Managing your money in Brexit Britain

The UK is out of the European Union. What, if anything, does this mean for you and your finances? We look ahead to post-Brexit Britain and the implications for both your money and your lifestyle. Article by Nick Green.

Well, we’re out. Except, not quite. Though the UK’s official departure from the EU was marked at 11pm local time on 31 January, over a month later very little has changed in practical terms. Over the next 10 months the UK will continue to follow EU rules and regulations (though it will no longer have a say in them), will remain effectively in the single market and customs union, and will continue to pay into the EU’s budget and enjoy freedom of movement. UK and EU citizens will therefore not notice any practical changes, and nor will businesses, until after 31 December 2020.

We are now in what is called the transition (or implementation) period. Officially this period is the time allocated to the UK government in which to negotiate a new trade deal with the EU and otherwise prepare for the changes that Brexit will bring. However, it’s also a very useful breathing space for ordinary citizens and businesses to make their own preparations, along with contingency plans in case things don’t go smoothly.

But I thought the Brexit deal was done and dusted?

Despite the fanfare over the signing of Johnson’s ‘Brexit deal’, the term ‘deal’ was always something of a misnomer. All that has been signed so far is a Withdrawal Agreement, and the real deal (governing the future relationship between the UK and EU) is yet to be negotiated. The default form of Brexit would still place the UK outside the EU on 1 January 2021, unless a trade deal can be implemented first. It is worth pointing out that one of the fastest trade deals in history (USA-Jordan) took 18 months to be implemented, and that the average is nearly four years. This means that much could still go wrong, and it is not impossible that further extensions to the transition period will be needed.

These tips will therefore cover preparations both for an orderly Brexit (i.e. with an EU trade deal) and for a no-deal in 2021.

Brexit and pensions

If you have already retired to an EU country and are receiving state pension, the good news is that this will continue to increase at the same rate as in the UK – even in the case of a no-deal Brexit. However, this may not apply to those who retire to Europe after the transition period, and will depend on the final deal.

If you are already living in the EU, then your residency is protected and you will be able to continue living there after the transition period. However, the future is uncertain for those who wish to retire to Europe after that date. Therefore, if your retirement is imminent and you hope to live in Europe, you may want to bring your plans forward and settle in the EU before any barriers go up. Post-Brexit, you will probably have to abide by each individual country’s stricter residency requirements.

EU citizens currently living in the UK and receiving state pension will likewise be unaffected. Likewise payment of private pensions should continue uninterrupted.

One more thing to be wary of is the potential for pension scams. The continued state of uncertainty makes people more vulnerable, a factor which fraudsters will attempt to exploit. Assume any cold-call is fraudulent and only speak to advisers you have chosen yourself.

Brexit and house prices

House price growth has been sluggish since the referendum, in part due to Brexit uncertainty, but the feared crash did not materialise. Pent-up demand may finally find a release now that Brexit has finally happened, which many experts believe could trigger a small price rise (between one and three per cent).

Of course, rising prices are exactly what first-time buyers don’t want, but there is another key factor – interest rates – to consider. These remain at a historic low, but post-Brexit there may be pressure on the bank to start raising them at last. Given that they can hardly go much lower, this suggests that present conditions are about as good as they are likely to get for some time, so new buyers should aim to get on the property ladder as soon as they can.

Brexit and investments

Stock markets are well known to dislike uncertainty. Some of that uncertainty has disappeared with the exit of the UK from the EU, but a significant amount remains. Therefore caution remains the watchword when it comes to investment choices, with a focus on spreading risk.

The stock market dipped in response to the initial Brexit vote, but quickly recovered. The FTSE 100 fell 9 per cent and the FTSE 250 (with a greater focus on UK stocks) fell 12 per cent. The FTSE All-Share index has since recovered, though slightly behind the global average. UK stocks have been somewhat shunned by international investors, leading some commentators to see them as undervalued. Sue Noffke, Head of UK Equities, said, ‘UK equities are trading at a 30% valuation discount to global peers, close to their 30-year lows. While [this] is likely to persist until there is some form of clarity over the terms of any Brexit deal, the valuation gap provides an attractive entry point for investors with long time horizons.’

Investors planning to enter the market before a Brexit deal is agreed should consult their financial adviser on diversifying between UK stocks and international funds, such as OEICs or investment trusts regulated in London but with overseas assets. Those with existing long-term investments should likewise consider if their portfolio’s structure continues to reflect their risk tolerance, or whether a rebalancing towards lower-risk assets may be needed.

