Interest rates

david · Posted: Sun Jul 18, 2004 8:28 pm Post subject: Interest rates

If NZ interest rates for savers are superior to UK rates do we get hammered for tax when we bring money in. I had hoped to fetch around £130k into NZ eventually purchasing a house. I'm sure I read on a posting by Karl his money is still off-shore. UK interest rates are really poor at the moment so surely a little NZ taxman is waiting to pounce.

karltsmith · Posted: Sun Jul 18, 2004 9:36 pm Post subject:

Hi David,

I keep my money off-shore because primarily of the exchange rate and nothing else...... far more money can be won and lost by exchanging at the wrong/tight time!!! Kiwi interest rates are higher than the UK...superbank offering 6.00% gross...but you will pay tax on this. By keeping money off-shore you get a better stirling deposit rate in the C.I.s than a NZ stirling rate...currently about 2.75% c.f. 4.75% in the C.I's.

Karl Nice One

david · Posted: Sun Jul 18, 2004 9:40 pm Post subject:

Hi Karl

What exchange rate are you hoping to wait for. Any chance of $3=£1 or am I dreaming. Even a slight change does make a massive difference.

michelle · Posted: Sun Jul 18, 2004 9:45 pm Post subject:

Hi Karl

Congratulations on the promotion.

If you keep money off shore do you declare it in NZ for tax purposes ? We are thinking of doing the same as you, as the interest rates on off shore accounts seem better than the sterling accounts with NZ banks.

Do you know if there is a time limit when you can transfer money into NZ without being taxed on it. In oz I believe anything transfered after 6 months of PR is taxed.

Michelle

karltsmith · Posted: Sun Jul 18, 2004 10:48 pm Post subject:

Hi David/Michelle

Not sure about the NZ tax situation but income ie interest is a taxable income!

As we are on work visa's at present I think we can choose to declare in UK or NZ whichever is the lower tax rate for us at the time!

The exchange rate peaked at 2.98 about one month ago but unfortunately I couldn't take advantage of it because all my funds were not liquid.

I am hoping for 3=1 but don't hink that will happenin the medium to short term. The NZ dollar is strengthening again and with higher NZ interest rates, overseas investors are returning to the market and this is bouying up the dollar. If things kick off again in Iraq or oil is threatened again there may be a window of opportunity! Thats what happened last time!!!

Lee&Nicky · I Like It Here Joined: 15 May 2004 Posts: 70

I am on NZ$ dollar watch at the moment! We should have liquid £ at the end of Aug, and will need NZ$ in early Feb 05. Can I recommend HIFX, currency exchange specialists. I will be signing up with them as they seem to know what they are talking about and they have specialists in the field of emigration. Basically I shall be taking out a forward contract, specifying an exchange rate that I want to acheive, as soon as the rate hits my target HIFX will buy my dollars for me (and it should happen even if that rate only exists for a few minutes at a particular point in time). The forward contract part allows me to settle with HIFX at a date of my choosing (ie end of Jan 05 in our case), subject to me paying a deposit of 10% when they actually buy my dollars (so you do need some liquid funds at that point). They say they charge no commissions or other fees, their profit comes from dealing on the markets. I am awaiting their info pack so will let you know more when I get it. Because of money laundering etc potential clients need to complete certain forms and provide info (eg copy of passport and recent utility bill), so if you are thinking of using them you need to contact them a couple of weeks in advance to enable them to complete their internal regulatory paperwork.

http://www.hifx.co.uk/index.asp

The question is, what rate do I target them with? NZ$3 to £1 is perhaps a bit optimistic for the next six months, but conceivably we could get back to 2.95 to 1. Decisions decisions!

As regards NZ tax. I believe that if you deposit dollars in a bank actually in NZ, the bank is obliged to withhold tax on interest at 19.5%. If you are a non-resident (eg on a "visitors visa") this could be money wasted, as you would not be liable to the tax under NZ law but may not be in a position to claim it back (however would need to check whether or not there are any special arrangements for, say, UK citizens just visiting NZ). This is why it may be sensible to hold large sums of money "offshore" (eg Channel Islands), in a country where tax is not withheld on interest paid. Whilst a non-resident in NZ you should still be able to access this money in NZ without paying NZ tax (because non residents are only liable to NZ tax on "NZ source" income). However, the moment you become resident in NZ you become liable to NZ tax on all your income wherever it arises in the world.

