Monday 14 October 2019

From work to property to pensions - The comprehensive guide to ensuring your finances survive Brexit

 

Brexit finances. Stock image
Brexit finances. Stock image
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Target: Employees walk past London Stock Exchange share price information in the atrium of the LSE Group’s offices in London. Photo: Bloomberg
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Jerry Moriarty, Irish Association of Pension Funds (IAPF)
Louise McBride

Louise McBride

Deal or no deal, Brexit will be one of the biggest economic challenges to hit this country yet. Some estimates predict that more than 100,000 Irish jobs could be at risk from a hard Brexit.

Many Irish families and businesses may lose out financially. So with only a month to go, Louise McBride investigates how the departure of the UK from the EU might hit your pocket - and what you can do to ensure your finances survive Brexit.

Economist and former Department of Finance adviser Dr Alan Ahearne. Photo: Andrew Downes
Economist and former Department of Finance adviser Dr Alan Ahearne. Photo: Andrew Downes

YOUR JOB

How could you be hit?

Last July, the Central Bank warned that there could be 34,000 fewer Irish jobs by the end of next year - and 100,000 fewer jobs over the next decade - if the UK leaves the EU without a deal. Even if the UK leaves with a deal, Brexit is still expected to put tens of thousands of Irish jobs at risk. Some sectors are set to be harder hit than others.

"The agri-food and agriculture sector - and the people working in that sector - could be very badly hit by Brexit," said Alan Ahearne, director of the Whitaker Institute at NUI Galway and a former special adviser to late finance minister Brian Lenihan.

Earlier this month, the Central Bank warned that up to one third of Irish farms could be forced out of business in the event of a no-deal Brexit. Beef and sheep farms are particularly vulnerable, according to a study published by the Central Bank at the time.

Agricultural and agri-food exports are set to plunge under a no-deal Brexit. "That would lead to a huge drop in sales and mean those businesses would not need the employees they currently have - and suggest significant job losses in those sectors," said Ahearne.

"There's likely to be a contraction in incomes in agri-food and agriculture. Some of those businesses will try to diversify and move into different markets - but others may not be able to do that. Traditional manufacturing industries will also be vulnerable as a huge amount of what they produce is exported to the UK."

Other sectors likely to be hit hard include pharmaceutical and chemicals, wholesalers and retailers, tourism and hospitality.

Some parts of the Irish economy - such as ICT and financial services - are expected to be more resilient to Brexit and so there could still be plenty of job opportunities and pay rises in those areas, even after a disorderly Brexit.

However, a slump in consumer and business confidence could see few sectors emerge unscathed.

Consumer confidence has already fallen to its lowest level in five years due to worries about Brexit and the impact it might have on jobs, according to KBC Bank's latest consumer sentiment index.

"We are likely to see a decline in both business and consumer confidence [as a result of Brexit]," said Ahearne.

"Even businesses that are not that exposed to the UK will be worried about the overall business environment [after Brexit]. So it is possible Brexit will have a bigger impact on confidence than economic forecasts say. That would lead to consumers spending less in shops.

"It would lead to businesses not investing as much in machinery and new premises - and businesses could also stop hiring. Even domestically focused Irish businesses may suffer, as companies may tighten their purse strings because of worries about the future."

What can you do?

As your job is ultimately your livelihood, get an honest opinion now as to how vulnerable it could be to Brexit. If you're working in a sector which is expected to take a hit from Brexit, find out if your employer has done anything to address that risk - such as by diversifying the business or moving into new markets.

Prepare for the prospect of pay cuts if your job is vulnerable to Brexit. Now is not the time to be splurging on luxuries or taking on financial commitments which leave you stretched - particularly unnecessary ones.

Instead, focus on saving some money so that you have a financial buffer in place should you lose your job. Ideally, build up an emergency fund of between three and six months' net income - as this should hopefully give you enough time to get yourself sorted in the event that you are made redundant. It may also be worth upskilling so that can you secure a job elsewhere if you need to.

YOUR TAXES

There is already evidence of Brexit taking its toll on your take-home pay: earlier this month, Finance Minister Paschal Donohoe ruled out any tax cuts in next month's Budget, saying instead that he would be preparing for a no-deal Brexit.