Travelling to Europe post-Brexit

During 2020, nothing will change as regards living, working in and travelling to and from the EU. However, post-transition there may be considerable changes, depending on the final deal. Here are the main areas to bear in mind. Not all relate directly to your finances, but all may involve some kind of extra expense or administrative burden.

EHIC (European Health Insurance Card)

Carrying a European Health Insurance Card (EHIC) entitles you to the same healthcare in the EU as the locals (it also works in some non-EU European countries), and at the same cost. A current EHIC will continue to work until the end of the transition period, and you can even apply for a new one during this time (the card is free). This will be particularly useful to have for as long as the coronavirus epidemic continues to cause disruption across Europe.

Post-2020, it’s not yet clear if the EHIC will still be valid for everyone. However, it has already been agreed that it will continue to cover UK pensioners and students living in the EU, and it will also cover anyone whose holiday straddles the transition end date.

Exchange rates & visa

Brexit developments have had a notable impact on the value of the pound relative to the euro, with the biggest plunge happening right after the referendum (sterling has yet to really recover anything like its former value). However, the pound is now around the strongest it has been since the referendum, and any increase in clarity over the Brexit deal should improve it further. Summer holidays will coincide with the mid-point of the negotiations, so if you are confident that these will go well, it may be worth waiting before buying your euros. Conversely, if you are pessimistic about the negotiations, it may be best to buy half (or more) of your currency now, while the pound’s value is at least reasonable.

As for visa requirements, these will only kick in from 1 January 2021. You’ll be able to buy a ‘visa waiver’ for €7 that will meet your needs for short trips such as holidays, and this will last for three years. However, to stay in Europe more than 90 days in any 180-day period, you will need additional documents after the transition period. Check with the embassy of whichever country / countries you hope to visit.

Roaming charges

There will be no additional roaming charges for UK mobile phone users in the EU until the end of the transition period. What happens after this depends on the deal the UK signs. The default position, however, is that mobile roaming charges could be reinstated (this will be up to the individual network providers). However, there will be a £45-a-month cap on the amount customers can be charged for using mobile data abroad, after which their data will be cut off unless they opt to use (and pay for) more.

Driving in the EU

After 2020, you may need one or more International Driving Permits (IDP) to continue to drive in the EU. An IDP costs £5.50 and must be bought before you travel (most Post Offices have them). However, there are three different types in use across the EU, so you may need more than one if travelling between countries.

You may also need a ‘green card’ (an international certificate of insurance) from your insurer.

People already living in the EU

If you live in the EU and hold a UK driving licence, you should get it changed to a local EU driving licence as soon as possible (and certainly before the end of 2020). Any later and you may have to take your driving test again in the country where you live.

If you have an EU licence and return to live in the UK, you can swap it for a UK licence so long as you passed your test in the UK. You can continue to do this after the transition period is over.

Taking pets to the EU

After 2020, taking your pet abroad to the EU could become more of a hassle. The government is recommending that anyone who wants to take a pet to the EU after 1 January 2021 should contact a vet at least four months before travelling to get the latest advice. It is likely that current EU pet passports will no longer be valid after the transition period, though this could change.

Students in the EU after Brexit

Finally, if you’re a student hoping to study in an EU country, things may change after 2020. The Erasmus+ scheme currently provides (among many other things) a grant for eligible students to help with their costs for a year while studying abroad. Funding for this scheme for UK students is only guaranteed for successful applications that are submitted before 1 January 2021. After this, the scheme may end or change for UK students.

Brexit and your business

The implications for UK businesses after the transition period are a whole topic in themselves – but the short answer is, even at this late stage no-one knows what will happen. The best-case scenario for businesses that trade with the EU is that the UK will remain broadly aligned, at least ‘unofficially’, so that businesses can still sell their products into the EU’s single market. However, it is still likely that additional customs checks and duties will be required, and perhaps some tariffs (depending on the outcome of the deal). This could lead to delays at the border, so some supply chains may need to be rethought.

The worst-case scenario, no-deal Brexit, is still a possibility. In this case, businesses will need to consult the government’s own guidelines for preparation.

In summary, 2020 promises to be the big year of Brexit planning both for businesses and individuals. Depending on your priorities, it’s a great time to talk to your financial adviser, mortgage broker and/or accountant.