I'm selling my €300,000 second home in Spain - should I move the money back to Britain?

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I'm selling a property in Menorca that I have owned for a number of years. 

The funds of approximately €300,000 for the sale after paying the related taxes will be deposited into my Spanish bank account. 

Spanish interest rates are almost non-existent. Do I leave the funds in Spain until the exchange rate is more favourable, or take a hit and convert to GBP now and find a home for my money in the UK offering a good rate of interest?

I am 65 and a basic-rate taxpayer with an income of £15,000 per year from property rental. C.S, via email.

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A place in the sun: This reader is selling their €300,000 property in Spain

Harvey Dorset, of This is Money, replies: While part of you may feel sad that Spain will no longer play a part in your life where it once might have, as they say, every cloud has a silver lining.

In your case, this silver lining comes very much in the shape of a €300,000 windfall from the sale of your Spanish property.

Whatever your financial situation, this is no doubt a welcome sum of cash, even if it means you will no longer have access to a continental pied-à-terre.

It is understandable you are keen to ensure this money can be put to good use, and leaving it languishing in a Spanish account with next to no interest is not ideal.

This is Money spoke to two financial experts to find out how best for you to make the most of the proceeds of your property sale.

Sarah MacDonald says you should shop around for the best market rate when selling your euros

Sarah MacDonald, wealth manager at NatWest wealth businesses, replies: If you do not spend any significant amount of time in Spain now that you have sold the property, and we can assume you are based in the UK full time, and pay UK tax on worldwide income and gains, having euros in a Spanish bank account, makes less sense longer term and bringing funds onshore and converting euro to GBP could be the most sensible solution.

This option would look to alleviate the inconvenience of dealing with an overseas bank on a share of your financial affairs but also address the fact that your cost base is GBP denominated, and you would likely benefit from a GBP income stream from this capital. 

In addition, you could also consider using your Isa allowance if not doing so already with a share of these funds this way.

In the meantime, you face both exchange rate risk and interest rate risk – the two risks are actually interconnected.

Exchange rates reflect the relative value of one currency against another and are informed by multiple economic factors such as interest rate and inflation differentials between the two countries. 

You could therefore expect exchange rates to fluctuate, and short-term moves are hard to anticipate.

Euro is expected to weaken against the pound over coming months driven primarily by the interest rate differential – the ECB has been cutting its policy rate over recent months, and it is expected to fall further from the current 2.5 per cent to 2 per cent before year end. 

The UK's base rate, currently at 4.5 per cent, is forecast to fall to 4 per cent by year end.

In the near-term the European economy remains weak, and inflation risks are to the downside.

While Europe grapples with the current political flux, the UK is an island of relative stability which provides further boon to GBP.

The current interest rate differential between the Eurozone and the UK explains why you are seeing relatively meagre deposit rates for Spanish banks. 

Per above, rates are likely to fall further from here so the trajectory in terms of deposit rates – which are directly linked to policy rates - is against you. 

Considering inflation and tax you really are not making anything on the interest you earn on your euros.

Do note that you could bring your euros onshore – there are a few banks and online platforms that can facilitate foreign currency accounts - allowing you to take time converting the monies in a phased approach to conversion if you are nervous to convert all at once. 

Beware you risk losing out if EUR moves against you in between trades, and it is easy to let emotions get in the way.

It is worth shopping around for the best market rate available when selling your euros to buy pounds, and similarly when looking for the best GBP deposit rates. 

The margin different banks will take on any foreign exchange transaction will vary by institution, currency pair and value of transaction, as will deposit rates available to you.

This view is of course based on one element of your finances, we would always recommend when making fairly significant financial moves you review all your assets with a professional.

Freddie Barton warns that you should assess your risk tolerance before investing

Freddie Barton, independent financial adviser at Flying Colours, replies: You're absolutely right to highlight the flat nature of the exchange rate – but on average it has been largely unchanged for the past 15 years or so. 

With that in mind, I wouldn't recommend waiting for a favourable shift in the exchange rate. 

Instead, I suggest moving the funds back to the UK now, unless you have plans to buy another property in Spain or live there long-term. 

In that case, you might want to consider keeping the funds in Spain.

The good news is that interest rates in the UK are more attractive now than they have been in the past decade. 

By converting your funds and placing them in tax-efficient accounts, you could see returns that outweigh the impact of the exchange rate. 

Additionally, you'll have more control and accessibility to your money in the UK, which is crucial for your financial planning.

Here are several options you can explore for your savings:

1. Cash Isas

For the 2024/2025 tax year, you can contribute up to £20,000 per person into a cash Isa. 

If you're married, you can take advantage of your spouse's allowance, potentially allowing you to save up to £40,000 this tax year. 

When combined with the 2025/2026 allowance, effective from 6th April 2025, this is a total of £80,000 saved in tax-efficient savings. 

Cash Isas are an excellent option as the interest you earn is entirely tax-free, making them one of the most tax-efficient ways to save.

2. Starting rate for savings

As your total income falls below £17,570 in the tax year, you can take advantage of the 'starting rate for savings', this allows you to earn up to £5,000 of interest at a 0 per cent tax rate. 

Given your gross income of £15,000, you have £2,570 remaining before you reach the £17,570 threshold. 

This means you could potentially earn interest of £2,570 without paying any tax.

It's important to note that once you reach state pension age (67), you'll no longer be eligible for the starting rate for savings, so you'll want to plan accordingly in the coming years.

3. Personal Savings Allowance

As a basic-rate taxpayer, you also have a £1,000 personal savings allowance, which means you can earn up to £1,000 in interest tax-free each year. 

Combined with the starting rate for savings, this provides a total of £3,570 in interest you could earn tax-free on your savings.

4. Other investment options

If you're looking for the potential of higher growth over the long term, you could also consider investment wrappers like a stocks and shares Isa or a pension. 

Stocks and shares Isas allow you to invest in a broad range of assets with the benefit of tax-free growth and withdrawals, though keep in mind the £20,000 annual limit applies across all types of Isas.

For pensions, while your contribution limit is restricted to £3,600 gross per year, so a 'net' contribution of £2,880 per year, as rental income is not considered 'pensionable earnings', it's worth considering for the tax-relief.

There are also onshore bonds, which are complex financial products beyond the scope of this response, but they can serve as an additional vehicle for tax-efficient income and growth. 

They offer features that can be particularly beneficial for estate planning and long-term care considerations. 

With recent changes to the tax environment, particularly around capital gains tax and inheritance tax, onshore bonds are becoming increasingly attractive from a financial planning perspective.

However, as with any investments there is the risk of capital loss, therefore, you would need to assess whether you have the risk tolerance and capacity for investing.

Overall, bringing the funds back to the UK provides the opportunity to take advantage of the various allowances, reliefs, and wrappers available to generate a tax-efficient income and/or growth. 

It also allows for better diversification of your assets in a more liquid and accessible form. 

I believe this will outweigh the impact of the exchange rate, making it a more favourable option in the long run.