By now we’re assuming you’ve heard all about the EU Referendum, not only is it littered across all newspapers with comments from banking and financial firms, the government have now started pushing leaflets through the doors of millions of homeowners as to why a ‘stay’ vote is crucial to the UK economy.
Needless to say, the EU referendum has become a hot political topic in recent months. Whether you like it or not, a potential ‘Brexit’ could impact you whether your buying your first dream home abroad or want to get the best exchange rates for your big day. Here at currencies.co.uk we’ve explored an array of possibilities based on the outcome of the Referendum and this article will tackle the different possible economic, political and social implications.
Back in December 2015, GBP/EUR exchange rates were in the 1.40’s, now, 4-months later rates are struggling to break the 1.25 mark. This highlights a perfect example of political uncertainty and the impact it can have on a given currency. Investors will be watching closely for any news of a potential ‘stay’, the polls will play a huge part with the run up to the results and any positive poll figures will keep GBP afloat.
The Telegraph reported in April that the remain camp has 52% of the vote, with a leave vote holding 43% of the vote, with the rest making up the unsure camp..
If the poll data continues to favour a stay vote, the uncertainty would start to lift and so confidence could build and as a result I would be surprised if we saw GBP/EUR exchange rates drop below the 1.20’s.
As it stands prior to the results, those looking to purchase Pounds with Euros may well want to jump on the opportunity sooner rather than later, as a stay vote will most likely secure a new confidence for investors and could push GBP/EUR rates higher post-referendum.
But what if you’re looking to transfer GBP to Euro? Waiting until after the EU referendum could provide some benefit if the UK votes to stay but the levels of uncertainty are so high that waiting for such a close referendum could be very risky. If the UK votes to leave there have been reports from UBS who warn the Pound could fall to Parity against the Euro in the event of a ‘Brexit’.
Therefore, it is worth considering your options. For example, if you want to remove the uncertainty and take away some of the risk we at currencies.co.uk offer a forward contract, this would allow you to lock in current exchange rates for up to a year giving you peace of mind.
This question is much harder to answer, given that no country has ever left the EU it’s difficult to know what, if anything, will change for British expats overseas. There are 3 possibly outcomes of a ‘leave’ vote;
1. The UK continues its relationship with the EU as an EEA member (European Economic Area). This would be the best case scenario for expats and would allow them to retain most of their rights (due to free movement agreements).
2. The UK and EU come to an ad hoc agreement which allows for controlled free movement with other EU states. This scenario is the most unpredictable and could see a change in taxes and social charges for British expats.
3. There is no agreement between the UK and the EU and expats would fall under the category of 'third country' nationals. This outcome is the worst case scenario and most unlikely, it is in the interest of the UK and the EU to maintain a strong relationship given that the UK is one of the major contributor to the EU.
At this stage, its worth mentioning article 50 of the Lisbon treaty, which in the event a country leaves the EU, a two year cooling off period is invoked allowing for new agreements to be made with the EU and the country in question.
What this means for expats is that in the event that the UK leaves the EU, they would have a minimum of 2 years to make an informed decision as to whether they wish to remain in their country of residence and seek a suitable visa or return home to the United Kingdom.
No country has ever left the EU and article 50 has never been utilised and with so much uncertainty surrounded the EU referendum it’s difficult for us to advise on best practise. However, if you are concerned about the outcome of the referendum you should think carefully about the implications of a 'Brexit'.
In the ideal circumstance, the UK contains its relations with the EU as an EEA or EFTA member similarly to Switzerland, separate bilateral agreements on free movement are still agreed between the UK and the EU. This ideal circumstance should have little impact on tax and healthcare changes and in the worst case scenario, UK citizens may have to apply for a permanent residency certificate which becomes available after 5 years of residency.
In the worst case scenario, the UK and the EU reach no bilateral agreements over free movement and expats are subject to the same status as “third country” residency. This scenario is very unlikely to occur but could see expats being treated as immigrants (although, UK expats have been living in France and Spain well before the EU came into play).
British expats in France looking to sell their property may have to pay an extra 10% in tax. As it stands, British expats are capped at 39.5% due to agreements with the EU. However, in the event a Brexit occurs and no bilateral agreements are agreed, British expats could end up paying 33.3% tax on capital gains and 15% on social charges.
Double tax relief would continue to be available to British expatriates in France as bilateral treaties on death duties, income and corporation tax are already in action. However, most other tax matters would be subject to renegotiation.
If Britain no longer issued S1 forms UK pensioners living in France would likely be subject to a further 7.4% in social charges on their British pension income. Although this is a minor issue given that the impacted could simply sign up for private health care, the alternative could mean stringent assessments for pensioners’ means to make sure they are not a ‘burden’ to France.
This is the absolute worst case scenario and we do not envisage this to occur, it’s important here at currencies we cover all potential outcomes for our clients.
It’s equally as difficult to know how Travel would be impacted by a Brexit, but we do know how existing EU regulations have helped Brits travel;
1. Financial protection for packaged holidays – Get your money back if a holiday company goes bust
2. Compensation for delayed flights
3. Access to free or reduced healthcare – in the event you are ill abroad you are covered by cheap travel insurance
4. Open flight market – EU regulations have opened flight zones allowing for cheaper flights to EU destinations.
5. Caps on mobile phone charges – charges are set to be abolished altogether in 2017
6. Border free travel – travel freely through EU countries without checks at borders
7. Bring home unlimited goods – no restrictions or limits on goods from EU countries
8. Freedom to work – you have the ability to work and set up a business in EU countries
In the event we left the EU, and new agreements could not be made between us and the EU there is a chance we may lose most of these benefits. Although unlikely, there is always a possibility. In the event we came to bilateral agreements or joined as a member of the EEA and thus free movement was still actioned, most if not all of these added bonuses would remain intact.
With very little known about the outcome of a ‘leave’ vote, it’s difficult to say with any certainty what a post-Brexit UK would look like, or how it would manage its ongoing relationship with the EU.
If the polls are correct, a ‘stay’ vote is marginally ahead and come June 23rd the uncertainty should be lifted.
If the polls are not correct, then we can expect some shift in expat rights but we do not expect the UK to separate entirely from the EU. UK trade makes up 40% within the EU and it would be counter-productive to ignore this fact. A strong possibility is that the UK will agree bilateral agreements with the EU which would be the most logical answer to a ‘leave’ scenario.
Either way, be cautious of overly fear-mongering comments, British expats lived in Spain, France and Ireland well before the EU and this won’t change regardless of June’s outcome.
We would however, suggest considering your options ahead of the referendum if you are planning to move abroad, speak to one of our currency brokers sooner rather than later to discuss your requirements.