"If we have a hard Brexit, spending increases on public services are likely to be limited and we are unlikely to see tax cuts," said Alan Ahearne. "We would probably see tax cuts if we didn't get a hard Brexit. However, I don't think the hit to the public finances from Brexit will be anywhere near the same extent as it was during the recession - so we are not likely to see the same austerity as we had in 2011 and 2012."

What can you do?

Don't expect any tax cuts over the next year at least - and possibly for the next few years. Accept that your take-home pay isn't likely to increase in the foreseeable future - unless you get pay rises.

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YOUR HOUSE

How could you be hit?

Brexit could push house prices lower. Indeed, a recent study by the Institute of Professional Auctioneers and Valuers found significant falls in house prices in a number of areas around the country so far this year. That slowdown has largely been attributed to uncertainty around Brexit.

How steep house price falls could be after Brexit (if they do fall) is hard to call. "If you take it that the overall impact of a hard Brexit will be a significant slowing in the economy and zero economic growth, that's likely to curtail the demand for housing - as people's incomes are not likely to grow as fast as they would have [in the absence of Brexit]," said Ahearne.

"However, I don't think this is 2006 or 2007 all over again. I don't think that we are on the brink of a crash in house prices - as we have not had a bubble over the last few years. I also don't see any dramatic drop in rent prices either unless the impact of Brexit is greater than the [economic] models are telling us - and if we had another economic risk to deal with too."

The independent economist Alan McQuaid believes house prices could fall by up to 5pc next year - with uncertainty around Brexit being one of the main reasons for this.

"However, in the event of a hard Brexit, the fall in prices is likely to be a lot more severe and could be into double-digits," said McQuaid.

What can you do?

For would-be property buyers who have been saving for a deposit, it might be best to sit tight and see if house prices fall after Brexit. Get your mortgage and finances ready to go though - so that you can jump at a bargain should one come up.

For would-be sellers, this is uncertain territory. Any decision to sell will of course come down to the price you can secure for your property - and if you're happy with that price. However, if Brexit triggers a slowdown in the market, it may be wiser to postpone your plans until prices recover, as long as you're not under financial pressure to sell.

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YOUR GROCERIES

The weekly shop is set to become more expensive after Brexit. You could be paying up to 46pc more for your milk, cheese and eggs under a hard Brexit, and up to 30pc more for your bread, according to a recent study by the Economic and Social Research Institute (ESRI). That same study found that the price of chocolate and confectionery might increase by up to 27pc under a hard Brexit, while the price of tea could increase by up to a fifth.

So if you normally pay about €1.70 for a sliced pan, that price could increase to as much as €2.20 after a hard Brexit. If you pay around €7 for a box of 160 teabags, that price could jump to €8.50. You could easily pay around €1 for a standard litre of milk today. That price could increase to as much as €1.50 in a no-deal scenario.

There are concerns that a no-deal Brexit could lead to empty supermarket shelves. "I'd expect some disruption [to supplies] but I think we are more likely to see increases in the prices on shelves than empty shelves - as it could be more expensive to transport goods to Ireland - and importers may need to find alternative routes," said Ahearne. "So if the cost of transporting goods to Ireland is up, that cost is likely to be passed on [to consumers]."

What can you do?

Prepare to switch brands. Some well-known UK brands could disappear from Irish supermarket shelves after Brexit - and be replaced with other brands. This is particularly expected to happen with cereals, bakery products and biscuits. Even if UK brands remain on the shelves, they could be more expensive than they are today. Consider buying supermarket own-brand products, as these are often cheaper than branded versions

Keep an eye on grocery prices in the run-up to Brexit - so that you'll notice any major price hikes that follow the UK's exit. Avoid buying items which become substantially pricier after Brexit. Shop around for cheaper items.

Check prices in your local butchers or grocers - they may be cheaper than you expect and shopping locally supports your local economy.

Make the most of any promotional offers run by retailers. Get ready to cut back on luxuries - if your household budget comes under pressure after Brexit, you'll need to stick to the essentials.

Stop buying things that end up in the bin - by only buying what you need and use, you'll reduce your waste and save some money.

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YOUR SHOPPING - ONLINE AND CROSS-BORDER

How could you be hit?