I am looking at whether or not it would be possible to hold my NZ dollars in, say, an HSBC account in the Channel Islands which would "feed" an HSBC account in NZ (so that I have a regular flow of cash). I am waiting to hear whether this sort of arrangement is feasible and, if it is, what sort of charges I can expect. I bank with HSBC which is why I am using them, plus they have a global network, but the same result may be achieved with other banks or association or affiliation of banks.

Lee

michelle · Posted: Tue Jul 20, 2004 9:51 pm Post subject:

Hi Lee

We are registered with HIFX, hoping to get our cash about the end of Aug and we go out mid sept.

Wish I knew if it was going to ever hit 3 again but I have a feeling it wont in the short term, if I could get 2 95 I would be happy. I would be ecstatic if it ever reached the dizzy heights of 3.3 again. Will be going for a forward contract as well but probably go for 2.95

Like you we have looked at off shore accounts but most seem to be term deposits did a search on www.ftyourmoney.co.uk. without term the rates were about mid 4 %

We got the pack from HSBC but the charges seem pretty hefty for transfering money, what sort of rates were you quoted for off shore ? Have to admit to being very confused at how to declare the interest and more to the point where. We are going on a work visa but hoping our residency will be finalised shortly after we arrive.

I notice that Cahoot are doing 5.5% but obviously thats UK and we will pay tax at UK rates. Want to leave some cash to cover a couple of things in the UK so this seemed a decent account.

In the process of opening an account with Superbank that pays 6% it needs to be run in conjunction with a regualar bank account, we are going for Kiwi bank that pays 4.5% on a cash manager account if you leave $4000 in. Their charges are low which appealed, some of the larger banks have very hefty monthly fees for deposits and withdrawals. Both banks get a number of mentions on this forum. Last time we worked in NZ we submitted all our RWT certificates to IRD and did get a refund after we returned to the UK don't seem to remember it being too tricky.

Have looked at opening an account for my Mum and Dad in NZ but it doesn't seem to be possible for long term visitors.

Any info you have on the HSBC account operation would be helpful. They have a branch in Queen Street, Auckland and like you we bank with them in the UK so it seems easier.

Michelle

Lee&Nicky · I Like It Here Joined: 15 May 2004 Posts: 70

Hi Michelle,

My sister in law works for HSBC and she is digging out info for us. If there is anything enlightening I'll post it on the forum. I wouldn't be surprised if charges are hefty, I can see the banks etc seeing £ signs when they see expats and immigrants, although the truth is with today's technology it should be no more expensive to move money overseas as it does within the same country (foreign exchange apart).

I think you are right that you can claim back any NZ taz you suffer on NZ bank interest whilst you never attain residence in NZ, but if you attain residency I just wonder whether you lose the right to reclaim tax. For example, lets say we go out in Feb 05 and get residency in September 2005, if we had our money in NZ during Feb 05 to Sept 05 any interest would suffer tax. As non-residents we could avoid paying the tax by having the money offshore, but if it is onshore and we obtain residency we lose the ability to reclaim the tax suffered between Feb & Sept? Not sure if this is right or not, I suppose it is not a bad price for acheiving residency!

The cahoot account you mentioned is internet only I think - is that right? We have been looking at an account with Chelsea Building Society which is a telephone account. It is a 30 day notice account and pays 5.25% gross.

There is so much to think about my head is spinning. My wife has the right idea - she leaves it all to me!

Lee

michelle · Posted: Tue Jul 20, 2004 11:16 pm Post subject:

Oh they are most certainly seeing £ signs with migrants.

This is only a guess and I'm sure that others will know better but if you are there on a work visa before you get residency I wouldn't have thought they could back date the tax to when you arrived. I would have thought resident tax started when you got the magic PR.

Just for a comparison on off shore accounts. I have just spoken to Nationwide who are doing a base rate tracker off shore acount currently 4.8% but will be 0.3% above the base rate for 2 years. 2 penalty free withdrawals after that 30 days interest penalty and £20 to make a charge to a NZ bank. Its telephone and post banking, internet by the end of the year. Its your responsibility to declare the interest in which ever country you choose and its paid anually in March.

There are better rates but its tied up for a year and we will want to get at it before then. Will look at HSBC to see how it compares.

My husband leaves all this to me, not sure why but its better than DIY although potentially more dangerous if you get it wrong. Have been badly advised in the past for Mortgages, endowments and pensions, don't trust financial advisors.

