline price of the property – and factoring in the other costs, which will impact the final amount your client will have to work within the UK.

Consider tax obligations.

You could also be liable to pay Capital Gains Tax (CGT) as a UK resident when you dispose of overseas property. You are required to pay 28% in CGT, where the total taxable gains exceed the basic rate limit; if the revenues fall under that band, the rate is 18%. As a general rule, you won't be required to pay CGT if your foreign residence served as the main or only home throughout the entire period of ownership. 

You could also be liable to pay tax in the country where the property was sold. Checking your tax liabilities and obligations with a legal professional before selling your overseas property starts is advisable.

Factor in exchange rate fluctuations

Interest rates and inflation are dominating the currency market as well this year.

The effect is multifaceted. Rising inflation tends to make the foreign exchange market more volatile, with an ebb-and-flow battle between currency pairs. However, what we've seen in recent months has been something of an outlier as central banks fight to get inflation under control.

Global economic uncertainty makes financial planning around exchanging currency an important consideration – especially when exchanging large amounts of money and small fluctuations can make a big impact. If we look at the pound and the euro last year, for example, the GBP/EUR rate fluctuated between 1.2188 and 1.0843.

To put this in perspective, the difference in price at these rates on a €500,000 property would be more than £50,000.

Although we’ve seen the pound gain strength against the euro since the second quarter of this year, posting highs not seen in over a year. At some point, the UK economy could reach an inflexion point between interest rates and inflation, where currencies no longer react positively to rising interest rates and instead react negatively to sticky inflation, representative of the broader state of the economy.

Use a trusted partner to bring money back to the UK.

At Moneycorp, our currency experts understand the volatile nature of the currency market. Our team will work with your clients to understand their exposure and suggest the most appropriate currency tools to help them save money on their exchange transactions.

We can help build an appropriate plan using various currency tools in line with their risk appetite, timeline, or investment objectives to help protect their funds from negative market fluctuations and potentially take advantage of positive ones.

_{*Forward contracts may require a deposit}

All data sourced from Bloomberg unless otherwise stated.

None of the information contained in this article constitutes, nor should be construed as financial advice.