It is likely to become more expensive for you to buy from UK websites if a trade deal is not negotiated between Britain and the UK - as you may be hit with import charges (custom duty, excise duty and Value Added Tax) when you do so. These import charges often apply if you buy from a website which is based outside the EU - and can considerably push up the cost of buying online.

Furthermore, if you travel to Ireland from the UK and you have bought goods in the UK, you may have to pay import charges when you arrive home. Those charges would be paid at the airport or port of arrival.

Your rights for comeback - should you run into problems with a product after you buy it from a UK retailer - may not be as strong after Brexit as they are today. Your right to change your mind about - and get your money back for - something which you bought from a UK online retailer could disappear. So too could you right to have an online order delivered in no more than 30 days - the maximum delivery timeframe stipulated under EU consumer legislation (unless you have agreed otherwise with the shop).

"When you buy online from an EU-based business, there are protections which ensure that you have the opportunity to change your mind and also you have very strong consumer rights if something goes wrong - such as, if you don't get your items delivered," said Isolde Goggin, chair of the competition and consumer watchdog, the Competition and Consumer Protection Commission (CCPC). "When the UK leaves the EU, these protections will no longer be guaranteed when buying from UK-based retailers."

What can you do?

Know where you stand when buying from Northern Ireland - or the UK - close to, or after, Brexit. Ask the retailer if you will be able to return or replace an item -or if the shop will repair it if you discover a problem with it after Brexit. Find out if - and in what circumstances - you're entitled to a refund. Even if you buy something from the UK before Brexit, it could be a few weeks or months before you discover a problem (if any) with the product. So given Brexit is now only a month away, if you buy something from the UK now, it could be after Brexit by the time you need to resolve any problem you might have.

If buying online, check where the business is located so that you know if you're buying from a UK-based shop. Don't rely on the domain name of the website (such as .ie or .co.uk) as this does not always tell you where the business is located. Should the retailer be based in the UK, check the website's terms and conditions - and if you're not happy, shop elsewhere. "Be sure in particular to check the returns policy and to see if you can return goods if you change your mind," said Goggin.

"Check to see if there are costs for returning items." You should also find out if it will be you, or the retailer, who pays for the cost of returning something.

Remember under EU law, if you have to return something ordered online because it is faulty, the business has to pay for any return shipping costs. That cost may not be covered when buying from a UK-based website after Brexit.

Find out what import charges (if any) you will pay if you buy from a UK-based online retailer after Brexit. Do your online shopping elsewhere if import charges will make it much more expensive to buy from that retailer. When sourcing an alternative online retailer, choose a reputable EU-based or Irish shop which offers good value.

What about redress?

You may find it hard to get redress if you run into problems with something bought from the UK after Brexit. As long as you buy within the EU, you can seek redress through the European Consumer Centre (ECC) network or the European Small Claims Procedure (where you can make a claim in Ireland for a faulty product which you bought online from someone living in another EU country) - if you fail to resolve an issue with the retailer who sold you the product.

"If you buy something from a UK-based business either before Brexit, or after, and the product develops a fault, you may not have access to redress using the ECC or the European Small Claims Procedure," said Aine Carroll, director of communications and policy with the CCPC.

"This is also the case if you make a purchase online and it is not delivered. If an issue arises [with something bought from a UK shop], you should still make a complaint to the business. If the business is unable to resolve your complaint, you could contact your credit or debit card provider and request a chargeback (where your card provider agrees to reverse the transaction - on the basis that the goods were not delivered."

For this reason, from this point on, pay by credit or debit card if buying something from the UK - as chargeback may be your easiest and quickest solution if you run into problems with an item purchased.

You can take individual action through the Irish courts if you have bought online from UK traders who do business in the EU. Court action is often more expensive and cumbersome than out-of-court solutions though.

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YOUR INVESTMENTS

Irish people who have investments with a lot of exposure to the UK and Irish economies are among those most vulnerable to Brexit, according to Dan Moroney, investment strategist with Investec Wealth and Investment. "In the event of a Brexit crash-out, the Irish and UK economy will suffer," said Moroney. "Those investors who have too much exposure to the Irish and UK economies - in things like shareholdings or sterling asset holdings - are vulnerable."

How to protect your investments

Investors with large amounts of sterling deposits should consider taking steps to protect themselves against any further falls in the pound, advised Moroney.

