Brexit: the outlook for British nationals and expats in Italy
ROME -- As a former British insider to the Italian corporate and financial sector, John Douglas Stewart, Head of Business Development at Rome based Unity Financial Partners, was interviewed on the Italian news show "Porta a Porta" late on Thursday night 23 June when opinion polls were still pointing to a Remain victory.
“On Friday morning, in the wake of a vote to Leave, continental European stock markets fell between 7-8% in Paris and Frankfurt while Madrid and Milan fell 12% (Italy’s worst ever one day collapse). Paradoxically the London exchange held up best losing only 3% demonstrating the resilience of UK quoted companies. Sterling on the other hand took a hit both against the dollar and the Euro with expectations that the Bank of England would ease monetary policy in an attempt to ward off a recession. The IMF still believes in the resilience of the British economy post Brexit with the UK still expected to record the second fastest GDP growth in 2016 among G7 countries.
On the other hand, Italian bank shares were among the worst performers in the wake of the Referendum and it is ironic that so far some of the most negative financial impact of the Brexit vote has been felt in countries like Italy.
Italian Insider asked John about the fallout since the surprise win by the Leave campaign and what impact the recent Brexit vote could have on expats working and living in Italy.
"Brexit means Brexit" according to Theresa May, the new PM, but the government seems keen to maintain full access to the EU single market while restricting freedom of movement within the EU. Squaring these two requirements is the trickiest part for Brexit negotiators in the months ahead.
"However, nothing can actually happen until Article 50 is triggered. It is not yet clear whether the PM has the authority to proceed on her own or whether a parliamentary vote is required. The whole process could then take at least two years to be negotiated and implemented. In the meantime, the UK and its citizens remain full members of the EU with all their rights still intact."
"The future is more uncertain. For example, Italy could require Britons working in Italy to obtain work permits and take full residency in order to enjoy the benefits of Italy’s health and education system. Given that at least 330,000 Italians were recorded to be living in Britain in 2015, up 40% compared to 2014, compared to an estimated 72,000 Britons officially living in Italy, reciprocal rights are likely to be negotiated. However, if a hard line anti-immigration approach prevails, the British government might grant full residential rights only to those Italians registered in the country before a certain cut-off date. Retaliation by the Italian government would then be likely to follow. Stamping of passports in and out of the UK is also a strong possibility."
"Immigration is a thorny issue and Theresa May has a track record for cracking the whip. As Home Secretary, she introduced in July 2012 tough and controversial immigration measures for British nationals wishing to repatriate with a non-EEA spouse/partner. Under the “maintenance funds law” a British citizen has to demonstrate an annual income of 18,600 pounds or 62,500 pounds in cash savings before being allowed to return to the UK with a non-working spouse. Furthermore, for the first child dependent a British national has to show additional annual income of 3,800 pounds and an extra 2,400 pounds for each additional child after that. In April of this year, legislation was passed that bans non EU citizens from claiming residency if they earn less than 35,000 pounds a year."
"As of today there are no issues for a Briton married with an Italian or a French spouse wishing to return to live in the UK. Tomorrow it might be different."
"Clearly it could be sensible for some British expatriates to regularize their residential status in Italy earlier rather than later although each individual circumstance needs to be evaluated carefully."
As you mentioned earlier, some Italian banks have seen their share prices collapse since Brexit. Where is the connection?
“The viability of the EU project has been called into question by the result of the Brexit referendum. As recently highlighted on the front page of the Economist (‘The Italian Job’) the high level of non-performing loans in some Italian banks is perceived as a potential fragility of the European banking system. The threat of bail-ins hangs over these banks and their depositors if the EU does not allow the Italian government to use some form of state aid to recapitalise them.”
We asked John how Italy is shaping up in a post Brexit world.
“After years of negative growth the Italian economy had been showing signs of a timid recovery. However official GDP growth estimates for 2016 have recently been pared back below 1% following Brexit. Moreover, recent setbacks for the government in local elections in Rome and Turin suggest that approval of the Constitutional Reform Referendum due to be held in the autumn may be problematic. International financial markets are again concerned about the stability of the Italian political system.”
"Given this fast shifting economic and political landscape, Paul Redmond, CEO of Unity, believes that access to sound cross border financial advice is of paramount importance for British nationals living abroad."
"Nobody knows what changes could occur to current British, Italian and European legislation. Any Briton living or working abroad needs to be aware of all the options currently available and be well prepared in advance before any doors are potentially slammed shut."
"Britons currently retiring to a country within the European Economic Area are entitled to receive annual increases to their UK state pensions to match either wage or price inflation of 2.5% - whichever is highest. This could change."
"There is a growing concern that rules allowing the transfer of UK pension benefits could be changed and that restrictions could be put in place quickly. We would encourage anyone with UK based personal or former employee pension schemes to contact us as a matter of priority."
"At Unity we are monitoring all the available options. Today, even more than before, the key advice is to put in place solutions, sooner rather than later, which are flexible, portable and tax efficient whether you plan to remain in Italy, return to the UK or move to another country."
Interest rates on bank deposits have been falling ever closer to zero in Europe. What are the implications for retirement planning?
"Following the financial crisis of 2008, massive waves of Quantitative Easing, first in the USA and then in Europe, ushered in a new dramatically different economic paradigm. Gone are the halcyon days when holding cash on deposit or government bonds could provide significant and safe long term returns for savings. Now, in order to achieve even single digit returns of any magnitude some degree of diversified exposure to international equities is essential. Understanding one's attitude to risk is essential in setting up a portfolio suitably allocated between different asset classes."
Finally Giuseppe Marino, a qualified Italian lawyer and a director of Unity, highlights how the paradigm has changed also in the tax arena.
"The new monitoring system of "Agenzia delle Entrate" (Inland Revenue) was introduced by Italy on 31 March and Exchange of Information is increasing in the European Union. Between EU countries all banking operations and transactions are now becoming reciprocally traceable by central banks. The implication is a change of perspective as information loopholes close and it becomes increasingly important to obtain suitable advice in order to manage one's cross border finances properly.
For example, as mentioned in our presentation to UN staff on 28 June, although they are typically exempt from paying Italian tax on their salaries whilst working in Italy an awareness of the domestic tax environment can be important when deciding whether to retire in Italy or to another country within or outside the EU.”
Unity Financial Partners head office is in the EUR business district in Rome, a two minute walk from Fermi Metro on line B and close to the GRA. For further information, contact Adam Smith by telephone on 0645429867 or email to email@example.com