With the Chinese New Year almost upon us, it reminded me of a Chinese proverb – ‘Don’t build a well when you become thirsty’. Put in modern business school speak, that reads: ‘Failing to plan is planning to fail’.
Another relevant Chinese proverb that translates well is ‘Better to light a candle than to curse the darkness’ which equates to ‘Don’t put off until tomorrow what you should do today’.
Take Brexit, for instance.
We have, in the words of former US Defence Secretary Donald Rumsfeld, “known knowns” and “known unknowns”.
There may, of course, be the occasional ‘unknown unknowns’ that surprise us along the way, too.
In terms of Brexit ‘known knowns’, we know that the agreement reached between the UK and EU27 in December 2017 on citizens’ rights contained a commitment to citizens officially resident in the UK, France or other EU country to retain that residency going forward and also their entitlement to healthcare.
The joint agreement stated: “…those already holding a permanent residence document issued under Union law at the specified date will have that document converted into the new document free of charge...”
It also went on to say: “…Rules for healthcare… will follow Regulation (EC) No 883/2004.
“Persons whose competent state is the UK and are in the EU27 on the specified date (and vice versa)… continue to be eligible for healthcare reimbursement, as long as that stay, residence or treatment continues.”
The specified date for permanent residence to qualify had not been confirmed at the time of writing, but it may be March 29, 2019 (two years after Article 50 was triggered specifying that the UK wanted to withdraw from the EU) or it could be later, depending on whether a transition period is agreed.
The December joint agreement is scheduled to form part of the overall withdrawal agreement, but among the unknowns at this stage are ‘freedom of movement’ details (or ‘ease’ of movement as is being mooted by Airbus and others seeking a compromise for their employees working in both the UK and in Europe).
For someone who wants to retire to France, though, and become a French resident, the clock is ticking.
They may prefer to wait until all the details are known and the final agreement is signed before applying for residency, but if they wait until that point there will be less time for their application to be considered and a risk that, with many other people applying at that time, they may miss the deadline.
Also, someone already permanently resident in France could wait for all the final Brexit details to be confirmed before reviewing their estate planning, tax, investment and pension fund arrangements, but again delaying action could risk running out of time as the deadline approaches.
Acting now allows the current rules to be used rather than waiting to see what changes may come for future actions.
For example, although pension transfers are not suitable for everyone, today’s opportunities may be limited. Currently, in certain circumstances, it is possible for French residents to transfer UK pension funds to a Qualifying Recognised Overseas Pension Scheme (QROPS) in the European Economic Area without incurring a tax charge.
However, waiting too long to act could prove costly if the UK government introduces a tax charge for such transfers post-Brexit (such as the charge which now applies if the member is resident outside the EEA).
The lengthy process to properly assess suitability and carry out pension transfers also needs to be factored in.
Similarly, full encashment of a UK pension fund currently may only lead to a 7.5% tax charge in France, under certain conditions, with no UK liability (whereas there would be if the person was UK resident), but that could change in the future.
With regards to estate planning, we know the day we were born but cannot predict in advance the day we die!
If we did and planned in advance, we could make concrete plans to ensure the absolute minimum of tax on our estate.
But given that we cannot predict our date of death, it is important to ensure our plans to minimise French succession or UK inheritance tax are in place now, to give us peace of mind that our loved ones will receive the fullest benefits possible of our wealth.
The complexities of the French ‘forced heirship’ rules (particularly where a couple has children from previous relationships), and the implications of succession taxes and where assets are located, means that proper planning takes time, expert guidance and needs to be done thoroughly.
Investment markets are another area that can cause people to avoid action. Should I invest now or wait in case markets fall at some point?
But then what if they instead rise?
With the low interest rate environment in recent years not offering real returns from deposits, adopting the right long-term strategic planning focused around a diversified multi-asset portfolio that suits your appetite to risk is key.
It is often ‘time in’ the market that makes the difference over the long-term, rather than ‘timing’ the market, which is notoriously difficult to get right.
If you feel in a quandary about when to invest within your overall strategy, one option is to invest some now and some in say six months’ time, or to stagger an investment over four consecutive quarters, an approach often described as ‘pound (or euro) cost averaging’.
At the end of that period you can look back and see which was the best time, but beforehand – without a crystal ball – you cannot, and so avoiding action up front can mean you miss any of your investment being placed at the optimum time.
As evangelist Dawson Trotman said, “The greatest amount of wasted time is the time not getting started” or – to close with another Chinese proverb – ‘The rich man plans for tomorrow, the poor man for today’.
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 www.blevinsfranks.com.
Blevins Franks accepts no liability for any loss resulting from any action or inaction or omission as a result of reading this article, which is general in nature and not specific to your circumstances. The 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.