BREXIT

Now Britain have voted out of the 28, soon to be 27, member bloc, there are a lot of questions being raised around the subject of, what is this actually going to mean for me? In truth, neither side really thought it was going to happen, that much is obvious from the reactions seen in the early hours on Friday 24th June and the subsequent political fallout.

The next step is for Britain to inform the EU it wants to exit using Article 50, which will be the first time in the history of the union. However, it is uncertain when this will exactly happen, as in David Cameron’s resignation speech, he stated that his successor, chosen by October 2016, will decide whether to initiate article 50 or not.

It is unclear who will pick up the poisoned chalice that is the Conservative leadership, but whoever does so is putting their whole career at risk. Do they break ranks and deny the public the outcome they voted for, or do they press on, possibly inducing the break-up of the UK? Both are political suicide; the coming months will be interesting to keep an eye on as will the developments as to what will happen to British Expats living in Europe.

Currently things are very vague and nothing is clear, given the amount of untruths banded around by both parties during campaigning, actually being able to predict what will happen should the government press ahead and use article 50, is very difficult indeed.

In 1973, Britain joined the EU, giving its citizens the opportunity to take advantage of “freedom of movement” across other EU member states. In the years that followed, Brits rejoiced in building new lives abroad, either to work or retire. However, now Britain have voted out of the European Union, what does it mean for British expats, who are already living abroad or looking to move in the next few years?

In short, the future for expats is not yet clear, as many aspects have not yet been discussed or debated by the British parliament with the European Leaders. However, it is a common assumption that the Brexit vote will mean some loss of their “freedom of movement” within the European Union as well as their access to pension funds, healthcare and ability to buy real estate. This comes part and parcel with the single market arrangement, you can’t just have one part, you need freedom of movement with the single market.

Currency

With the pound crashing to its lowest levels in 31 years, dropping below $1.35 for the first time since 1985 and still falling, the referendum result is making its presence felt around the globe. The FTSE 100 Index felt the result hard too, losing more than £120bn off the value of its constituent companies in the opening minutes of trading, although making the losses back. The FTSE 250 followed suit and dropped a staggering 11.4% and this is the more worrying market to consider.

The Pound has dropped and is likely longer term to continue to fall in value as the issues around Brexit unravel. Certainly if an individual has UK paying assets, be that bank accounts or UK pensions they may wish to consider transferring these to other products and then diversifying investment.

Property

With so many Britons owning property abroad, either as a permanent residence or as a holiday home, it is only natural for expats to have concerns. However, depending on your situation, Brexit could affect you in different ways.

As a holiday home owner, UK citizens may have to apply for a visa in order to visit a country within the EU. For many, the idea of this is already off-putting as it’s likely to result in more paperwork to complete with more intrusive questions about how long you intend to stay, what your income is and what health cover you have.

However, this should not affect the rights UK citizens currently enjoy, allowing them to freely buy property in EU countries, should they wish to in the future, just like any other nationality. Again there could be additional paperwork to complete and perhaps higher taxes or fees in some cases. Although, in reality it’s hard to imagine EU countries such as Spain, who have not yet fully recovered from the property market crash, from taking such action which could jeopardise housing demand, especially from British buyers who form a crucial part of many overseas property markets.

For those expats who have been living in an EU country for over five years, it’s possible you will have to apply for long-term resident status under EU law. However, your status would be more limited than your current one as an EU citizen, and there may be ‘integration rules’ for long-term residency. For instance, being able to speak your host nation’s language.

The fear for many expats, who have been living permanently within the EU but who did not qualify for long-term resident status, is that they might have to return to the UK – this being the worst case scenario. We think this is quite unlikely to happen however. Currently, interest rates are at record lows in many countries and the ability to borrow a high percentage of the purchase price is easily available. However, following the EU Referendum results, Brits with a less attractive profile would possibly be charged higher interest rates and would have to put down a bigger deposit payment. With sterling also crashing this will make overseas property more expensive to UK residents but UK property should become cheaper for those UK expats paying with foreign currency.

There is also some concern for the UK property market with the outlook on values being negative. With Brexit, the pound crashing, new tax rules on foreign domiciles biting and capital gains tax applying to non UK residents who hold UK property the outlook does not look rosy with an already over inflated property market. Certainly UK commercial property is causing concern with some of the biggest UK property funds announcing a suspension of these funds.

