Brexit and personal tax
Over seven months have passed since the UK public voted to leave the European Union. There have been a number of questions and concerns about the consequences for individuals, including concern about the tax implications and what people should be considering to safeguard their position at this time.
Of most immediate concern for some are the implications for the inheritance tax position of non-domiciled (‘non-dom’) individuals who have been resident in the UK for some time. In December 2016 the government unveiled the draft Finance Bill, despite calls to delay its release following the upheaval caused by Brexit. The Bill confirmed plans that non-doms resident in the UK for the last 15 out of 20 tax years will face inheritance tax. It also restricts the ability to claim non-dom status for individuals born in the UK with a UK domicile of origin who acquire a domicile of choice elsewhere and then return to the UK.
Some surprises in the draft Bill include the introduction of a grace period to cleanse offshore mixed fund bank accounts. However in practice the administrative costs of collating the relevant information will severely restrict any potential financial savings. Furthermore, any residential properties in the UK held within an offshore structure will become chargeable to inheritance tax. As these changes come into force on 6 April 2017, non-doms and anyone holding UK residential property in an offshore structure should review their circumstances immediately and seek specific advice.
There appears to be a political drive to rein back on the perceived increase of reliefs from inheritance tax which benefit the wealthy as opposed to “ordinary working class people” which Theresa May appears to be focussing on. The government may specifically review reliefs such as business property relief, which can provide 100% relief from tax on qualifying businesses. The most recent statistics show that this relief costs £2 billion so this may be an easy target for attack. So anyone thinking about giving away business property or an interest in a business should consider whether to bring forward their plans.
On a positive note, UK residents with property elsewhere in Europe are unlikely to see differences in the near future, and the same will be true for Europeans with property in the UK. Similarly VAT is unlikely to undergo radical change. Although leaving the EU will give HMRC greater flexibility about the application of VAT, allowing scope for more zero-rates and flexibility, the costs involved in making these changes probably mean that the status quo remains, in the short term at least.
In his Autumn Statement, the Chancellor Philip Hammond confirmed that corporation tax will be cut to 17% by 2020. This is intended as a tax incentive for corporations based in the UK, although the Chancellor has strayed away from George Osborne’s plans to cut the rate to 15%. When the UK leaves the EU this may further remove restrictions, giving an opportunity to make tax laws more flexible to enhance the UK’s position and make the UK more attractive to foreign investment, both corporate and private.
Finally, there has been much discussion about the implications of Brexit for double taxation agreements between the UK and EU countries. At present there will be no change to the UK’s existing double taxation agreements; it is even possible that there will be greater, rather than fewer, opportunities for similar agreements across global markets following the UK’s departure from the European Union. Until detailed negotiation regarding the UK’s tax relationship with the EU is underway, it is difficult to establish the keenest threats or greatest opportunities that could be encountered during the extraction process.
The team at Cripps Pemberton Greenish will be monitoring developments and passing on intelligence received to our clients on a regular basis. If you are not a client but would like to receive this information, click here to sign up to our e-bulletins.