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The long way home

The road back to the UK for expats requires careful navigation to avoid costly mistakes. Marc Beattie, COO at Arlo Wealth, offers practical tips for advisers to consider as Brexit uncertainties unfold.

It’s not quite crunch time for British expats in Europe, but it will be soon enough. Around 785,000 Brits currently live in the EU, most of them in Spain, France or Germany. It has been a disquieting period for them since the 2016 referendum.

The withdrawal agreement passed in January finally brought some comfort – confirming that those already living in an EU state could continue to live and work there – but it’s not without complexities. British citizens must apply for residence, and the process varies between EU countries.

It’s also not clear whether British citizens living in the EU will be free to move to other countries within the block after the end of the year. Perhaps most worrying, rules on non-British family members’ rights to move back with returning UK citizens are complicated. At the very least, they will need to register through the UK government’s settlement scheme by March 31, 2022.

With so many uncertainties to consider – and even ignoring the continuing weakness in the pound – it’s not surprising that some British expats are calling it a day and heading home. Depending on the conclusion of the negotiations over the UK and EU’s future relationship this year, the numbers returning home could soar. Financial advisers would do well to be ready.

Taking it in the round

The first thing that advisers should do before dealing with overseas clients returning to the UK is to make sure it’s legal to do so. Advisers will usually need a MIFID (Markets in Financial Instruments Directive) licence to provide investment advice cross-border. Those who don’t have one will therefore need to look into it – or consider referring expats onto a specialist.

Provided they are in a position to do so, though, advisers should start with a broad review of the client’s financial circumstances. It’s important to have the full picture of their situation, needs and plans. This will form the basis of the strategy and the steps for their return to the UK, helping to avoid costly mistakes.

It’s probably helpful at this stage to also develop a timeline that ends with the date of their return. Determining that date at the outset provides an opportunity to think through the tasks and time required. It can also help to simplify things; timing the return for the start of the UK tax year might avoid the need to file for the same year in both countries. (Double taxation treaties usually mean they won’t have to pay tax in both countries in any case.)

A target date can also be a useful motivator to keep things moving, and both adviser and client can work towards it.

While every individual is different, two areas are likely to require particular attention. The first is deciding what to do with their overseas assets, including investments and property. It’s a key area where good planning can pay off.

In some cases, it may make sense in terms of tax to sell overseas investments before returning to the UK. Doing so while resident in the EU means investors escape UK capital gains tax – up to 20% for those with an income over £50,000, and 28% for residential property.

They will, though, be liable in the country of residence. Some, like Belgium, Luxembourg and Slovenia have no CGT; in others, such as France, Germany or Spain, CGT can compare to the UK, but depends on a range of factors. Again, to make a sound judgement, advisers need a full picture of the client’s circumstances and the tax code of the country in question.

However, even if they’re moving from a low or no CGT tax jurisdiction, advisers shouldn’t assume they have to dispose of investments. Offshore bonds, for example, aren’t liable for CGT at all, sitting pretty much in a tax-free environment. Any gains taken from these can also be offset against unused personal income tax allowance in the UK.

In any case, moving back to the UK often involves considerable upheaval. Given this – not to mention asset price and currency volatility around Brexit – it’s a good idea to know which investments need to be crystallised before moving and which, for the time being, can be kept in hand.

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