"There's no purer exposure to sterling than sitting on sterling cash," said Moroney. "Sterling may weaken; sterling may strengthen - no one knows. But where there's uncertainty, I'd always urge someone to limit their exposure to it [the uncertainty].

"People holding sterling cash who have expenses in the UK - such as a rented property which costs a few grand sterling a year to maintain - are probably OK, as they can use their sterling cash to cover those expenses.

"But if you are sitting on a large amount of sterling deposits and you don't have sterling expenses, it would be prudent to at least sell a portion of that significant sterling cash holding. If the UK were to crash out of the EU, it's possible sterling could be significantly weaker."

Investors in British property could also be very exposed to Brexit - if Brexit triggers a collapse in UK house prices which in turn devalues their properties.

Rental income earned from a British property will also be hit by any weakness in the pound - as that income is usually paid in sterling.

YOUR SHARES

Investors holding UK shares which have exposure to the British economy should consider limiting their exposure to them - and resist the temptation to snap up such shares because they appear cheap.

"If a stock which is exposed to sterling and the UK economy looks cheap, it's cheap for a reason," said Aidan Donnelly, head of equities with Davy. "It's cheap because the risks are very high. The share price is underperforming because it's a big play on the UK economy.

"We have no idea what the impact of Brexit will be [on those shares] - so if you invest in UK domestic shares, you are buying blind. You could be lucky and see things go your way - but you have to weigh up the probability of that versus the risk of the share price falling further. The impact of Brexit on UK stocks is very hard to call, as there's any number of ways that Brexit can play out."

Donnelly believes there may be an opportunity cost to holding on to UK shares which are heavily exposed to the British economy.

"While you're probably nursing some serious losses [on such shares] or your gains are not what they were, you might well have to take that on the chin - on the basis that there's an opportunity cost to holding such shares when you could be in a better place by looking at other companies with less exposure to the UK," said Donnelly.

He believes that some of the international shares listed on the London Stock Exchange could be worth holding on to. "If you look at the UK stock market, it's largely divided into domestically focused UK companies (mostly in the FTSE 250 and below) and international companies (through the FTSE 100)," said Donnelly.

"The performance differential in those two spaces has been huge. FTSE 100 companies have done very well over the last year as the vast majority of their earnings are not made in sterling - so when their profits are converted back to sterling, their profits go up.

"Also, with FTSE 100 companies, you don't have much exposure to the weakening UK economy - as FTSE 100 companies have international exposure instead. There are exceptions to the rule but, generally, stocks and shares that are sensitive to the UK economy have performed badly over the last year."

Some investment experts are more cautious about the international shares listed in the UK.

"I'd be concerned about owning UK shares or stocks which have benefited from the weak sterling," said David Flynn, chief investment strategist at Baggot Investment Partners. "If sterling turns around, UK exporters will experience major headwinds."

Brexit uncertainty has taken its toll on a number of Irish shares in recent months, including the Irish Ferries owner, Irish Continental Group; the housebuilder, Glenveagh; and Bank of Ireland and AIB. "With Irish shares, the big question is will international investors come back to look at such companies - or is uncertainty (around Brexit) too high for them?" said Donnelly.

Stick to basic investment principals

Should the UK leave the EU with a deal, or should the UK not leave the bloc at all, sterling could rally and become stronger - and in a scenario like that, sterling-based investments could become more valuable than they are today.

However, Brexit has created huge uncertainty for people and so the diversification of your investments - where your money is invested across various types of vehicle and in different parts of the world - has never been more important. Moroney advised Irish investors to check how exposed their overall portfolio is to the UK and Ireland.

"It [the exposure] shouldn't be a material amount but invariably it is," he said. "Irish investors often have too much exposure to the UK and Ireland. It's important to have your investment spread out globally. Even without Brexit, international diversification of investments has always been important."

As with any investment, it is important to understand - and be comfortable with - your chance of losing money. This is even more important in the uncertain investment territory created by Brexit.

YOUR UK PENSION

Irish residents with British pensions could be looking at "a 10pc to 20pc drop in their [UK] pension" as a result of the recent falls in sterling, according to Jerry Moriarty, CEO of the Irish Association of Pension Funds.

