What next for UK expatriates?

Lisa Smith, BA (Hons), CeFA

On March 29th, 2017, the United Kingdom put into action the withdrawal notice under Article 50 of The Treaty of Lisbon. This set into motion an unbinding agreement between the United Kingdom and EU.

With this, all the existing legislation will be copied over to the UK domestic law, and from there UK parliament can “amend, repeal and improve” individual laws where they deem necessary.

Until all is settled with the Brexit talks, the UK is still under the watchful eye of the EU law. This means that the free movement of capital within the EU is still relevant for now.

This leaves a question unanswered until the UK finally leaves the EU; what does it mean for expatriates who still have a significant financial hold in the UK?

The government currently receives £776.4 billion per annum in tax revenues from its residents. However, there is a significant risk that once the UK leaves the EU, the annual trend of productivity growth will plummet.

This has the potential to culminate in a hefty hit to the tax revenues. After this hit, the government will need to find somewhere else to regain its losses. The UK housing market over the last 10 years has seen a large tax increase.

The government receives £14 billion in stamp duty taxes and £10 billion in capital gains.

In April 2015, the government introduced the Capital Gains Tax for non-residents. Previously non-resident properties that had been sold were exempt from capital gains so long as the seller had been a non-resident for at least five years.

As of 6thApril 2015, if a non-UK resident sells a UK property they will be liable to UK capital gains taxin any gains they made. The rate of tax will be the same as for UK residents. However, the UK government announced that, from April 2019 a further UK tax charge will be put in place on gains made on direct and certain indirect disposal of UK real estate by individuals that are not residents in the UK.

Kevin Nicholson, head of tax at PwC, the professional services firm, described the proposal as a “major change in direction [that] could undermine the attractiveness of investment in UK infrastructure at a time when it’s needed most”. The government has predicted the charge would raise about £500 million by 2024, although that figure is expected to increase sharply as it applies to growing number of sales.

While not surprising, considering the current direction the UK tax treatment has taken in recent years, this is still a significant change in the UK tax landscape. Steve Wheeler, Partner at Moore Stephens, said, “The reality is that foreign investors have numerous options of where to invest their funds. As the UK leaves the EU, it should give investors every possible reason to choose the UK. This move by the chancellor may do the opposite.”

Pensions have been another area that has taken a large hit from UK taxes, seen by many as a “Cash Cow” that they can milk for all its worth. UK pensions have been a cause for concern for a while now.

No longer are they the gold-plated safety nets they were, rather weights sinking further into financial uncertainty. Since 2006 many people have begun transferring their pensions into QROPS for better protection of their savings.

The government soon realised they were losing approximately £60 million per annum in missing tax because of QROPS.

Since then, to combat this loss, the UK government has made numerous revisions to pension transfer rules and delisted thousands of QROPS from various jurisdictions. Where HMRC deems its rules have been broken, it can charge a 55% tax penalty on the transfer amount, even if you moved funds before the rules were changed.

There is a further worry that once the UK leaves the EU it will allow the HMRC to increase taxes on pensions being transferred out of the UK into the EU.  Just as it had previously been with residents transferring their pension outside of the EEA incurring a 25% tax.

With Brexit on the horizon, it seems more and more likely that those expatriates who already reside abroad, or are looking to move away from the UK, will no longer be able to have a strong financial hold in the UK without receiving an ever-increasing tax bill.  This could have a large impact on many who were once in a stable position.

While Brexit is still in the transitional phase, it might be a worth researching what may happen to your pension and home, especially if you want to move abroad. There is no harm asking the winner of ‘Best European Expatriate Financial Consultancy Award 2017’ for a free consultancy meeting.

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