A year on from the Brexit vote, do we know how it could affect taxation, investing, currencies and pensions for expatriates in France?
As we approach the year anniversary of the Brexit referendum, do we know more about how it might affect taxation, investing, currencies and pensions for expatriates in France?
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 some key questions for Britons living here and what you can do to secure your chosen lifestyle in France.
How long until things change?
With Article 50 triggered, the UK is on track to leave the EU on 29th March 2019, with or without an agreeable deal. Until then, little can change for Britons living here.
Post-Brexit, a new reciprocal agreement between France and the UK should protect expatriates in each country – but the rules may be less favourable than today. With under two years left for 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. If this affects you, take professional advice to review your approach.
If you leave France to return to the UK (after being resident here for six of the last ten years), how you are taxed on capital gains from shares will depend on whether you leave pre- or post-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 – ask your adviser about 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 overexposure 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 available in France and elsewhere that may provide more benefits than UK-centric investments, such as the assurance-vie. While this can be an extremely tax-efficient way of holding investments in France, there are various types available so take specialist advice to find what would work 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. Living 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.
When it comes to 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 9th March, 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 9th March 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 further 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. However, it is crucial to use a regulated provider to avoid pension scams and establish the right solution for you.
How else can you plan ahead?
You should regularly review your affairs to ensure your 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. Take personalised, professional advice to understand the cross-border implications and be fully prepared so you can continue enjoying your life in France, whatever Brexit brings.
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; individuals are advised to seek personalised advice.