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Jerry Moriarty, Irish Association of Pension Funds (IAPF)

Sterling has dived since the referendum - largely as a result of the uncertainty around Brexit - and so the British pensions held by many Irish residents are now worth less when converted into euro than they were before the vote. "So, if you are retiring soon, you may have been expecting €10,000 a year from your UK pension, and that pension may now only be worth about €8,000 a year," said Moriarty.

It is thought that around 120,000 Irish residents have a British state pension, and that tens of thousands of them also have a UK private pension.

Those who have already retired - or who are near retirement - are most vulnerable to the falls in sterling.

"How vulnerable your UK pension is to Brexit will really depend on how near you are to retirement," said Moriarty. "The value of your UK pension could all change by the time you retire, depending on how sterling fares."

Fresh falls in the value of sterling as Brexit nears - and after the UK leaves the EU (if it does) - could further erode the value of British pensions held by Irish people, leaving them with less to live on in retirement.

However, should sterling recover, or indeed get stronger after Brexit, the value of those British pensions should in time also recover.

So those who have some time to go yet before they retire and draw down their UK pension may not be too badly hit - depending on how sterling performs when they retire.

How to protect your UK pension

One way to limit any further hits which a weakening pound might have on a UK company pension is to transfer the pension over to Ireland. However, this is not something which should be rushed into and, indeed, it may be wiser to leave your pension where it is.

"If you transfer a UK private pension back now, you are locking that pension in at the current value - which has taken a knock due to the falls in sterling," said Moriarty.

There are a lot of other factors to bear in mind if tempted to transfer a pension from the UK to Ireland, particularly if it is a defined benefit (DB - where you are typically promised a pension based on a percentage of your final salary) scheme. "One of the advantages of a UK DB pension is that you have a guaranteed pension," said Moriarty.

"However, if you transfer that DB pension to Ireland, you're losing the guarantee and you're losing value too [if sterling is weak at the time of the transfer].

"The UK financial regulator has expressed concerns about the level of transfers out of British DB schemes and whether people really understand what they're giving up when they give up a DB pension in return for a capital sum."

The costs and tax implications of such pension transfers also need to be borne in mind.

Get independent financial advice if you have a British company pension which you will rely on heavily in retirement. "Look at your UK pension in the context of your overall retirement plan," said Moriarty.

"If your UK pension is just a small part of your overall pension pot, you might be able to live with it [the hit to your pension].

"But if you worked most of your life in the UK and most of your retirement pot is linked to a UK pension, talk to an independent adviser."

Your adviser may be able to suggest ways to protect your pension against any further falls in sterling, for example. "If you think sterling will take a big hit again, and that hit will be lasting, you may want to consider whether it's worth your while transferring your pension now," said Moriarty.

Finally, should you have a British pension, ask your provider how you will get paid your pension after Brexit - and if you need to make any arrangements to ensure payment.

Will I have trouble getting the British state pension?

The Irish residents who receive a British state pension will continue to get paid it after Brexit - due to a deal struck by the UK government on the state pensions of British expatriates.

Furthermore, Irish residents who qualify for a British state pension will continue to get that pension increased every year. This is because the uprating system in place for the British state pension - where it is increased by a certain amount each year - applies to Irish residents who receive it.

There is no cut-off date for the moment on the entitlement of Irish residents to annual increases in the British state pension, despite the announcement earlier this month of a cut-off date of March 2023 for other EU residents.

The UK government plans to negotiate a new deal with the EU to ensure that uprating continues after March 2023 for all EU residents.

"Beyond 2023, after we exit the EU - with or without a deal - it has been agreed that British and Irish nationals living in Ireland who are recipients of the UK state pension will continue receiving an uprating in accordance with those living in Britain," said a spokesman for the Department for Work and Pensions - the UK government's department responsible for pensions and welfare policy.

So, for the moment, the biggest concern for Irish people with a UK state pension is the weak pound. It is important to understand the impact which this could have on your British state pension and your overall pension pot.

You may need to save more into your Irish pension to make up for any drop in the value of your British one. You might also need to row back on any big spending plans you had for your retirement.

YOUR TRAVEL

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Using your mobile

When you travel outside Ireland to another EU country, it does not cost you any more to use your mobile phone than it does at home. This is because roaming charges - the charges you face when using your mobile abroad - have been abolished in the EU since 2017. Under a no-deal Brexit, mobile phone operators would no longer have to offer roaming at no additional charge to customers from the EU who travel to the UK.

