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Home arrow Finance arrow Four ways to prepare as the clock ticks down to Brexit
Four ways to prepare as the clock ticks down to Brexit
Wednesday, 03 May 2017

With Article 50 triggered, Britain is on track to leave the EU in under two years, on 29th March 2019. The surprise June UK general election is unlikely to change this, as the two key parties have committed to honour the referendum result.

While we still have no certainty about how Brexit will affect expatriates in Spain, there are steps you can take today to future-proof your financial planning.

1.      Consider securing your residency

The two-year countdown is underway for current residency and freedom of movement rules. While we can expect a fresh reciprocal agreement between Spain and the UK to protect expatriates in each country, the new rules may be less favourable than today. So if you are still a UK resident but want to live permanently in Spain, take steps now to secure your position.

Once resident here, you secure the same tax treatment as other Spanish residents. Non-residents, however, may face higher taxes after Brexit. When it comes to income tax, for example, Spain charges more for non-EU and non-EEA residents. Also, non-EU or EEA residents may not qualify for the generally lower rates offered by the regional autonomous communities for wealth, succession and gift taxes.

Regardless of residency, UK-source income remains taxable according to the UK/Spain double tax treaty, which is unrelated to the EU and therefore unaffected by Brexit.

2.      Review your pensions

As things stand, Brexit should not affect how you can access or transfer UK pension funds. However, the UK's new ‘overseas transfer charge' indicates things may change post-Brexit.

Until recently, all UK pensions transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS) were free of UK taxation so long as the combined value of pension savings came under the lifetime allowance limit (currently £1 million). Since 9th March, however, a 25% tax applies to pension funds transferred to a QROPS based outside the European Economic Area (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, expatriates in Spain transferring to an EEA-based QROPS (including Gibraltar) avoid this tax. But many think the UK government could use Brexit as an opportunity to recoup revenue from UK nationals abroad with further ‘exit taxes' on pension funds. They may also change the rules to make it harder to take advantage of today's high transfer values for ‘defined benefit' (final salary) pensions. So consider acting now, under current rules, before the tax-free window of opportunity closes.

However, it is crucial to carefully explore your options and use a regulated provider to avoid pension scams and establish the right solution for you.

 

3.      Diversify, diversify, diversify

When it comes to investing, many expatriates favour British assets, like UK bonds or FTSE shares. Not only could this approach overlook opportunities available in Spain and elsewhere, it can generate overexposure to UK assets. While markets have proved quite resilient to Brexit news so far, we cannot predict how the UK economy will continue to react. In uncertain times like this it is more important than ever to have a well-diversified portfolio.

You should minimise risk by spreading investments across countries, currencies, regions, asset types and market sectors. By limiting your exposure in any one area, you are better placed to ride out market turbulence - Brexit-related or otherwise.

4.      Look for currency flexibility

With the fortunes of the pound and euro so tied up with Brexit developments, it is a good idea to reconsider the best currency mix for you. Living in Spain, ideally you should receive some income in euros to limit your dependency on exchange rates.

One solution is to use structures that allow you to hold investments in multiple currencies. You could, for example, invest in sterling now and switch to euros when rates are favourable, with flexibility to choose the currency of your withdrawals.

In any case, you should regularly review your affairs to ensure your assets and investments remain suitably diversified and tax-efficient for your unique situation. Not only can your circumstances change over time, uncertain times like this can also unlock opportunities.

The ticking of the Brexit clock offers one more compelling reason to fine-tune your financial planning. As an expatriate it is essential to understand the cross-border implications and be fully prepared so you can continue enjoying your life in Spain, whatever Brexit brings.

David Bowern, Partner, Blevins Franks
Email:
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Tel: 952 809 212

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 should take personalised advice. 

Read more about the financial issues that can affect you by visiting our website

 

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