The UK’s future membership of the EU
As the media hype heats up over the question of the UK’s future membership of the EU, clients are already asking what will happen if the outcome of the referendum is to leave the EU?
The simple answer is that we do not really know because a country has never left the EU. What we do know is, as British expatriates ourselves, we will be affected in the same way as our clients.
The more complicated answer is that it will depend upon whether it is a ‘soft exit’ or a ‘hard exit’.
A soft exit would be, for example, remaining as an EEA State (in the same way as Norway, Iceland and Lichtenstein). As such, the UK would still have access to the single European market and full freedom of trade within the EU. However, in addition, the UK would be free to negotiate bilateral trade agreements with countries outside of the EU, something that is not possible with full EU membership. The UK would still have to adhere to EU product and financial regulations, as well as social and employment rules. EU budget contributions would still be required, although at a reduced level. Ability to restrict inward EU migration would not be allowed.
A ‘hard exit’ would take the UK outside of the EEA, resulting in it having no automatic access to trade within the EU, but it could continue to negotiate trade agreements with non-EU countries. There would be no more EU budget contributions and also no requirement to adhere to EU Regulations. Inward EU migration could be restricted.
With a ‘hard exit’, as British expatriates living in France, we would need to apply for a Carte de Séjour, but if already resident in France for 10 years, may be granted a Carte de Résidence. Certificates S1 would become a thing of the past and so British expatriates would have to pay cotisations for French health cover. Equally, EU nationals living in the UK, would no longer have an automatic right to live and work there.
The referendum is to take place by the end of 2017, but it is more likely now that it will be in 2016. What we can be certain about is that in the period leading up to the referendum, there will be uncertainty – in capital markets (particularly in the UK) and in currency markets (Sterling is likely to be under pressure).
As if the referendum was not enough to think about, we also have to continue playing the guessing game with central bank policy! It was widely expected that the Fed would start to increase US interest rates in September, but that was not to be. Whilst an increase is not entirely ruled out before the end of this year, no-one can be certain. It is unlikely that the UK will move on interest rates before the US.
In times of such uncertainty, it is more important than ever to seek advice on how to protect your wealth. At the Spectrum IFA Group we have a range of solutions to offer clients, depending upon attitude to investment risk and objectives. For example, have a range of capital protected investments and other low volatility multi-assets funds available. Hence, clients’ portfolios can easily be adjusted to protect their wealth, as and when necessary, something that is particularly appropriate during times of volatile markets.
Even when markets are not volatile, the benefits of diversification gained through investing in global multi-asset portfolios cannot be overstated. If this is combined with using investment management firms that have the size and capability to carry out extensive research into global markets, and investment risk is managed effectively, this considerably increases the chances of the clients’ investments performing better than the average over the medium to long-term.
Some people may be afraid to invest in capital markets during times of uncertainty. However, sitting with large amounts of cash in a bank is not risk-free. Apart from institutional risk, there is the real enemy of inflation, which can erode the real purchasing power of your capital, particularly since interest rates continue at ‘all-time lows’. Holding cash in the bank should really only be for short-term needs which of course includes any short-term capital projects that you might have planned, as well as a cushion for emergencies. Bank deposits are not usually appropriate for medium to long-term investment.
The investment solutions that we recommend to our clients are all carried out within tax-efficient products, which are also highly beneficial for inheritance planning in France. Everyone is different and that is why it is very important that we carry out a full review of a prospective client’s situation to find the right solution for them. It is equally important to ensure that this is kept under review and to not be afraid to make adjustments, when necessary.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or the mitigation of taxes.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter at www.spectrum-ifa.com/spectrum-ifa-client-charter