Personal wealth in the post-Brexit UK
Economic uncertainty has been a cause of unease for many individuals following the referendum last June. The immediate fallout seemed to justify the Remain camp’s scepticism, with £1.2 trillion wiped off the UK’s wealth. However, in the seven months since Britain voted to leave the EU, the economy is defying downturn fears with a 0.6% growth in the last quarter of 2016, silencing the Remain camp’s fears of an immediate recession. The FTSE 100 ended 2016 at a record high, and the FTSE 250 ended 3.7% ahead. This growth was attributed to a strong service sector compensating the weak construction industry and demonstrates that the economy is stabilising despite the unchartered negotiations the country faces. Although uncertainty remains, a stabilising economy is likely to give some relief to individuals with investments in the UK.
However, economists are predicting a slowdown in 2017, and Philip Hammond downgraded growth figures to 1.4% for 2017 in his Autumn Statement. The Bank of England has also cut its interest rate for the first time since 2009 from 0.5% to 0.25%. The value of the pound fell when the Brexit vote initially came in, and following Theresa May’s announcement that the UK will leave the single market. However, once the excitement of those large announcements died down, the pound stabilised and regained some ground, although it is still not back to pre-referendum levels. While the low value of the pound has boosted exports, it has also increased the cost of importing and has made foreign holidays more expensive. Only after Article 50 has been triggered in March 2017, after the approval of Parliament, can the UK begin its negotiations, so it will not be until then that we can ascertain a clearer picture of the real effect on the UK economy.
Individuals with an interest in property have been observing the UK market keenly. A sharp contraction was felt immediately after the referendum, but house prices between September and December 2016 were 6.5% higher than the previous year, evidencing that the housing market has begun to stabilise since Brexit. There have been rising revenues from sales of less expensive homes around the country, indicating a potential investment opportunity. However, the high-end property market has fallen by 6.9% compared with last year, attributed to the uncertainty post-Brexit combined with the 3% stamp duty surcharge for second homes. The changes to the inheritance tax treatment of UK residential property from April 2017 are also likely to impact on the property market and investment by overseas individuals. The UK market has traditionally demonstrated upward growth and as such individuals and investors who buy while the market is weak may see an increase in returns in the longer term.
Theresa May has so far failed to promise protection of status to EU citizens resident in the UK, saying she hopes to negotiate a deal with other EU leaders as soon as possible. The rights of an EU national to remain in the UK post-Brexit, and those of British ex-pats to remain elsewhere in the EU, are a major concern for many of our clients and something we will be watching closely.
Although questions over the City of London’s continuing role as a financial centre exist, the financial incentives the UK may ultimately offer individuals wanting to reside and invest in the UK, together with the possible reduction on restrictions imposed by Europe, may make the UK more attractive to businesses and individuals alike.
From a succession planning viewpoint, Brexit will not prevent UK nationals who own property elsewhere in the EU from benefitting from the flexibility created by the recent EU succession regulation, which allows UK nationals to nominate the succession law of their nationality to apply to their worldwide estate.