Unlocking Financial Freedom: How to Safely Move Money Out of the UK Banking System

In today’s interconnected world, it is common for families or companies to have temporary associations with the UK, before a later departure onward. While they are here, they may generate profits/savings stored in UK banking institutions. It is still prevalent also for some professionals to permanently migrate away from the UK. In either eventuality, there is the need for the transition of capital out of the UK banking system into the banking system of the destination country.

Currency exchange

An important issue that arises during such transitions, is currency exchange. There are two main options for the transferor. To go direct from a UK bank to a bank in their destination country or to use a currency broker to perform the FX conversion. Historically using your own bank was easier logistically as it did not require a new account to be set up but often they charged admin fees and the spread on the conversion (the difference between in interbank rate and the rate they charge the client) was markedly larger. Currency brokers became more popular and accessible to the smaller clients post the Global Financial Crisis and banks have cut fees and spreads to be more competitive.

What about UK FX brokers?

Transferors who elect to use UK FX brokers should be aware that the companies may not be registered with the Prudential Regulation Authority and funds may not be covered by the Financial Services Compensation Scheme in the event of any insolvency. The services are perhaps better seen as conduits or pipework connecting hopefully well-capitalised banking institutions in both countries. There may be depositor protection available depending on the destination country, this should be borne in mind when first choosing a banking partner to receive. Fully regulated status locally is also of course preferred.

What about tax?

Another issue which should be considered is tax. Whilst the physical movement of the money may not often represent a taxable event from a UK perspective, this could vary depending on the destination country so relevant tax advice should be sought prior to action.

Where the destination country is at higher risk e.g. has a history of volatile currency, currency controls/manipulation or state interference/seizure of assets, consideration may be given to holding some reserves in offshore jurisdictions in a more stable major currency like GBP/USD/EUR/YEN to limit exposure.

Will moving out of the UK banking system affect my UK pension?

For anybody that qualifies for a UK state pension while they are here (10 years minimum National insurance qualifying years, under the new State Pension system from April 2016), the DWP has an agreement with Citibank to pay these in local currencies in many countries. You may not receive an annual increase on your pension dependent on which country you retire in. With private pensions, it is sometimes possible to transfer them to your destination country, dependent on which country and your residence timeline and whether the pension provider can facilitate a transfer. It is also possible to have them paid to a UK account and manage your FX risk using bank/FX broker services if they are ‘in payment’. If still invested, savers should consider the FX risk on their portfolios as they potentially should not be sterling focused after they depart, savers should seek financial advice alongside tax advice as part of any migration event.

Get in touch

Our team have a wealth of experience. If you have any further enquiries, please get in touch with a member of our International Services team on 01293 227670.

The Financial Conduct Authority (FCA) does not regulate tax advice.