This does not mean that mobile phone companies will necessarily charge Irish people more to roam in the UK after Brexit than elsewhere in the EU. Indeed, Irish mobile phone operators have indicated that there will be no changes to the current roaming arrangements for their customers.

However, as the EU law which has abolished roaming charges would no longer apply to the UK in the event of a no-deal Brexit, it is possible in the future that you could pay more to use your mobile when travelling in Britain than you do today.

So after Brexit, check if your mobile phone company will charge you more to roam there. If it does, consider switching to a mobile phone operator that has no plans to do so. If this isn't an option, be well aware of the roaming charges you will face when using your phone in Northern Ireland and the rest of the UK - and limit your use of your mobile there.

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Going to hospital

The European Health Insurance Card (EHIC) allows you to get public healthcare in another EU or EEA state for free, or at a reduced cost. As it currently stands, the EHIC will not be valid in the UK after Brexit so Irish and other EU citizens will not be able to use it when visiting Britain. (If you start your visit to the UK before the day the country leaves the EU, you will be covered for some treatment if you fall ill or have a medical emergency during your stay).

However, Irish and British citizens who are living in Ireland will still be able to use the National Health Service (NHS) for free when visiting the UK after Brexit in the same way as they do now, according to a spokeswoman for the Department of Health and Social Care in Britain.

"Using the NHS for free does not require Irish citizens to have an EHIC," added the spokeswoman. "Under the common travel area (CTA) arrangements, Irish citizens have the right to access healthcare on the same terms as British citizens."

Under the CTA, Irish and British citizens who live in, work in, or visit the other state have the right to access healthcare there. "An EHIC is not required," said a spokeswoman for the Department of Health in Ireland.

"Both states have legislation in place which will allow for the continuation of this arrangement, including in the event of a no-deal Brexit. Other North-South cooperation arrangements will also continue on the island of Ireland."

It would still be important to get travel and health insurance if travelling to the UK after Brexit - in case the specific healthcare you need in Britain is not covered by the CTA arrangements.

Earlier this month, the Irish Government said that it was preparing legislation that would allow Northern Ireland citizens to access cover under the EHIC after the UK leaves the EU.

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Flights

Under EU law, passenger rights protect you in the event that your flight is cancelled or delayed - and may allow you to claim compensation from an airline. These rights apply to all passengers departing from airports within the EU and the European Economic Area - and in certain circumstances, will also apply to passengers departing from airports outside the EU and EEA. For those flying to or from the UK after Brexit, these rights will continue. But if you are flying with a non-EU airline, you will only be covered on flights from the EU to the UK, not on flights from the UK to an EU airport. If this shortfall in cover will apply to you, be sure to buy a good travel insurance policy, which will cover you for flight delays or cancellations.

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Duty-free shopping

Duty-free shopping for people travelling from Ireland to UK ports and airports is set to return in the event of no deal. This would be an unexpected Brexit sweetener for Irish consumers visiting the UK, as they would be able to buy a certain amount of alcohol and cigarettes free of tax and excise duties. People travelling from the North to the Republic would not be able to take advantage - as it only applies to goods bought in airports and ports.

Buying holidays from the UK

There are EU rules in place which protect you if you book a package holiday if the operator is based within the bloc. As the UK will no longer be part of the EU, many of these rights may not apply - though, similar rights might continue under UK law.

So, if you are planning to buy a package holiday with a UK-based tour operator and that holiday is due to begin after the UK leaves the EU, or if you want to buy a holiday from a British tour operator after Brexit, find out where you will stand if things go wrong, such as if the tour operator goes bust, or if your holiday is cancelled.

Ask the operator if you will get a refund or compensation if it goes bust before your holiday begins, and your holiday is cancelled as a result. Ask if the operator will arrange to get you home if it becomes insolvent while you are on holiday. If the answer to either of these questions is no, do not book with that operator.

Instead use an Irish travel agent or tour operator which is licensed by the Commission for Aviation Regulation - or a UK-based operator which can give you assurances that you will not lose out should it go bust. Bear in mind that travel insurance policies often do not cover the insolvency of travel agents.

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