Following the events of the UK Budget and Theresa May triggering Article 50 to kick-start Brexit, we look at the tax and financial implications for British expatriates in Europe.
Since June 2016 it has been a busy time for the UK government, with the Brexit vote, an Autumn Financial Statement and Budget 2017. Now that Theresa May has triggered Article 50, this is an opportune time to stop, catch our breath, analyse what has happened and decide what steps can be taken for the future.
As official negotiations begin, we should start getting a clearer idea of what Britain leaving the EU will mean in practice for expatriates in Europe. In the meantime, as we have said before, little can change within the two-year negotiation period. Keep checking our news pages for updates on any developments that may affect you.
Autumn Financial Statement and Budget 2017
The UK Autumn Financial Statement 2016 and Spring Budget 2017 introduced a number of changes which potentially affect financial planning for UK expatriates. Key reforms include amended domicile rules, a new inheritance tax allowance, and one crucial surprise for overseas pension transfers that could be an indication of things to come post-Brexit.
- Change to domicile rules – From 6th April 2017, if someone changes their UK domicile of origin to one of an overseas domicile of choice, on becoming UK resident again they will automatically reacquire their UK domicile, even if they only intend to be UK resident for a few years. One impact of the change is for trusts (to which the individual is usually a settlor and beneficiary) designed to maximise the benefit of having a non-UK domicile effectively become transparent for tax purposes. If this potentially affects you, it is important to seek advice to explore the tax implications before returning to the UK.
- Main Residence Nil Rate Band (MRNRB) – A new inheritance tax allowance applies to people who die on or after 6th April 2017, aimed at reducing the inheritance tax burden on certain, but not all, estates. Over time it could enable the properly planned estates of married couples to pass on up to £2 million to their chosen heirs free of inheritance tax. However, the rules are complex, for example excluding most trusts and also tapering away for larger estates. Take specialist advice on how this reform could potentially benefit you.
- Overseas Transfer Charge – The government unexpectedly introduced an immediate 25% charge on pension transfers to Qualifying Recognised Overseas Pension Schemes (QROPS). This charge will not affect you if: the transfer was made or requested on or before 9th March 2017; both you and your QROPS are in the European Economic Area (EEA); or you are both based in the same country. Note that you remain liable for this tax for a full five tax years after the date of the transfer, so if your circumstances change to make you liable for taxation, you could still lose a quarter of the transferred funds. Read more on the new QROPS tax
What action should you be taking now?
1. Review your pension
The new 25% tax on QROPS is a warning shot that will not affect most expatriates. You can still make transfers free of UK taxation if you reside in and transfer into a QROPS based in the European Economic Area (including Gibraltar). However, it is likely that HMRC will use Brexit as an opportunity to recoup revenue from UK nationals abroad – and pension transfers are a soft target. Consider acting now, under current rules, before the tax-free window of opportunity closes.
As a company regulated by the UK Financial Conduct Authority, Blevins Franks is able to advise on all forms of pension transfer, so if you have any questions on this new tax, or are considering consolidating or transferring your pension, our team of qualified pension specialists are able to help.
2. Consider securing your residency in the EU
If you are thinking of moving abroad in the future, or are already living in the EU as a UK resident, now may be the time to make the move and make it official. While Britain is still an EU member, we have a degree of certainty about freedom of movement and the tax implications of living within the union for the next 18 months or so. While there is no certainty beyond Brexit, we can expect the rules to be less favourable than now.
3. Take advice to future-proof your finances
You should regularly review your finances to ensure your assets and investments remain suitably diversified and tax-efficient for your unique situation. Brexit uncertainty offers further reason to check you are not overexposed to UK assets or any other one area. With the fortunes of the pound and the euro so tied up with Brexit developments, it is also a good idea to look for currency flexibility. We can advise on investment structures that allow you to hold investments in multiple currencies to reduce currency risk and convert when rates are favourable.
At Blevins Franks we are in a unique position to advise expatriates within the current environment as well as post-Brexit. Contact us if you are thinking of transferring your UK pensions to a QROPS, or if you think any other Budget measures may affect you, for peace of mind, whatever Brexit brings.
Any questions? Ask our financial advisers for help
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.