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Ship Rigging

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Rig Your Financial Ship for the Coming Storm

Janathan L. Allen battens down the hatches and analyzes what financial issues to consider with Brexit looming

Published on September 11, 2019

We are heading toward what appears to be a worst case scenario. What is the right business, tax and investment strategy for US expatriates in these turbulent times?

Many politicians and citizens of the UK simply presumed everything would eventually work out and the status quo would be preserved. Recent developments have revealed substantial cracks in the present structure of not only the UK but within the British Commonwealth itself.

Nations which are members of the UK or the British Commonwealth are now forced to re-examine their own positions and the value of these historic ties. The dominoes are lining up quickly and US expatriates need to take immediate action (if you have not already done so) to prepare for the inevitable fallout.

Ireland is an interesting piece of the puzzle. The complex historic and political issues which have roiled the Emerald Isle have been stable for many years. The reality of a hard Brexit will present complex political issues for Northern Ireland, as well as the Republic of Ireland itself. Many are concerned by the competing interests and deep issues which have enflamed passions and led to bloody conflict in the past. Irish peace faces perhaps its greatest test in the midst of political positioning from all sides.

Ireland has chosen to remain in the European Union (EU). What becomes of Northern Ireland? There is certainly the potential for a hard border between the two and the free flow of trade (goods, people) may come to a stop.

An interesting outgrowth of the Brexit chaos is the potential for the reunification of Ireland. Ireland has attracted substantial investment because of its low tax policies. Many international business and tax strategies involve Irish entities and holding companies.

The Central Bank of Ireland recently predicted a hard Brexit would severely reduce economic growth from the currently projected 4.5% to a mere 0.7% next year. The European Union recently served Ireland with a formal notice calling for the immediate implementation of key anti-tax-avoidance rules regarding the corporate use of interest payments to cut their tax bills. What does the future hold for Ireland and how will this affect investments, business and taxation?

Scotland also faces profound questions about the future. The historic certainties of Scottish politics have collapsed under the weight of Brexit raising the genuine possibility of Scottish independence.

What of the Commonwealth? Many prominent politicians believe a hard Brexit would take Britain from its status as “just another EU member state” to a new and modernized vision of its old imperial power. Voices within the 53 members of the British Commonwealth believe Britain compromised these interests when it joined the European Economic Community in 1973. Will the realities of a hard Brexit force prominent nations within the British Commonwealth to re-examine their own trade and political ties and loyalties?

These are genuinely historic, fluid and financially hazardous times. The value of the Pound has dropped to a two year low against both the US Dollar and the Euro. The value of Pound Sterling will continue to drop for the foreseeable future.

An historic storm is upon us and US expatriates should strongly consider an immediate move to liquidate remaining holdings as well as investments in stocks, securities and currencies. Your financial advisor should provide sophisticated planning to avoid triggering gains which exceed losses while liquidating your portfolio to a tax neutral position.

If the best case scenario unfolds and a hard Brexit doesn’t happen you can always return to your former investments. You will have reduced the risk of catastrophic loss and preserved the fruits of your labor for a new day.

However, at this point in time, a hard Brexit appears certainly more likely if not inevitable. Keep the “rudder amidships, trim your trysails and jibs” and prepare to ride it out. This is a time to hunker down for the storm while awaiting the substantial opportunities which will arise in the inevitable wake of a hard Brexit.

Jan is Tax Attorney/Partner, Allen Barron, Inc, & Janathan L. Allen, APC who specialize in complex international tax issues. www.allenbarron.com

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