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What does Brexit mean for private clients?
By Julian Smith, Tax Partner, PKF Francis Clark
THE implications for the taxation of private clients following the vote to exit the European Union (EU) are not yet known. It is expected that the cessation of our EU membership will take a number of years, and during this period, we will continue to be governed by EU law. With this in mind, we would not expect the UK Government to introduce any significant changes to the UK tax system during this time. However, the rates of tax could well be varied by the Government during this period, especially if concerns about the health of the UK economy continue.
Following the termination of our EU membership, our UK tax system will no longer be subject to EU regulation. The Government will therefore have sovereignty in its management of the tax system in the UK. Some commentators suggest that the UK income tax and inheritance tax regimes, in particular, may be subject to some significant change in the future. In addition, the availability of certain tax reliefs (for example, Agricultural Property Relief) may also be restricted in the future as the UK Government will no longer be compelled to comply with the EU’s principles of fundamental freedoms.
Following our exit, private clients will no longer benefit from the harmonisation of taxation in the EU, and tax obligations for UK residents living in the EU or holding assets in the EU may become more onerous. However, the UK does have a significant number of double taxation agreements in place with many EU territories which should continue to be available to private clients to lessen the tax burden arising as a consequence of double taxation across the territories.
The Government has already announced a number of substantial amendments to the taxation of non-UK domiciled individuals who have been long term residents in the UK with effect from 6 April 2017 and the Government’s intentions have been confirmed in the recent consultation document and draft legislation. With the possibility of an economic downturn following Brexit, however, the Government may be conscious not to deter non-domiciled high net worth individuals from coming to the UK. The consultation on amending and expanding Business Investment Relief to encourage greater investment in the UK by non-domiciled individuals is perhaps indicative of an attempt by the Government to balance the position.
Finally, there are likely to be knock-on effects for Britons owning holiday homes in EU countries. The EU has attempted in recent years to harmonise the rules of succession across the EU, encapsulated in the introduction of the Regulation IV in August 2015. This allows individuals to elect for the succession laws of one jurisdiction to apply to their entire estate. Although the UK opted out of full implementation of the provisions at the time, it is expected that upon our formal exit from the EU, UK residents will be prevented from being able to elect for, say, English law to apply to their EU assets going forward. For example, the forced heirship laws of France will, therefore, apply to the French situated assets of UK residents in the future. Britons owning property in other EU states may also be affected.
As always, if you need any help or assistance then please don't hesitate to get in touch.
- Julian Smith can be contacted on 01202 663613 or email julian.smith@pkf-francisclark.co.uk
- www.pkf-francisclark.co.uk
