Brexit is happening, but what about the personal tax impact?

16 December 2020

Not long to go now until we actually find out what Brexit might look like. New Year celebrations may well include us raising a glass to us just “getting this done”, especially since we probably all have a little “Brexit Fatigue”.

Whilst there has been widespread coverage about possible changes to border controls and import charges, there has been very little said about how Brexit may impact the tax position for many UK expats or other UK connected globally mobile individuals.

Impact on Investments

Many UK Nationals who relocate from one country to another, will frequently retain some UK assets but additionally invest in other overseas assets or property wherever they are based. Following Brexit, UK assets will no longer be seen as EU assets, which could in some cases mean less favourable tax treatment in an individual country of residence.

For example selling a property in Spain or Portugal and reinvesting the proceeds into a new main home within the EU, currently allows for exemption from their capital gains tax charges. It follows that reinvesting proceeds into a UK property after 1 January 2021 will potentially not qualify for this exemption resulting in additional, perhaps unexpected overseas tax charges.

Setting up bank accounts and moving cash across EU jurisdictions is something we probably all take for granted, but we understand the government will no longer be bound by the EU freedom of movement rules relative to capital. This could hinder the ability to carry out many transactions across jurisdictions, such as acquiring property or shares in non UK locations.

Tax Treaties

As far as we know, Brexit will not affect the double tax agreements which already exist to determine which country has the right to tax individuals.

This is particularly important for UK Nationals who have perhaps retired in the EU and are currently living on UK pensions. Most Treaties provide for the country of residence to have taxing rights, which means that pensions, can in most cases, continue to be paid free of UK tax

UK personal Tax- free Allowance

At present, EU nationals are able to claim the UK personal allowance (£12,500 for 2020/21) even if they are non-tax resident of the UK.

HMRC have recently indicated that it is their intention to continue to allow EU nationals to receive the personal allowance when the UK leaves the EU. In addition, the Government intends to pass legislation to ensure that non-resident UK nationals will also continue to receive the personal allowances post Brexit, but legislative certainty is definitely needed for affected individuals.

If the Personal Tax Allowance will not become an automatic right, then Double Taxation treaties for each country will determine whether or not this can be claimed. Whilst in theory this should work to prevent unnecessary tax liabilities, each Treaty can have a very different approach and correct interpretation can sometimes be challenging. It is almost inevitable that mistakes will be made, which could then affect the tax position for many.

Other Non Tax considerations for Individuals living in the EU

For UK expat individuals who already live permanently in the EU, securing their rights defined in the withdrawal agreement and access to healthcare, will mean that residence in the host country must be evidenced and documented. This can mean different things for different countries, with some being way behind introducing legislative changes required to provide clarity. We would always recommend that appropriate professional legal advice is taken within that jurisdiction.

Brexit is still very much an “unknown quantity” at this stage, but the implications of us leaving the EU are far reaching, affecting many tax aspects which are perhaps as yet to be determined.

If you are uncertain about the tax impact of Brexit relative to your particular circumstances, please get in touch with Lynn Gracie, Private Client Tax Director.

Find out more about AAB's Private Client Tax services here.

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