What will the personal impact of Brexit be?
Most commentary to date has focused on corporate and business issues, but there are fundamental changes that will affect individuals as well.
Here are some of our top tips and traps.
1. Holiday homes
As EU citizens, British clients with holiday homes in Europe must currently be treated the same as residents of the country where the property is.
After Brexit this will not be the case.
In Spain, for example, non-EU residents pay tax on rental income at a higher rate, and qualify for fewer deductions.
2. National insurance
This is really complicated. Suffice to say, if you are UK resident but working in any EU country after Brexit, beware of being charged the local social insurance charges as well as being subject to national insurance contributions, without any relief for the foreign taxes paid.
3. Buying services from the EU
Any EU citizen who buys services from another EU member pays VAT at the prevailing rate of the provider’s home jurisdiction – this is under the ‘reverse charge’ rules.
After Brexit, reverse charging will not apply, and therefore EU services should be effectively 20 per cent cheaper. Maybe we will see a flood of new Dublin-based UK accountants.
4. Currency control
Hopefully this is a long shot, but could a future government introduce limits on how much sterling can be taken out of the UK?
Some individuals have certainly started to think about setting up foreign bank accounts just in case.
5. Attribution of gains in foreign close companies
For many years, the UK has taxed residents on capital gains made by their personal offshore companies – in other words, as if the gain made by the company was made by the individual.
This legislation was considered to be incompatible with EU laws and was therefore amended in 2011, with the result that as long as there was no tax avoidance motive, the gains are not attributed.
On leaving the EU, the UK government could easily revert to the legislation as it was pre-2011, which was more broadly targeted and caught most foreign investment companies.
This could be a particular issue for companies that hold foreign holiday homes, for example.
6. Au revoir au pair?
If the government implements its proposal to limit immigration for unskilled foreign workers, where will this leave au pairs?
Work experience/student visas may still apply, but there will definitely be changes.
7. Overseas transfer charge for Qrops
In 2015 the government introduced the overseas transfer charge. This is a 25 per cent tax charge that applies when UK pension funds are transferred to certain non-UK pension schemes – qualifying overseas recognised pension schemes.
However, the charge does not apply where the member (ie the individual) and the Qrops are both resident within the European Economic Area.
Currently, if the Qrops is resident outside the EEA, the member must be resident in that same jurisdiction for the charge not to apply.
Following the UK’s departure from the EU, there is no reason to provide a special exemption for members resident in the EEA.
The most popular locations for Qrops plans are Malta and Gibraltar, with the majority of members being resident in other EEA countries.
If you have made a Qrops transfer within the five years before Brexit, you are potentially at risk of the 25 per cent transfer tax applying by virtue of Brexit.
8. EU succession regulation, but only if you are Scottish
Scottish inheritance law allows a person to choose who will inherit when they die.
In contrast, in many European countries, close family members must inherit a proportion of your estate on your death by law – known as forced heirship.
The EU succession regulation allows the deceased to disapply the forced heirship rules and substitute the rules of your own country.
This is useful for any Scottish resident who owns a holiday home (or any other assets) in another European country. Following Brexit, the Scots will have to follow the local succession laws in the same way as other non-Europeans.
England opted out of the EU succession regulation and so English residents will be in the same position as the Scots after Brexit.
9. Personal allowances
UK income tax is charged only after a tax-free deduction, the personal allowance.
At present, all EEA citizens are entitled to receive a full income tax personal allowance no matter where they are resident. Without a deal, there would be no blanket entitlement.
This would mean non-UK resident EEA citizens will potentially face higher income tax liabilities unless they are entitled to a personal allowance by virtue of a bilateral double tax treaty with the UK.
The same is true for UK residents with income in any EU country that is currently relieved by a personal allowance.
10. The end of the booze cruise
Most people will be aware that when travelling to another EU state you cannot buy duty-free goods. Instead, you can buy duty-paid goods and import them to another EU country freely.
Individuals are allowed to buy as much alcohol and tobacco as they like in the EU and bring it into the UK, as long as the goods are for personal consumption.
The UK has very high duty rates on alcohol and tobacco, whereas a number of our EU neighbours do not. Hence the ‘booze cruise’ from Dover to Calais, purely to fill up your car with wine, beer and cigarettes.
Following Brexit, the UK will no longer be within the EU’s customs area and (we assume) the default position will be that each individual is allowed to import 200 cigarettes, 1 litre of spirits, four bottles of wine and 16 litres of beer.
Duty free tends to mean much lower prices on the goods but, equally, much lower quantities that can be bought.
Rachel de Souza is a tax partner at RSM UK
