There is still time to prepare for Brexit aftermath
This month marks one year since the Brexit vote. While we still have no certainty about how Brexit will affect expatriates in France, there are steps you can take today to future-proof your financial planning. Here we consider key questions for Britons living here and what you can do to secure your chosen lifestyle.
How long until things change?
With Article 50 triggered, the UK is on track to leave the EU on March 29, 2019, with or without an agreeable deal. Until then, little can change for Britons living here.
Post-Brexit, a new deal between France and the UK should protect expatriates in each country – but the rules may be less favourable than today. With less than two years left under current residency and freedom of movement rules, act now to secure your position if you are not yet a French resident and wish to stay here permanently.
Will your taxes go up?
Taxation is a domestic – not an EU – matter, so if you are resident in France, Brexit should not affect how you are taxed here. For expatriates, taxation also depends on the UK/France double tax treaty – again independent of the EU – so your existing tax treatment should continue.
However, some UK assets may be treated differently in France from April 2019. For example, once UK bonds become non-EU assets, they will no longer qualify for beneficial tax treatment given to EU assurance-vie and capital redemption bonds. That means no fixed rates and no tax credit. You may need to review your approach.
If you leave France to return to the UK (after being resident here for six of the last 10 years), how you are taxed on capital gains from shares will depend on whether you leave before or after Brexit. While Britain is in the EU, payment of this exit tax is automatically deferred. After Brexit, you would either need a French fiscal representative to arrange deferred payment, or hold on to the assets for eight years to shed liability.
To future-proof for a return to the UK – expected or otherwise – you may need advice on restructuring your wealth so that it is not bound by Britain’s changing EU status.
Should you keep UK investments?
While markets have proved quite resilient to Brexit developments so far, we cannot predict how the UK economy will respond. In uncertain times like this it is more important than ever to have a well-diversified portfolio and avoid over- exposure in any one area, not just the UK.
You should minimise risk by spreading investments across countries, currencies, regions, asset types and markets. Looking further afield also allows you to take advantage of tax-compliant opportunities in France and elsewhere that may offer more benefits than UK-centric investments, such as assurance-vie. While this can be an extremely tax-efficient way of holding investments in France, there are various types available so care is needed to find what works best for you.
Pounds or euros?
The value of sterling is clearly vulnerable to Brexit developments. The day before the referendum the British pound was worth €1.30, a week later it dropped to €1.19, then slumped below €1.10 in October 2016. It can swing both ways, however, as shown by the sharp rally following April’s surprise UK general election announcement.
If you have no choice but to convert from pounds to euros at a particular time – for example, by withdrawing UK pension income – this volatility can be costly.
If you live in France, you should receive some income in euros to reduce currency exchange risk. Ask your financial adviser about structures that let you hold investments in multiple currencies or consider transferring UK pensions to arrangements offering currency flexibility. This could allow you to invest in sterling now and switch to euros when rates are favourable, with flexibility to choose the currency of withdrawals.
What about access to UK pensions?
As things stand, Brexit should not affect accessing or transferring UK pension funds. One vulnerable aspect, however, is the annual inflation increase in State Pension payments. This is currently not guaranteed for expatriates living outside the European Economic Area (EEA), and could be an easy way for the UK government to tighten its belt in 2019.
For private pensions, the UK’s new ‘overseas transfer charge’ may lead the way for post-Brexit changes to transfer rules.
Today, many expatriates transfer to Qualifying Recognised Overseas Pension Schemes (QROPS) to benefit from tax-efficiency, estate planning advantages and flexibility over UK pensions.
As of March 9, this attracts 25% taxation if you move to a QROPS based outside the EEA, unless you live in the same jurisdiction.
While liability lingers for five tax years after the transfer date, transfers made before March 9, 2017 are exempt.
Currently, this tax will not apply to expatriates in France transferring to a QROPS based within the EEA, such as Malta. But by eliminating Britain’s EU commitments, Brexit offers the UK government more scope to recoup revenue from Britons abroad.
Many speculate this could prompt new penalties on pension transfers, or trigger rule changes to make it harder to take advantage of today’s high transfer values for ‘defined benefit’ (final salary) pensions.
Expatriates should consider acting now, under current rules, before the tax-free window of opportunity closes. Beware pension scams and look at using a regulated provider to avoid pitfalls.
How else can you plan ahead?
You should regularly review your affairs to ensure assets and investments remain suitably diversified and tax-efficient for your unique situation.
With the current window of opportunities set to close in around 18 months, now is the time to explore your options and, especially, examine the cross-border implications and be fully prepared so you can continue enjoying your life in France, whatever Brexit brings.
This article is by Bill Blevins of Blevins Franks financial advice group who also writes for the Sunday Times on overseas finance. He is co-author of the Blevins Franks guide to Living in France
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.