How will Brexit affect expatriates in France from a financial point of view? If you are living in France, now is the time to look at your financial planning to consider if and where you may need to make changes.
How will Brexit affect expatriates in France from a financial point of view? If you are living in France, now is the time to look at your financial planning to make sure you are ready, whatever happens.
Some readers may find these exciting times for the UK, as it prepares to leave the EU, others may be concerned about what the future holds. Either way, we do not yet know the detail of what the end result will be and it may be a while before we find out. How will this uncertainty affect expatriates in France from a financial point of view? While you should not rush to make decisions, it is worth looking at your financial planning to consider if and where you may need to make changes.
Savings and investments
Many British investors tend to favour UK assets in their portfolio, even when living in France. They prefer to own shares listed on a FTSE index or corporate bonds issued by UK companies. Indeed UK advisers often structure their clients’ portfolios this way, but that may not be the right balance for you.
We are in new territory now with the UK leaving the EU and, while we hope for a smooth transition, there will be periods of uncertainty ahead, particularly for the UK economy. You need to review your portfolio to see if you are overexposed to UK assets and consider how to improve diversification over different assets classes, countries, companies, sectors etc. Diversification reduces risk and gives your portfolio the opportunity to produce positive returns over time without being vulnerable to any single area under-performing.
For peace of mind you should also ensure that your portfolio is suitable for you and your appetite for risk. Your adviser should obtain a clear and objective assessment of your risk profile before making recommendations, and employ the services of carefully chosen investment managers who use a range of different strategies across all the geographical regions and asset classes.
While volatile markets can be unsettling for investors, those invested for the medium to long-term in a well-diversified portfolio should not be unduly concerned. And volatility can create opportunities for fund managers and those with capital to invest. The ‘lower for longer’ interest rate environment is also generally seen as a positive for equity markets – though obviously not for those with bank account savings.
Currency is another important consideration for UK nationals living in Euroland. Your day-to-day spending in France will get more expensive if Sterling weakens against the Euro and you do not hold sufficient Euros to weather any short-term Sterling currency storm. Ideally you should hold some assets in Euros to avoid exchange rate risk. However, you may also spend money in the UK, or expect to return someday or to leave an inheritance to UK residents, so discussing your particular circumstances and objectives with your adviser to determine the best currency mix for you is a very good idea right now.
Pensions
The above advice on diversification and suitability equally applies to the underlying investments in your pension funds.
Also, it will still be possible to transfer UK pension funds to Qualifying Recognised Overseas Pensions Schemes (QROPS) once the UK leaves the EU. Although the core of the legislation can be traced back to an EU directive, the UK has a long history of permitting transfers to bona fide overseas pension schemes and QROPS are a function of UK law.
There is some speculation, however, that the UK could introduce a new ‘exit tax’ for pension transfers. This is not substantiated, but there has been quite a bit talk about it. If you have a defined contribution (money purchase) scheme and are concerned about the potential of an exit, you could consider transferring into a QROPS. UK SIPPs and QROPS have basically the same structure so you would continue with your current benefits, but in a potentially future-proof QROPS.
Another significant benefit of QROPS is that you are able to choose the currency and so protect your pension income from fluctuating exchange rates. As always, though, the best approach for your pension funds depends on your circumstances and objectives and you also need to consider the tax implications in France – take advice.
Tax planning
If you live in France and have UK source income, or vice versa, the tax treatment is determined by the UK/France double tax treaty. This is a bilateral agreement between the two countries and independent of the EU, so unaffected by Brexit.
There are, however, a couple of circumstances where taxation may be affected. For example, UK bonds would become non-EU bonds and so will not qualify for the beneficial tax treatment given to EU assurance-vie and capital redemption bonds. You should seek professional advice here too to review your position.
If you leave France to return to live in the UK after Brexit, exit tax would also be affected since the rules are different if you move to a non-EU country.
Estate planning
Brexit itself should not affect your estate planning. Although Brussels IV – the EU regulation that allows UK nationals living in France to opt for UK succession law instead of French succession law – is an EU regulation, it applies to third party countries as well as EU ones, so there is no change for British expatriates in France.
However, you need to be keenly aware of all the consequences of choosing UK succession law and establish what would actually work best for you and your heirs.
Cross-border estate planning is a complex, specialist area, and it needs to be carefully designed around your specific circumstances and wishes. Professional advice is essential here and this is a good time to get your estate planning in order.
It is a good idea to use the services of a local financial adviser who is experienced in advising British expatriates in France. Many expatriates continue using their UK financial adviser, with the result that their financial planning is often more suitable for a UK resident than a French one, often with undesirable consequences.
Any questions? Ask our financial advisers for help.
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.
