Whenever a foreign currency investment is contemplated- through working overseas and saving capital or investing in an overseas property, or repatriating any of the proceeds at some future date, then there is a degree of risk which needs to be managed.

The risk is obviously from the fact that foreign currency rates fluctuate over time, however there is also the risk from failing to take into account the rules and regulations which govern foreign currency transfers, both into and out of the UK.

Foreign Currency Controls

The UK does not operate any foreign currency controls, so you are free to take out or repatriate as much money as you like.  You will need to declare imports of foreign currency in your customs declarations, but there is no legal prohibition on physically moving money in and out of the country.
Since the UK is a member of the European Union, there are no controls or obstacles to transferring money because each EU member state operates under the same European law, i.e. no barriers to currency movement.  This is not always the case when transferring funds to another country and you must ensure you understand and follow local legal regulations in the country you are sending money to or returning to the UK.

Money Laundering Rules

The UK operates strict money laundering legislation (known as the Money Laundering Regulations and which is closely linked to the Proceeds of Crime Act 2002).  Any monetary transaction involving a new customer requires the institution handling the deal to identify the client and in many circumstances, the source and legitimacy of the funds involved.

All financial intermediaries, lawyers, accountants, estate agents and bankers are under a duty to report suspicious transactions and parties involved in them.  In addition, there may be implications with the UK tax authorities as a consequence, especially as there is a duty to report transactions where the money involved is suspected to involve sums which have evaded UK taxation (note: tax evasion is a criminal offence in the UK, however “tax avoidance” is perfectly legal).

You should note that this duty to report suspicious activity is an obligation placed upon UK professional advisers by law and which takes priority over any right to privacy you may expect to have as their client.

Tax Rules on Foreign Exchange Transactions

Before UK taxation is considered the issue of whether the individual is a taxable person needs to be established.  If you are a UK resident, it is highly likely you are tax resident and therefore must account for income and gains to HM Revenue & Customs.  If you are an overseas resident, and the rules can become quite complex in marginal cases, then you may escape the tax consequences.

Note that this article does not deal with the issue of business taxation of foreign currency transactions.
If you are non-resident for tax purposes, then you will not be liable for UK taxes on overseas gains and income.  If you are resident in the UK for tax purposes, you will be liable for UK taxes.

This affects the timing of your transactions, notably when you sell an overseas property or retain ownership of foreign investments.  If you defer selling overseas investments, perhaps because you are looking to take advantage of favourable foreign currency rates, and in the meantime move back to the UK, then you can re-establish your tax residency and subsequently any sale of overseas investments will fall to be taxed in the UK.

It is vital that expats engage in forward planning with these transactions and engage competent tax advice to guide them through the maze of rules and regulations.  It is quite easy for adverse tax consequences to severely curtail or sabotage your plans but you must act and plan well in advance to maximize your options and avoid undue taxation.