BREXIT AND BEYOND
As a timescale is confirmed for the UK to begin the process of leaving the EU, Rob Kay considers the financial implications of Brexit in the coming year
Rob Kay considers the financial implications of Brexit in the coming year
As I write this, the High Court has ruled that Parliament must vote on whether the UK can start the process of leaving the EU, leading to further uncertainty over Brexit. If and when Article 50 is triggered, we expect that the negotiations will take at least two years, but we know little about how the UK’s future relationship with the EU will evolve.
This can be unsettling for those planning to move to France, but we are optimistic that Britons will continue to enjoy the benefits of living or owning property in this beautiful country. Here we take a look at the financial implications of Brexit.
For many people, Brexit will have no impact on how they are taxed in France, or taxed in the UK on French assets. If you live in France, the same tax rates apply to all residents, regardless of nationality.
If you receive income from the UK, tax treatment is determined by the UK/France double taxation treaty. The same applies if you are a UK resident and have France source income. Such double tax treaties are agreements reached between two countries; they are independent of the EU and so are unaffected by Brexit.
There are a couple of circumstances where taxation may be affected. For example, assurance-vie life assurance policies are an effective way of holding investments in France and can provide significant tax advantages. However, the beneficial tax treatment given to EU policies would no longer apply to UK bonds once the UK is no longer an EU member. So you should seek advice on the best arrangements for your investments and tax planning.
Note also that France levies an exit tax on share gains made by individuals who leave France after being tax resident for six years. The tax charge arises the day before you leave, but payment is deferred where the individual moves to an EU member state or an EEA state that has a mutual assistance agreement with France. If you move to a non EU/EEA country, tax can also be deferred, but you will need to appoint a tax representative.
If you are moving to France to work, you may be able to take advantage of Article 155B of the French tax code, which provides special tax incentives for individuals coming from overseas to work in France. Following Brexit, the French government said that it wanted to make France Europe’s “most favourable” fiscal regime for returning expats and foreign executives. The tax benefits of this special inpatriates regime currently last for five years, but under the draft budget for 2017 this should be extended to eight years. Those under this regime will no longer be subject to ‘salary’ tax, a special tax payable by the employer on the employee’s income.
The sterling to euro exchange rate has been the most immediate issue to hit expats in France and those planning on buying property there. Sterling may continue to be affected as Brexit negotiations unfold, but we cannot know to what degree or when the exchange rate will start to improve.
At the time of writing, the exchange rate is 1.14, and while this is poor compared to the 1.30 we had the day before the referendum, it is worth remembering that it had fallen as low as 1.02 back in December 2008. UK nationals continued to move to France and buy property, and this may well continue.
Currency can move in both directions as new events unfold, such as the elections in France, Germany and Holland next year or more imminently the forthcoming constitutional referendum in Italy – although the latter is not a referendum about the EU but if the government lost it, Forbes magazine has speculated it could lead to the Prime Minister resigning and calling an election.
Depending on your situation, you may find that you have to revise your short-term expectations of the sort of property your savings can buy while sterling is weaker, but sellers in France will not want to lose their UK customers so hopefully they will take the exchange rate into account.
You also need to consider what currency to hold your investment assets in. Ideally you should receive some income in euros so that you are not making a currency conversion every time you take income in France, though you may want to wait for a better rate until you switch assets to euros. Even then it may be a good idea to have both currencies; like most things to do with your investments,
diversification is the key to managing risk. Much depends on your personal situation so talk to your financial adviser to establish what will work best for you.
Note that you should not necessarily have to invest in euros even if using an EU investment arrangement; you can keep your capital in sterling. What you need is an investment structure that has a multi-currency facility. This would allow you, for example, to invest in sterling now and switch to euros (if you wish) at a later date. It should also give you flexibility in how you take withdrawals.
For most people, Brexit will have no impact on how they are taxed in France, or in the UK on French assets
YOUR INVESTMENT PORTFOLIO
Your investment portfolio should always be carefully constructed around your current (and expected future) circumstances, needs, objectives, time horizon and risk profile. A move to France therefore warrants a review of your savings and investments.
Many British investors tend to favour UK assets in their portfolio, even when living abroad. Indeed UK advisers often structure their clients’ portfolios this way, but that may not be the right balance for you if you make a permanent move to France.
With Brexit, diversification is more important than ever before. Markets have proved quite resilient so far and the FTSE 100 is actually up year to date, but we have yet to see how the UK economy will be affected as the exit negotiations unfold. You should review your portfolio to see if you are overexposed to UK assets and consider how to improve diversification over different assets classes, countries, sectors, etc.
The France/UK double tax treaty on death is independent of the EU so nothing will change regarding how your heirs are taxed, or how you are taxed on inheritances you receive from the UK while living in France.
When it comes to succession law, under 2015’s EU succession regulation (Brussels IV), British expats can opt for UK succession law to apply on their death instead of French law. Although an EU law, it applies to third party countries as well, so UK nationals can continue to use it after Brexit.
However, you need to be aware that opting for UK law may have unexpected negative consequences (unrelated to Brexit) so do seek specialist and personalised advice.
All in all, we hope that Brexit does not prevent anyone from fulfilling their dream of moving to France. To protect your finances we recommend building a good relationship with an advisory firm based in France so they can advise you on the implications of Brexit, and keep you updated on any key developments.