How will Brexit affect expats?

What happens to Britons living in other European Union (EU) countries if the UK votes to leave the bloc in June's referendum? According to United Nations estimates, there were 1.22 million Britons living in other EU countries at the end of 2015, including more than 300,000 in Spain, 185,000 in France and 100,000 in Germany.

All of them face considerable uncertainty if the UK backs Brexit - both financial anxiety and, even more fundamentally, question marks over their right to continue living in Europe. Don't believe the campaigners - in or out - who insist the fate of expatriates in the event of Brexit is sealed: the truth is, no one knows for sure.

The only certainty is that Article 50 of the Lisbon Treaty sets out the legal process for member states seeking to leave the bloc: it specifies a two-year period for the country quitting to negotiate a new relationship with the EU. Those negotiations would have to cover every aspect of the relationship, including what happens to expats.

Residency fears

On the question of residency, the former attorney general Dominic Grieve - a prominent campaigner against Brexit - claims an out vote could make "Britons abroad illegal immigrants overnight".

His opponents accuse him of scaremongering, citing the Vienna Convention on the Law of Treaties, which appears to give expats acquired rights in their current homes; they also point out that Greenlanders living overseas - admittedly in far smaller numbers - didn't have to go home when their country withdrew from the EU in 1985.

Nevertheless, immigration law specialists say expats are right to at least be concerned.

"If you're a British expat living in an EU member state and you're worried about the consequences of the UK leaving the union, we would recommend researching how to obtain citizenship for your host country if you want to carry on living there," says Jack MacMichael of the legal firm Carter Law.

However, let's assume - as seems probable, given the Vienna Convention - that expats won't be forced to give up their lives abroad and return to Britain. Their way of life may nonetheless change dramatically under Brexit, given the potential financial consequences.

First the good news. In most cases, the UK has double taxation agreements with EU countries that pre-date the union itself.

That means expats shouldn't have to worry about paying twice for levies such as income tax, inheritance tax and capital gains tax - they should continue to be taxable in the country where these liabilities arise, with no further tax to pay elsewhere.

Massive disruption

That's about as good as it gets, however. If Brexit does take place, expats are going to have to study the detail of the subsequent negotiations very carefully to find out how they're affected.

Healthcare will be a major worry for many. Under current reciprocal EU agreements, Britons travelling or living in other member states are generally entitled to free healthcare. That will no longer automatically be the case if the UK leaves the EU.

Expats abroad may be required to make additional social security contributions in the countries where they live, in order to qualify for state health benefits, or may even need to take out expensive private health insurance.

Elsewhere in their personal finances, expats will need to see whether they continue to have access to the financial products and services they have been using for years - and what the regulatory status of these will be.

UK financial services companies, from banks to investment managers, have access to other EU markets including the expats living in them, via common regulatory systems and agreements; these would have to be reviewed following a Brexit.

"There would be massive disruption," warns Guy Sears, the interim chief executive of the Investment Association. "If we leave Europe, then it isn't automatically our right to provide services into the EU."

Financial products

As a result, expats might no longer be able to obtain new financial products and services from the UK providers with which they're familiar.

They might also find that existing holdings are no longer protected by regulatory regimes such as the Financial Ombudsman Service or the Financial Services Compensation Scheme.

There will be other irritations. Mobile phone charges on international calls - currently limited by EU agreements on roaming - could rise, which is likely to hit expats hard.

Postal charges could increase too. Expats making donations to British charities might no longer be able to set these gifts against their tax bills.

Then there's the property market to consider. Expats who own property in popular countries such as Spain and France have already seen valuations fall sharply in recent years, courtesy of economic travails in the eurozone.

Some property experts worry that in areas where expat residents are prominent, there will be a further slump in the event of Brexit, amid fears there will be a rush to sell among those deciding to return to the UK.

And even expats intent on staying put could be hit by new taxes on foreign ownership of property, in EU countries where governments see them as a soft target.

It's also important to consider the potential macro-economic effects on expats - particularly in the currency markets.

Currency impact

Foreign exchange analysts caution that anyone living overseas who receives income in sterling - from an employer in the UK, say, or from UK state or private pensions - could be significantly worse off under Brexit, as the pound comes under pressure from international investors withdrawing.

"An unwillingness of external investors to finance the current account on current terms could cause a collapse in the currency of 10 to 15% over several months," suggest Philip Rush and Andy Chaytor of the investment bank Nomura.

Goldman Sachs has warned the drop could be as much as 20%. The result would be significantly lower disposable incomes for expats once their sterling income is exchanged for euros.

Expats with investments in UK stocks and bonds - directly or via their pension funds - should probably worry too, says Royal London Asset Management, at least in the short term.

"Sterling assets would come under pressure, in particular prime property and equities, although with such a large share of international earners in the UK stock market, the main pressure would be on the smaller, more domestically orientated stocks," the fund manager has warned clients.

"Parts of the UK credit market may suffer from increased uncertainty," it adds.

Future expats

Finally, it's also worth considering the impact of Brexit on would-be expats of the future - while there have been fewer Britons moving to other EU countries in recent times, tens of thousands continue to do so every year.

The outlook for this group is clouded by the same uncertainties as existing expats. However, it seems likely that while post-Brexit negotiations between the UK and the EU may secure important protections for those already living overseas, it will be tougher to win concessions for those who haven't yet moved.

"Healthcare, work permits, pensions and the ability to travel freely throughout the EU are all likely to be affected," says Heather Landau of Immigration into Europe, an agency that helps entrepreneurs and others set up elsewhere in the EU.

"People's entire lives, businesses, bank accounts, ability to study and eligibility to work are all predicated on their legal right to reside in a country as an EU citizen."

To return to where we began, it's crucial to stress that all of these fears may prove unfounded. Still, forewarned is forearmed.

What about my pension?

Following Brexit, Britons living in the European Union and drawing a UK state pension could find out the hard way about an anomaly perceived as an injustice by hundreds of thousands of other Brits living elsewhere in the world.

Currently, British pensioners living anywhere else in the EU get their state pensions uprated each year in exactly the same way as those living back home.

The same applies to countries with which the UK has reciprocal agreements to raise the pensions of each other's citizens in this way, including the US.

But that isn't true everywhere: the UK stopped signing such agreements in 1981 and there are many places where Britons' pensions are frozen at their value when they are first drawn - not least Canada, India and Australia.

British pensioners living in such countries have long campaigned for equal treatment. Now, however, Britons living in many EU states could find themselves in the same position.

Any country that entered the EU after 1981 - including Greece, Spain and Portugal - probably won't have a reciprocal agreement with the UK, so the pensions of Britons living there could be frozen following Brexit.

Pensions minister Baroness Altmann has already been asked about this issue in the House of Lords. "If there are reciprocal agreements and legal obligations to uprate, pensions will be uprated," was the best she could offer. That's hardly reassuring.

This article was originally published by our sister magazineMoney Observer here.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.