Pensions

For British nationals who have decided to retire abroad in popular EU countries such as Spain, Portugal and Greece, they could face their State Pension being frozen now Britain have left the EU. Previous reciprocal agreements between EU countries guaranteed that the annual State Pension increase would also apply to Britons living in the respective countries could be scrapped along with reciprocal credits for years worked and credited for the state pension. However, in the majority of the new EU members in Europe, there are no such agreements in place.

Furthermore, many are branding this as bureaucratic garbage. For example, British pensioners who are retiring to the US will get the full state pension increase each year. Whilst those living over the border in Canada will not. Currently, around 560,000 British pensioners living abroad would have their pension frozen, whilst a slightly higher number would still enjoy the yearly increase, purely because they are located in a different country.

Employer provided and other private pension plans may also have conditions and restrictions which could negatively affect an expat given the result of the out vote in the EU Referendum.

It is also worth reviewing any UK pensions that have not commenced yet where an individual intends to retire abroad. UK pensions generally make payment in sterling and are invested in sterling assets which are likely over the long term to be negative. With scheme solvency margins also like to continue to decline as gilt yields and interest rates decline further, added to the problems of sterling we would suggest clients consider if a UK pension is the ideal solution for their retirement. They may wish to consider a transfer to a recognised overseas scheme.

QROPS

Although originally designed as a response to EU legislation, the transfer of UK pensions to recognised overseas schemes is now enshrined in UK legislation and in certain EU countries legislation, like Malta.

The option of transferring a UK pension abroad for an expat is likely to continue. The UK has two years at least to attempt to negotiate its way out of the EU under Article 50, so there is at least two years of certainty on QROPS. However, even then, once the UK has formally left the EU, it is unlikely that pensions will be high on the list of priorities to change, if at all.

With the certainty of pensions for the next 2 years at least, this is the perfect time to take advantage of using overseas schemes rather than a UK pension for some of the reasons mentioned above.

Healthcare

With over 1.2 million Britons living in another EU country, and many travelling abroad for shorter periods be it for work, retirement, or just tourism, people travelling within the EU need to know that they will be able to access medical care now the UK is leaving the EU.

EU membership offers UK citizens an extensive range of enforceable rights, including access to healthcare. British holidaymakers currently have the right to emergency healthcare with the use of a European Health Insurance Card, which is free of charge. Usually, if the treatment is necessary and available on the NHS, and if the NHS agrees, then the UK system will reimburse the cost of the treatment. It is estimated that the NHS paid out over GBP528M to EU countries for emergency care of UK citizens in the EU last year.

Additionally, British citizens working and living in any other EU country have access to local healthcare on the same basis as citizens of that country, which is at the host country’s expense. British old age pensioners living in another EU country also have the right to healthcare there, which the UK ultimately pays for.

However, the Brexit result could remove the current rights of a British citizen accessing healthcare abroad, which they currently enjoy. It is possible that the agreement might not provide cover for tourists, or for patients who are keen to avoid long waiting lists in the UK, and seek health services abroad as an alternative. Nonetheless, the post-Brexit treaty that the British government are going to have to negotiate with the EU is likely to cover some of the costs of healthcare of British citizens. Although, the limitations, complexity and duration of such arrangements remain highly uncertain until article 50 is triggered, possibly in October.

Public services

Employment and Social Benefits

Currently, with the UK’s education system being rated in the top 5 in the world, UK qualifications are widely respected and accepted in European countries and globally. However, when Britain has fully left the EU, these qualifications could be less admirable and would have to be subject to mutual EU guidelines. There is the possibility that expats may have to obtain additional local licenses or certifications when applying for certain occupations.

Another area which could be severely affected are social benefits. Similarly, to the UK, other European countries are struggling to balance their budgets and it would be unlikely for them to be overly generous, especially to non-EU foreigners. However, most British citizens do not move abroad simply to claim benefits, so currently this is not seen as a particularly pressing issue to many expats.

Education

Whilst the UK is a very popular destination for EU students wanting to study abroad, there are also tens of thousands of UK students studying in continental Europe. One of the most appealing aspects is the considerably lower tuition fees of most universities. In the Netherlands, most courses cost around £1,500 a year, and in Denmark and Sweden it is completely free. For the less wealthy students or for those who do not want the burdens of costly student loans, this provides a great opportunity.

However, following the EU Referendum result, English students will likely pay the same fees as non-EU/EEA residents, which normally sits at around €10,000. Moreover, students might also have to obtain a visa from the country they want to study in, causing the same difficulties that EU students will face when applying to study in the UK in the post-EU Britain which will soon become a reality after article 50 of the Lisbon treaty is triggered.

