What British Expats Need to Know About Brexit

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February 3, 2020

We’re all in a spin about Brexit looming over us.

Boris Johnson has said that “every month of delay (Brexit) is costing this country £1 billion to stay in right now”. 

The country is losing £727 per second in growth since the referendum.

The inevitable financial uncertainty, not to mention UK pensions and investments.

Does this sound familiar?

As a UK expat living and working outside of the EU, you may be thinking that the outcome of the EU referendum will have little to no impact on you. 

But, if you’re financially linked to the UK then you may want to think again...

The UK is now nearly 3 years in to leaving the EU and discussions over a Brexit deal are in a state of limbo.

Within 48 hours of the EU referendum date being announced in 2017, the pound saw its biggest drop against the dollar since 2009. 

This drop-off came after a number of political heavyweights announced they would be supporting Brexit, including the now Prime Minister; Boris Johnson. 

The British currency then shed 2.4% of its value in the week after Johnson took over from Theresa May, and was headed for another crash since announcing their leave vote.

What does the prospect of a no-deal Brexit mean for people in the UAE and the wider Middle East? British expats and UAE residents with ties to the UK will be wondering where this leaves them.

A deflating pound could harm your retirement funds, property and overseas investments. 

What do British expats need to know about Brexit?

  • How will Brexit affect my UK pension?
  • Will a no deal Brexit crash housing prices?
  • Will I see a drop in my overseas investments?

How will Brexit affect my UK pension?

If you’re receiving a UK pension income and then transferring this to a different currency you could find your money doesn't stretch as far.

An area of concern for British expats is how the UK’s decision to leave the EU will affect their pensions. 

Those that have a UK pension and live overseas will still receive their payments, but how much that pension will be worth, is where the uncertainty lies.

Currently, UK nationals living in the UAE have their state pensions increase with the cost of living.

This is fixed at the highest rate of earnings, the UK state pension is uprated by either 2.5%, average wage growth or by prices growth as measured by the Consumer Price Index, whichever is highest.

There is clear intention for this to continue however it remains open to question and Brexit plans.

If there is a no-deal Brexit, this may be frozen- which is currently the case for UK pensioners living in countries like Australia or Canada.

A no-deal Brexit could mean any UK insurance company paying an annuity to a UK expat in the EU would no longer be authorised to do so. 

The pension provider would risk a fine by making these payments.

Instead, it might have to set up a subsidiary in the EU to be able to pay into a European bank account (or make a deal with a European counterpart).

With a no-deal, the cost and difficulty of transferring those funds into their local European bank could be greater and the currency exchange rate could be a problem. 

On the other hand, the UK government said it would give temporary permission for financial firms in the European Economic Area to pay people in the UK.

A QROPS is appealing because of the flexibility in currency and investment opportunities, meaning you have more control over your beneficiaries.

Read more on the different types of pension investments in The Ultimate Guide to Retiring in the UAE. 

Will a no deal Brexit crash housing prices?

Many UAE expats and residents either own property in the UK or are considering buying a property there. A hard Brexit could be a threat for existing owners but an opportunity for new buyers.

So far, the UK property market has held up surprisingly well, but there are now signs of strain. 

Prices across England fell for the first time in seven years in the first quarter of 2019, a year-on-year drop of 0.7%!

According to new figures from UK mortgage lender; Nationwide, the fall is a much greater 3.8% in London, where the prices have now fallen for seven consecutive quarters.

Brexit has scared off foreign buyers as well as increased stamp duty on second homes, while London property prices have become dizzyingly expensive.

Some analysts expect industries such as real estate to see a boom in business from investors in the Gulf and Middle East — since investors buying in dollar-pegged currencies such as the UAE dirham can pick up discounted deals.

While the precariousness created by Brexit has led buyers and sellers to sit tight, it might still create opportunities for real estate investors and prospective property buyers from the UAE and beyond.

Will I see a drop in my overseas investments?

The drop in the value of sterling has spurred savers to send more of their UAE salaries back home to take advantage of the currency difference.

You can insulate your portfolio from Brexit or any other political events by spreading your risk evenly across multiple assets. 

Diversification then reduces the exposure to the danger of setbacks or failure of any one company or country. 

Simply put, don't put all your eggs in one basket, instead spread your risk by maintaining a diversified portfolio.

The same advice applies for those worried about the British Pounds fluctuations, diversification can help alleviate this.

When you invest for the long-term, short-term fluctuations are all part of the process.