Brexit creating problems and financial risks for UK olim

When a couple from Liverpool recently informed their bank about their plans to emigrate, they were shocked when told that they would have to close their bank accounts. 

While media reports in the UK have focused on the disruption to trade caused by Britain’s withdrawal from the European Union, future and past olim are having to grapple with other challenges. 

 

Reports say that because of Brexit, at least ten banks and financial institutions have decided to close accounts held by Brits living abroad and the BBC has said that thousands of British expats living in the EU have been informed. 

Although it’s not a part of the EU, some holders of British accounts in Israel have also been affected.

Perhaps more serious is that the protection offered by a UK government-backed compensation scheme for investors who place funds with offshore insurance companies ended on December 31, 2020. The Financial Services Compensation Scheme (FSCS) provides compensation and protection to customers of certain financial services firms (such as insurance companies) that have failed.

Since the beginning of 2021, coverage has been restricted to firms in the UK and an investor’s capital is now at risk if the insurer becomes insolvent.

Why is this serious?

Over the last twenty years, many investors who have made aliyah have been advised to put their life savings into insurance wrappers. The FSCS offered protection of 90% of the capital if the insurer became insolvent.

Some of these firms are now no longer covered by the scheme, so Brits who have taken out these investments no longer enjoy the UK government protection. Advisers fear that many of these savers are simply unaware of the changes in the rules and the subsequent risks they may be exposed to.

Experienced advisers in Israel have long criticized the use of these insurance-based investments for British olim saying they are very expensive and largely unnecessary. 

“Olim from the UK are being advised to use offshore jurisdictions and are creating problems for themselves unnecessarily. They can, in fact, bring their capital to Israel and enjoy ten years of tax-free returns on non-shekel investments. In addition, they won’t face problems of trying to bring their money here at a later date which is sometimes the case,” says Tel Aviv-based Claire Shelemay, CEO at CrownStone Consulting Ltd, which specializes in UK taxation.

This is something that many Brits who seek advice while still in the UK are not being told. Mike Ellis, Chief Investment Officer at Pioneer Wealth in Herzliya agrees, adding that, “In our experience, because olim from the UK often use advisers who are not licensed and established in Israel and do not have the full range of solutions available to an Israeli-based investor, they often end up with unnecessarily complicated and very expensive structures and solutions.”