Brexit could also see the end of the Erasmus programme, which allows EU students to study abroad within the EU. Currently, UK students benefit from this budget as well, with 14,651 English participants in 2012/2013. Whilst EU citizens would still be able to study in other EU cities such as Paris, Berlin or Rome, UK students would struggle with the increased difficulty of visas and hence would be at a disadvantage, causing a decline in Brits wanting to study abroad each year.

Taxes

Speculation suggests that the tax situation is likely to remain the same as there are already bilateral tax agreements in place between the UK and many EU countries which should not change even if Brexit goes ahead.

Furthermore, local property tax is commonly structured on how long the owner stays in the property rather than if they are from that member state or not; residency is deciding factor on your tax bracket, not citizenship. The only concern is whether UK expats will have to pay more taxes upon buying or selling property.

Future relationship to EU

There are many different ways in which the UK could come out of the EU and form deals. There are plenty of countries who are part of the EEA (European Economic Area) and not a full member of the 28, soon to be 27, member bloc. The UK could choose to adopt one of these nation’s models of EEA membership, but the UK could also choose to go at it alone. The UK could choose:

Norway Model

Norway is part of the EEA with full access to the single market. However, for this privilege, Norway has to pay a fairly heft fee along with accepting the majority of EU laws and total freedom of movement.

You can live in Norway visa free if you hold a European Passport thanks to the Freedom of Movement Act. Norway does have a say on certain EU laws, these being fishing, agriculture, justice and home affairs. However, Norway has no say on single market rules. The fee Norway pays is a per capita style fee, which is exactly what the UK is paying at the moment per capita!!

Switzerland Model

Switzerland are members of the EFTA (European Free Trade Association) as opposed to the EEA. This gives Switzerland access to a wide variety of EU markets via a series of bilateral agreements, in total 120. However, this does not cover every sector, Switzerland have no trade agreement with the EU when it comes to banking for example.

Switzerland does make a contribution, but it is not as large as Norway’s. Switzerland also does not need to abide by any EU laws, however the Freedom of Movement applies, although Switzerland is currently in dispute with the EU following the migrant crisis.

Turkey Model

Turkey has a customs union with the EU which includes no tariffs or quotas on industrial goods but is not a member of the EU or EEA.

Canada Model

Canada’s model is yet to come into force, but it gives Canada preferential access to the EU without obligations such as contributions and freedom of movement. However, Canada does not receive any services from the European Union.

Brexit Conclusion

There has been many reactions following the result on Brexit, from demonstrations by the young wanting to remain in, suggestions of a complete collapse of the UK economy, media reports of other EU countries want to stop trading with the UK, force British expats out and impose various other restrictions as “revenge”, Scotland wanting to remain in the EU and force a second referendum over leaving the UK, Political Leaders resigning, the out campaign claiming the UK is free of EU bureaucracy and regulations to the debate of what will happen now.

Reality is uncertainty will prevail for months if not longer until the UK elects a new Prime Minister and until the UK starts talking to the EU about how it will exit. But the EU is only a part of the equation with trade with the UK and it is for the UK Government to take the reins quickly and start negotiating trade deals with the rest of its trading partners as quickly as possible.

With regard to expats, arguably, British expats have a positive impact in most countries in terms of taxes paid and demand generated, together with a number of other aspects. In the interest of their own economy and society, most EU countries will want to continue the healthy and active relationship they have with the UK, as much as we want a strong relationship with them. Continuing a good rapport with our current allies should limit any damage that the Brexit will cause to British expats. There are also an estimated to be 3million EU citizens’ resident in the UK and therefore we believe a compromise will occur to allow all current citizens to remain in their chosen country of residence.

It is also worth remembering that under a principle enshrined by the Vienna Convention on the Law of Treaties 1969 withdrawal from a treaty releases the parties from any future obligations to each other but does not affect the rights or obligations acquired before withdrawal. In addition, any actions to remove UK citizens currently in EU member states would directly contravene Article 19 of the EU Charter of Fundamental Rights and Article four of the Convention of Human Rights under which collective expulsions are prohibited.

Whilst it’s important understand all of the ramifications that the out vote has caused, there is no reason for panic, especially until a decision has been made, as after all, Cameron’s successor may decide to ignore the public and Britain could well remain part of the EU for many years to come.

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