Sunday, February 16, 2020

How the General Election result and Brexit affects expats

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After Theresa May’s initial declaration a year ago that she would guide Britain into a ‘Hard Brexit’, many expats feared the worst – not only because for those that live and work in Europe any kind of Brexit is viewed as something of a disaster, but because the word ‘hard’ in the context of Brexit, suggests we must all prepare for a jump from the EU plane without so much as a parachute to ease us back down to the ground.

But, in the wake of the General Election, which most political commentators seem to agree was an irreparable disaster for May and the Tories, the Brexit strategy has been thrown into disarray, and along with it, May’s tenuous leadership.

Now, the wealth management industry and expatriates with investments both in the UK and overseas have been left very much in a state of uncertainty. There is no definitive insight into what Brexit is really going to mean, what kind of timeline there is, and what kind of deal will be placed on the table by the EU members who sense the weakened position of May, as she looks set to have to soften her stance on her ‘hard’ Brexit.

Once the UK splits from Europe, thousands of British expatriates who have retired, or hope to retire, in popular destinations such as the Algarve, the South of France, or the Costa del Sol will be affected. Some believe that UK-based wealth managers will no longer be able to service their clients residing in Europe, while the clients themselves may also find themselves excluded from potentially rewarding products.

The Election result has expedited the latest U-turn by Theresa May, which could see a softer Brexit. It is hoped this will minimise the disruption in terms of UK-based wealth management consultancies having the right to continue servicing their clients in the EU. Some are already looking to establish European headquarters in order to continue unabated, with a view that they are still more or less certain to lose access to their European clients by ‘passporting’ from the UK.

Weakening Pound

While Brexit is not likely to be finalised for another two to three years, the reality is that wealth managers are beginning to advise their clients, in light of the 31-year low the pound suffered in January, that the Great British currency may soon lose its position as one of the top five most investable currencies.

However, the FTSE 100 continues to offer up a strong performance based on the pound’s troubles, so investment in British stocks is still currently of appeal. Will that last once the Brexit landscape becomes clearer? It seems not even Theresa May can offer much in the way of believable reassurance.

For expatriates with savings, pensions or investments left in the UK, the time could be right to assess whether it is really too much of a risk to remain with a currency that finds its position in a perpetual state of decline.

In 2007, the pound was worth $1.9 (US). Now it is languishing at around the $1.27 mark. If you had £100,000 invested in British currency back in 2007 and it had remained there to this day, you would have lost $60,000 in US dollar value in just a decade. Statistics like that are cause for concern, and are enough for most expatriates to seriously consider their position before the real crunch of Brexit is felt.

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