The pandemic has helped lots of younger investors get started, but they should look beyond DIY options to see the really transformative changes early – and proper - wealth management can make.
If you are considering moving to Europe, or have recently arrived, there are a few basic steps to follow which will help with managing and improving your finances. David Morrissey, Director, Smith & Williamson Investment Management (Europe) Limited talks with Michael Lodhi, CEO of his firm’s European financial planning partners, The Spectrum IFA Group, about some of the key points to consider as part of your early financial planning.
Michael: Whilst departure terms between the UK and EU are yet to be finalised, the status of British expatriates living in Europe has largely been agreed, in principle at least. From state pension escalation, to health care cover and rights on residency and employment, first phase negotiations concluded with consensus on protection of citizens’ rights.
Agreement, of course, still needs to be formalised – and “nothing is agreed until everything is agreed” – but for now existing expatriates’ rights are likely to be recognised beyond 31 December 2020.
Michael: The legal process of buying a property in Europe is markedly different from conveyancing in the UK. It is important to engage a knowledgeable lawyer, ideally English speaking, if you do not speak the local language. They will explain the various steps and fees involved, confirm what is expected of you and minimise delays and difficulties with technical aspects of the transaction.
The legal process of buying a property in Europe is markedly different from conveyancing in the UK. It is important to engage a knowledgeable lawyer, ideally English speaking, if you do not speak the local language
Michael: Seek guidance on the wide range of borrowing options available, from the national banks to smaller regional lenders. Obtain a lender’s decision-in-principle at an early stage to strengthen your position in discussions with sellers.
An independent mortgage broker will identify the most competitive and flexible mortgages available, ensure suitability to your borrowing requirements, negotiate concessions on your behalf and oversee the application process from submission through to completion.
Michael: Getting a bank account will probably be your first step towards integration with your new country’s financial system. Expect to pay fees for banking services and check the various options available, including basic, low-cost alternatives to the big national banks.
You will need a current account in some countries, to establish residency and pay utility bills.
You will need a current account in some countries, to establish residency and pay utility bills
Michael: Relying on your bank account for foreign exchange transfer is generally an expensive option. Numerous currency transfer specialists provide not only competitive terms and secure, swift transactions, but a range of other benefits including online facilities for regular payments, forward contracts and rate-tracking alerts.
Michael: Firstly, as you say, getting advice is essential. From understanding UK state pension entitlement, to reviewing all existing personal and/or occupational schemes, there is scope to increase the value, flexibility and security of your retirement finances. British expats living in Europe currently enjoy pension freedoms and transfer opportunities that are unavailable elsewhere. However, in relation to both Brexit and ongoing UK pension reform, it is unlikely this flexibility will remain beyond the short term.
Be wary of any recommendations to transfer a UK pension without receiving a formal and detailed report explaining, in terms you understand, why a transfer could be in your best interests
Even if Brexit transitional arrangements encourage a smoother economic separation, further changes to pension regulations are already on the UK domestic agenda. Consult an authorised, qualified and experienced specialist to arrange a comprehensive review of your existing pension arrangements. For defined benefit, or final salary, schemes, this evaluation needs to be completed by a UK FCA authorised adviser. Be wary of any recommendations to transfer a UK pension without receiving a formal and detailed report explaining, in terms you understand, why a transfer could be in your best interests.
Michael: In many European countries, inheritance law restricts the extent to which you can freely transfer wealth during your lifetime. It also, unless planned properly, governs how your estate is distributed on death – most notably, prescribed heirship laws can override individual choice when it comes to nominating beneficiaries, unlike in the UK, where you are able to nominate your beneficiaries.
It is important to establish and maintain a valid will which fully reflects your intentions, in a format that suits your circumstances.
Michael: Tax-free investments in the UK, such as ISAs and premium bonds, do not hold the same favourable status in Europe. There are local tax-efficient alternatives available, notably using a locally compliant life insurance wrapper, which offer concessions on investment growth, income and capital withdrawals and transfer of benefits on death in the form of inheritance tax exemptions and reliefs for your nominated beneficiaries.
Care is needed with the disposal of UK assets to avoid unintended tax consequences, so always seek professional advice before restructuring existing UK assets. It is also important to check product portability and adaptability so that tax benefits can be maintained on any future return to the UK.
Michael: Even for the financially experienced it is worth seeking professional advice, if only to ensure that all available investment and tax planning opportunities are being fully utilised. Only deal with an appropriately authorised adviser, ideally someone living and working locally who has been recommended by other expats living in the area.
The regulatory status of an adviser can be checked online and in any initial discussion you should be informed about the advisory process, from fact-finding and presenting suitable recommendations to responsibility for investment management and ongoing client servicing.
The partnership between Smith & Williamson Investment Management (Europe) and Spectrum helps provide holistic financial planning advice to those UK residents moving to the EU. This ensures clients investment portfolios are tailored to suit the local requirements. Do reach out to us if we can help you or you wish to explore further.
David Morrissey, Director, Smith & Williamson Investment Management (Europe) Limited
Smith & Williamson Investment Management (Europe) Limited is part of the Tilney Smith & Williamson group.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Investment does involve risk. The value of investments and the income from them can go down as well as up. The investor may not receive back, in total, the original amount invested. Past performance is not a guide to future performance. Rates of tax are those prevailing at the time and are subject to change without notice. Clients should always seek appropriate advice from their financial adviser before committing funds for investment. When investments are made in overseas securities, movements in exchange rates may have an effect on the value of that investment. The effect may be favourable or unfavourable.