EU to Harmonise Withholding Tax
At the Economic and Financial Affairs Council (ECOFIN) meeting in Brussels in mid May, financial ministers of the EU agreed to implement a proposal to streamline existing tax barriers to the capital markets union (CMU), thus harmonising tax across the EU. The move is designed in part to create more opportunities for cross-border investment, limit tax avoidance, and tackle the problem of double taxation. Participants described the current arrangement as ‘lengthy, resource-intensive and costly.’
Member states are planning to bring in common EU digital tax residence certificates if this legislation goes through. Protocols for withholding taxes on dividends would also be streamlined, and due diligence and audit mechanisms are due to be enhanced. Check with your tax adviser if you need to know how these proposed changes might affect you.
European Central Bank Rate Cut
The ECB trimmed its deposit rate from 4% to 3.75% in early June, which could lead to a stronger pound against the Euro if you’re travelling from Britain this summer. Financial experts note that this is the first time that the ECB has issued a rate cut prior to the US Fed. In the UK itself, the Bank of England is expected to issue a rate cut in August. Asset managers BlackRock told clients that:
“Falling inflation and 18 months of weak economic activity make the case for the ECB to start cutting rates. But we don’t think it will cut far and fast. Likewise in the US, we see just one or two Fed cuts this year. This is not your typical rate-cutting cycle. Investors may see opportunities in further policy divergence, but we think it will be temporary as both central banks ultimately keep rates high for longer.”
Italy: ‘Footballer’s Scheme’ Causes Unrest
Italy’s ‘footballers’ scheme,’ which levies a €100,000 fixed tax on foreign income, has brought over 2,000 multimillionaires into the country since 2016. In addition, the expat tax scheme, which gives returning expats a tax-free allowance of 70 -90% of a worker’s income, has also lured Italian expats back home. Some returnees told the Financial Times in June that the tax allowance had given them the chance to earn double the amount on their gross salary than they would have been able to earn in London, for instance.
But the inequity inherent in these tax breaks is fomenting dissent in Italy, among locals who say that in cities such as Milan, wealthy investors brought in by the ‘footballers’ scheme’ have been driving up property prices. An estate agent who wished to remain anonymous told the FT that:
“There has been an influx of professionals with greater spending power than locals coming over from abroad looking for real estate in central locations where supply is limited.”
Around a third of Milan’s migrant population is currently unemployed, queues at food banks have increased by 40% over the last year, and students have protested over the cost of rent hikes. Political experts say that this wealth differential is likely to drive the rise of the far Right in Italy, and although the FT notes that Milan’s issues are partly a consequence of ‘growing pains’ as the city transforms into an international hub, these concerns are not confined to Milan alone, but affect Italians more widely.
Rise in Expat Mortgage Enquiries
Mortgage experts told the financial press in early June that enquiries about mortgage products from expats are on the rise, and that lenders are responding with new products and tweaked lending criteria. Concerns over financial passporting post-Brexit caused lenders to become wary over foreign income, but this unease is now settling down, with LDN Finance’s CEO Anthony Rose commenting that:
“Lenders have become more comfortable again in recent times with using foreign income, and more lenders have entered and re-entered the market because of this. We have also seen lenders already in this space widen the countries and incomes they are prepared to consider, which has boosted greater competition and options in this space.”
Most enquiries have been from expats in Europe and Asia, a shift away from previous interest from the Gulf States and Dubai. Estate agencies say that there is a particular interest in UK property in London and the South East. In terms of lenders and products, the biggest changes are occurring throughout the building society sector. Advantage Financial Solutions say that the biggest change has been the move to place consent-to-let borrowers on standard variable rates (SVRs) and the boost to BTL affordability.
However, financial advisers caution that the expat mortgage market remains a ‘minefield’ in terms of regulation and passporting. For example, if a London broker advises a client in the Gulf States about purchasing property in the UK, does that broker need to comply with both London and Gulf regulations, or only the former? They counsel that brokers need to check with their professional indemnity (PI) insurers and make some decisions about potential risk factors.
Advisers also say that they would like to see high street banks return to expat lending, but noted that with the increasing automation of products, this did not seem likely, as many expat applications need a tailored approach. As it stands, expats will need to hand over a higher deposit and have a greater amount of equity, plus extra paperwork. Higher rates and costs are also a likelihood.
Anthony Rose warns that expats should expect lending snags such as having your ID certified by your local embassy, specific UK tax calculations, or the ‘irrevocable nomination’ clause in offers. Gaps in credit history caused by periods spent away from the UK can cause problems for returning Brits seeking a mortgage back home. However, building societies such as Nottingham Building Society are aware of these challenges and are seeking to address them with new products, such as their recently launched foreign nationals and returning expats proposition, which partners with Nova Credit and allows credit information to be gathered from over 14 countries.
Whether you’re a British expat thinking of buying property in the UK, or an investor, it’s crucial to seek specialist advice with a lender who understands the expat market.