Weather The Sterling Storm With Flexible Investments
One casualty from Britain’s decision to leave the EU has been the British pound. Since the Brexit vote, sterling has hit a 31-year low against the US dollar and dropped as much as 15 cents against the euro.
While it has since recovered, the pound remains unstable. Recently it slumped again as the Bank of England cut the interest rate to the all-time low of 0.25%.
With Brexit likely to disrupt currencies and markets for a while, this is a good time to revisit your options. As a British expatriate in France, you can find opportunities to protect yourself from the uncertainty ahead.
Should your savings be in sterling or euros?
There is no simple answer, but generally it is a good idea to have both, and more besides. Like most things to do with your money, diversification is the key to managing risk.
It is common for expatriates to keep most of their savings and investments in British pounds. However, if you are living in France and spending euros in your daily life, it can be much more expensive to take your income in sterling. This is especially true now that the fortunes of both sterling and the euro are tied so closely with unpredictable Brexit developments.
You can limit exchange currency risk and maximise your income with investment structures that allow currency flexibility. This means you can hold investments in more than one currency and convert them when it suits you. You could, say, invest in sterling now and switch to euros later when the exchange rate improves. Or you could hold savings in several currencies to fit different purposes – euros for spending in France and sterling for UK spending and your legacy to heirs – and adjust them as your circumstances change.
The path to currency flexibility
One way to get currency flexibility is through the right kind of ‘assurance-vie’. This is a specialised form of life assurance that allows French residents to hold a range of investments in a highly tax-efficient package. However, not all products offer currency flexibility.
There are many different types of assurance-vie options based in various jurisdictions, not just France. These variations can make a huge difference to the advantages they offer, so it is important to seek expert advice.
An assurance-vie issued in Luxemburg, for example, would benefit from French tax advantages afforded to EU countries. But as it would count as a foreign asset, it may be excluded from certain domestic liabilities, like wealth tax (for up to five years). And, of course, if it includes a multi-currency feature, you are not tied to keeping all your investments in euros, even if the assurance-vie itself is from an EU country. The right assurance-vie can bring all your investments under one tax-efficient roof without compromising diversification. To establish the most suitable option for you it is essential to get professional guidance, ideally through an adviser who lives locally and has in-depth knowledge of the complex French tax regime. They can help you take advantage of available opportunities and minimise risk – currency-related or otherwise – with a well-diversified portfolio tailor-made for you and your individual circumstances.