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In the wake of the UK’s Referendum result to leave the EU, there are a multitude of questions regarding the legal implications of the UK’s exit from the Union. This article seeks to provide a broad outline of some of the eventual impacts on the sector.
There has been a great deal of discussion of the tax implications for individuals who own property and assets in EU member states, or whose domicile (home) remains in the EU.
Reliefs which could be lost include:
• The relatively recent extension of Agricultural Property Relief, to allow 100% relief against inheritance tax in relation to farmland held in EEA countries.
• The inheritance tax exemption for charitable gifts to EU based charities.
• Preferential rates enjoyed by UK citizens who are EU residents for Income tax, Capital Gains Tax and Inheritance tax.
• Equality on EU taxes for UK citizens who are resident in the UK but who own assets in the EU.
However, the present may offer good opportunities too:
• Tax planning through family gifts, made whilst investment values remain low after the fall in the markets, will attract lower levels of Capital Gains Tax without a genuine loss.
• Whilst the UK remains part of the EU, individuals can still take full advantage of full range of inheritance tax reliefs and exemptions available.
• New tax measures affecting non-domiciliary residents in the UK are scheduled to be introduced in the next tax year. Given the scope of other legislation that may now require re-drafting, it is possible these measures will now be deferred.
Although the UK has opted out of the EU Succession Regulation, it is currently a beneficiary of it, allowing UK nationals owning property in the EU to specify in their Wills whether they wish for UK law to apply to their foreign property (avoiding e.g. forced heirship). Brexit will not result in this choice being lost, because the freedom to choose, under Article 20, applies irrespective of whether the relevant nationality is of an EU member state.
Prior to Brexit, EU notary publics were already taking the view that non signatories (UK, Denmark, Ireland) should be treated as “Third States”, like Switzerland and America, and not as Member States for the purposes of this legislation. Although when the legislation was first announced, many originally took the view that the 3 non-signatories were still “Member States”.
The level of deposits required to obtain mortgages in EU countries could increase. Currently under French policy, a 30% higher deposit is required to obtain a mortgage for a non EU national when compared to an EU national.
Partly due to the market volatility following Brexit, an immediate fall in property prices is expected. There is potential for UK mortgage rates to rise (because a lower credit rating for the UK could force up the cost of borrowing, although the Governor of the Bank of England has stated this is not necessary).
Volatile market conditions are likely to negatively impact the funding levels of certain pension schemes, with a focus on greater security and longer term strategies. However, significant changes to the status quo for pensions is unlikely in the short term. A potential upside for the UK government is avoiding the enactment of the GMP equalisers; the previous justification was simply to comply with EU law.
Personal pensions will fall in value with the stock market and clients should take advice from their Independent Financial Advisor if they are close to retirement or considering taking an annuity. If you do not have one, we will be pleased to recommend some.
For those involved in charities, there are a number of likely areas of change. First, charities benefit from a huge amount of funding from the EU for community, housing, regeneration, leisure, heritage, tourism and other projects. Once Brexit has been implemented, this funding will no longer be available and it remains to be seen the extent to which the UK government will provide replacement funding. Second, tax benefits will be affected. Gift aid is currently available across the EU, so a non-UK charity can register with HMRC for gift aid and UK tax payers’ donations will attract gift aid. That system will disappear. However there is a glimmer of hope that the long running VAT disadvantage many charities face in not being able to recover output VAT will no longer be subject to the EU restrictions on resolving that situation. There is a slight chance that may now turn to charities’ advantage. Lastly, charities are often subject to legal and regulatory issues arising from their activities and some of those areas will be affected. This article will not unravel these, but in brief the procurement regime for large scale services and capital works and state aid (which prevents anti-competitive public funding support) are two such areas.
A great deal of the above comments will depend on the outcome of the UK’s exit negotiations with EU member states. Whilst negotiations are ongoing the UK will continue to be bound by EU law, and similarly the EU countries will be bound to continue to treat the UK, and its citizens, in the same way as before Brexit. Substantive changes are still some time away. A period of uncertainty is inevitable as the full impact of leaving the EU and establishing a new relationship with the bloc will not be known for many years.
Please contact Carolyn Bagley or Sardeep Gill if you have any questions at all arising out of the referendum vote.