The referendum on the UK’s membership of the EU, which was held on 23rd June 2016, is creating much uncertainty over how expats and those owning property in other EU countries will be placed when the UK leaves.
Freedom of movement, which has been one of the founding principles since the creation of the European Economic Community, allows citizens from one member state of the EU to work, and indeed claim benefits, in any other EU member state. Millions of Britons have taken advantage of this opportunity to work and live in other EU countries.
As the UK is leaving the EU, the continuation of freedom of movement will depend on the terms of any post-exit arrangement. For example, if the UK were to become a member of the European Economic Area then freedom of movement would continue, and this would be similar to the status of Norway. However, because immigration and benefits are the political issues which have in many ways triggered the Brexit vote, a different arrangement may be sought.
The ability to access local services, such as healthcare, will likely be protected, but this would again depend on the outcome of negotiations between the UK and the EU.
The double tax treaties between the UK and each country in the EU will remain in place as these are independent of the EU treaties. The purpose of the double tax treaties is to provide relief against tax in one jurisdiction where tax has already been paid in another.
For example, if a person was working overseas and paying tax there, but was also classed as UK tax resident under the UK’s statutory residence test, then HM Revenue & Customs would give credit for the tax paid overseas against any UK tax liability.
Similarly, where an expat remains liable to UK inheritance tax on their worldwide assets due to retaining their domicile in the UK, credit would be available against the UK inheritance tax for any death duties paid in other jurisdictions. These double tax treaties will be unaffected by the UK leaving the EU.
While the UK remains a member of the EU, another member state cannot subject UK citizens to higher rates of tax than those paid by citizens of that state. Now the UK is leaving the EU, this protection will be lost. Some jurisdictions may regard this as an opportunity to introduce higher taxes, whether upfront or by stealth, but this is perhaps a fear which is overstated. Many non-EU countries not bound by these rules do not impose higher taxes on non-citizens and indeed many countries, including some in the EU, have generous tax rules to encourage foreign citizens to settle there or purchase property.
The EU introduced new rules in 2015 to enable citizens of one member state who own assets situated in other member states to choose which succession law applied to their assets upon death. Despite the UK never signing up to these rules, there are legal arguments that could be applied to UK nationals in certain circumstances due to ambiguity in the rules. For example, would the French authorities respect an English resident in France selecting English succession law to govern his property interests in France rather than réserve héréditaire, the French “forced heirship” rules? Since the UK is leaving the EU it is beyond doubt that the ability to elect which succession rules to apply would be lost – if the ability to elect ever applied to UK citizens.
The outcome of the exit negotiations will determine the UK’s future relationship with the continent. UK citizens residing in other EU countries or owning property there should remember that it is most unlikely that any EU country will disadvantage those already living and working there or discourage foreign citizens from purchasing property and supporting the local economy.
Specialist advice should always be taken where lives and assets span more than one jurisdiction to ensure both assets and residency patterns are structured appropriately.
We’d like to thank Donald Simpson, partner at solicitors Turcan Connell, for contributing this article.