Selling your property can be a bittersweet experience, especially when it’s in a place as beautiful as Menorca.
If you’ve owned your property there for years, the emotional tie to the island might make parting with it difficult. But there’s also a significant silver lining: a €300,000 windfall.
The real question is: What’s the best way to use those funds now that you no longer need the property?
The Challenge of Low Interest Rates in Spain
After selling your Menorca property, the funds will be deposited into your Spanish bank account, but the challenge lies in Spain’s near-nonexistent interest rates.
You could leave the money there, but that doesn’t seem like an ideal solution, especially when you could be getting more in the UK.
The current situation leaves you wondering whether to leave the funds in Spain, hoping for a better exchange rate in the future, or convert them to GBP now and secure a more favorable return in the UK.
At 65, with a modest income of £15,000 from property rental, you’re already a basic-rate taxpayer.
You want to ensure that the money from this sale is put to good use and will grow rather than just sit idle in an account with little to no return.
Expert Advice: Moving Funds From Spain to the UK
To help you make the most of this situation, we spoke with financial experts who weighed in on the best course of action.
Sarah MacDonald, a wealth manager at NatWest Wealth, suggests that since you are no longer spending significant time in Spain, bringing the funds to the UK makes more sense.
With the UK as your primary residence and tax base, holding the funds in Spain might not be the most efficient long-term move.
In addition to convenience, this would align with your income being GBP-denominated, which would make your funds work better for you in the UK.
You might also want to consider using a portion of the funds to maximize your ISA allowance, which is an excellent tax-efficient way to save.
However, it’s important to keep in mind that you face both exchange rate and interest rate risks.
The euro is expected to weaken against the pound in the coming months, primarily due to differences in interest rates.
The European Central Bank (ECB) is expected to lower rates, while the UK’s base rate is expected to remain higher.
So, waiting for a better exchange rate could be a gamble that might not pay off.
Exchange Rate and Interest Rate Risks
When thinking about moving your funds from euros to GBP, it’s crucial to understand how exchange rates and interest rates are interconnected.
While the euro may weaken against the pound, the issue is that exchange rate fluctuations are often unpredictable in the short term.
You might be better off converting the money sooner rather than waiting for a shift in rates that might not happen.
Additionally, with Spain’s interest rates so low and expected to decrease further, it may not be worth leaving your funds in a Spanish account.
Inflation and taxes can further diminish any interest you might earn.
If you’re nervous about converting all your funds at once, consider using a phased approach, which some online platforms and banks can facilitate.
Financial Planning: Converting Funds and Exploring UK Options
When you decide to bring your funds back to the UK, it’s important to consider tax-efficient options that will help your money grow.
Freddie Barton, an independent financial adviser at Flying Colours, suggests that now is an excellent time to convert your funds into GBP and place them in tax-efficient accounts.
The UK is currently offering attractive interest rates, which may outweigh the impact of exchange rate fluctuations.
One of the best options is a Cash ISA, where you can contribute up to £20,000 each year, or £40,000 if you’re married.
This allows you to save without paying tax on the interest earned, making it a very efficient way to grow your savings.
Additionally, if your income remains under £17,570, you can earn up to £5,000 in interest tax-free, and you also have a £1,000 personal savings allowance.
Other Investment Options to Consider
If you’re looking for potentially higher returns over the long term, Freddie suggests considering investment vehicles like stocks and shares ISAs or pensions.
While stocks and shares ISAs offer tax-free growth, they come with a degree of risk, so they may not be suitable if you’re risk-averse.
A pension could also be a good idea, especially if you want to benefit from tax relief, even though contributions are capped at £3,600 per year if your rental income isn’t considered pensionable earnings.
You could also look into onshore bonds for additional tax-efficient income and growth, but keep in mind these are more complex products and could involve greater risk.
Weighing the Pros and Cons
Ultimately, bringing the funds back to the UK gives you access to various tax-efficient savings options that allow your money to work harder for you.
It also offers more control and accessibility compared to leaving the funds in Spain.
While currency fluctuations are a concern, the benefits of converting the money now—along with the higher interest rates available in the UK—seem to outweigh the risks.
It’s always advisable to seek professional advice when making significant financial decisions, so consider reviewing your full financial situation with an expert to make sure you’re taking the best course of action.