Michelle

Raeven · Posted: Wed Jul 21, 2004 2:02 am Post subject:

Hi, Lee,

Can you clarify for me what you mean by "paying a deposit of 10% when they actually buy my dollars..."? Are you saying they simply require you to put 10% on deposit into an account -- in other words, it's still your money -- or are you saying that's what they charge you to change your money from pounds to NZ dollars? (Sorry; American keyboard, no proper pound sign on it!!)

Please forgive me... I am extremely uneducated when it comes to currency exchange with larger sums of money and/or dealing with offshore accounts.. or even onshore accounts. The American dollar is bouncing all over the place in relation to the Kiwi at the moment and the uncertainty is killing me.. I'm trying to learn what I can about all this. We are expecting to realize a pretty decent return on the sale of our house, and I don't want to screw the pooch in transferring our funds.

I am reading your posts with great interest! Thanks for any and all information! - Rae

Lee&Nicky · I Like It Here Joined: 15 May 2004 Posts: 70

Rae,

Yes, as far as I can tell the 10% is still your money, it will simply be held by HIFX in a client account for you awaiting instructions from you as to where it should be delivered. It can be held by HIFX on an interest bearing account with them, but they told me there rates are not necessarily competitive with banks etc.

I was told there "are absolutely no hidden fees" with HIFX, however what exactly happens should you decide to cancel the contract (and keep your money in its original currency), I am not sure. I should be getting the info pack any day now, so will pass on relevant details. The thought had occurred to me what happens if, for some reason, I terminate any agreement with HIFX before execution.

Lee

Raeven · Posted: Wed Jul 21, 2004 2:28 am Post subject:

Hi, Lee,

You're tops!! Thanks so much for sharing. I have asked HIFX US to give me a call. I will pass along any information I glean from the conversation.

Your question is a good one. I have nightmares of selling our house, even getting our asking price, then some hideous terrorist event happens and the US dollar plummets -- and it won't be worth it for us to move overseas. (In this 3:30 a.m. scenario, it makes more sense for us to move to another part of the US than to migrate to NZ, at least till things bounce back. If they do. That's the 4:30 a.m. scenario.) I will ask them about premature termination of the contract and let you know what I find out. Between us, we might get this all figured out!

Thanks again for your help. BTW, love the new avatar!!

Rae

Raeven · Posted: Wed Jul 21, 2004 5:10 am Post subject:

Update:

I just spoke with HIFX US and they were very helpful.

Lee, re your question about not following through with the exchange, I was told basically that can't happen. Once you've signed a contract, it's binding and the exchange must take place as stipulated between the parties. Since one is essentially locking a rate, I guess my own nightmare scenario doesn't merit any further concern. But if, after signing the contract, one decides not to move, well.. I guess one is stuck with having to exchange their money back into their native currency.

I asked for a thumbnail view on how they think the US dollar is going to fare against the Kiwi over the coming months. I was gently told to get my rear in gear, as it's expected the US dollar is going to slide further against the Kiwi. At least that's what their market indicators reflect. I tend to agree, so we'll be exchanging currency toot sweet as soon as the house sells.

My stomach is dancing around!! Gaaahhh!!

Rae

Dave & Sandra · Posted: Wed Jul 21, 2004 9:52 am Post subject:

I've gone offshore with HSBC, I worked for them as Midland for 20+ years and have always stayed loyal for some reason. Maybe the future pension they will pay me Nice One

.

Costs £27.50 flat rate for each transfer made. Internet banking as well so you can access the account from NZ.

Lee&Nicky · I Like It Here Joined: 15 May 2004 Posts: 70

Rae,

Thanks for the update, makes sense that if you pull out for whatever reason you are left with some foreign currency that you will just have to change back into home currency at some point.

Dumbo question coming up.

I have seen on this site that a NZ bank is offering an onshore account with a savings rate of 6%. Assuming tax is deducted at source of 19.5%, this would give a net of taxate of approx. 4.83%. Now I may struggle to get a rate much higher than that "offshore". So wouldn't it be easier to just have my NZ$ deposited into this NZ based account as, irrespective of the NZ tax position, the net rate I am getting is, comparably, pretty good. It has the added benefit of me buying physically located in the same country as my money (that gives me a warm glow!) and, I assume, makes access to funds easier and cheaper.

Obviously I would be exposed to interest rate changes in NZ, but have I missed some other major factor(s)?

Lee