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Every year tens of thousands of returning Kiwis and migrants bring large sums of money back to New Zealand. Some have built up huge superannuation pots overseas, have sold a house, or want to bring money back to avoid new tax rules, which start on July 1 next year.
Whatever the reason, the actual process can be a minefield. Tax planning is essential and it's important not to put yourself in a position of being fresh meat for the sharks.
The proposed international tax rules are much less complicated and expensive than they were, says Andy Crossen, associate director tax at Deloitte. Even so, some investors will still decide to bring funds back to reduce hassle and accountancy bills. It may be that they have cash in the bank overseas, which is very onerous to deal with when it comes to IR3 tax return time.
You should stop and think before doing this, says Robert Oddy, director of International Financial Planners. "Unless you need the money in New Zealand, you really need to assess what their asset allocation should be."
Oddy points out that the overseas investment tax plan still isn't law and the goalposts are still on the move. The plan will see 5 per cent of the opening value of equity-based investments outside Australasia taxed each year.
Those who still go ahead and sell overseas investments need to shop around for the best exchange rates and spreads. While on the surface you can bank a foreign cheque at your local bank branch for just 20c or so, you'll find that the rates offered by the banks mean they're creaming off an extra per cent or two.
Specialist currency dealers such as HiFX can offer better rates than most of the high street banks for sums of money as small as $10,000.
HiFX's Paul Janssen says as well as a better rate, clients of a brokerage such as his allows customers a number of "proactive" services that banks don't including:
* "Stop loss orders" guaranteeing you a certain exchange rate.
* A "limit order" or "target price" where you specify the exchange rate that you want to achieve. When (and if) the market reaches your target, you will automatically buy the foreign currency.
* A "forward contract" - a play safe option which means that you can set the exact price now, and pay for it later.
In many cases HiFX's clients have already bought a property in New Zealand and are playing the currency exchange waiting game in the hope of making a little more on the transaction.
In the meantime the interest bill on a 90 per cent mortgage is eating away at any potential gains.
You'll also need to pay tax on the interest earned on the money left in the UK as well as any unrealised gains as a result of currency fluctuations, says Murray Brewer, associate taxation consultant for Grant Thornton.
As well as lump sums, HiFX deals with retired people who are drawing pensions from countries such as Australia, the US and UK. Many simply use their hole-in-the-wall cards in New Zealand to withdraw their money. Fluctuating exchange rates mean that the amount they receive changes each month, making budgeting a nightmare, says Janssen. Instead companies such as his can guarantee a monthly rate for up to two years ensuring they get the same amount each month.
Apart from a house, the next biggest investment new migrants or returning Kiwis have are overseas superannuation funds. These funds are exempt from the new tax changes.
Unfortunately it's almost impossible to get such funds out of Australia and highly difficult with the US. Advisers such as Britannia Financial Services can arrange transfers of UK private and company pensions to New Zealand.
The money contributed to UK pensions is out of pre-tax income, thanks to generous tax concessions by that Government, but the money is locked up until retirement if left there.
If instead you transfer the pension to a local superannuation scheme in New Zealand that the UK Government recognises under the "Qualifying Recognised Overseas Pension Scheme", you can access some of the money after five years providing the superannuation scheme you have transferred into allows you to. Before then, the UK Government will hit you with a 55 per cent penalty. David Milner, director of Britannia, says the median sum brought back is about $50,000, although some are much larger.
In many cases investors want to have more control over their superannuation funds and not be forced to buy annuities when the policies mature, says David Yates, of Integrated Financial Services. There are only a handful of qualifying schemes in New Zealand, but they cover most of the large names in the business: ING, Sovereign, AXA and Asteron.
In some cases you will be able to withdraw a percentage of the money. For example, says Angus McGregor, superannuation product manager for AXA, after the five-year period investors can withdraw 25 per cent of their fund from the AXA Personal or Business Superannuation schemes. The UK Government has set that figure as the maximum. AXA is not interested in what you plan to spend the money on. Some other companies only allow withdrawals for specific purposes such as buying your own home or paying off a mortgage.
On the downside, the companies that assist you in making the transfer take a cut of your fund - sometimes up to 5 per cent. In the UK your fund was growing completely tax-free but once here it will be subject to income tax each year.
Some UK pensions - especially those invested in With Profits life policies - may not be economic to move due to complex and expensive exit charges.
Anyone returning to New Zealand after more than 10 years away or new migrants also have a 48-month window of opportunity when they are only subject to ordinary New Zealand income tax, not the new investment tax rules, says Crossen. "If [people] have money parked offshore, that 48 month window gives them scope to buy New Zealand dollars at an opportune time."
What's more, says Brewer, the rules mean that it's possible in some cases for a returning Kiwi or new migrant to cash up their overseas pension or annuity without paying tax in either country. It is a complex area requiring specialised tax advice.
Pensions aside, one of the main reasons people bring large sums of money into New Zealand is to buy properties or businesses. It's then that timing and also the services of forex brokers come to the fore.
As Oddy points out, the kiwi dollar is relatively high in its cycle and expected to drop. The ideal time to transfer money back is as near to the bottom of that cycle as can be predicted.
That may mean that investors are better off borrowing money in New Zealand to buy property or investments than repatriating overseas funds. "Or it could mean delaying the purchase that they don't need to make in New Zealand."
Timing is crucial. A 10 per cent swing in exchange rates on $100,000, could cost you $10,000.
