With around 5.5 million UK nationals living permanently abroad, the upcoming end of the Brexit Transition Period on 31st December 2020 is a serious concern for almost 10% of British citizens.
And, perhaps, with good reason – taxes are a fundamental part of life, and even more crucial when navigating international tax residencies and complex regimes. Many EU countries adopt structures which are a world away from the familiar HMRC system. For example, you may find that income tax is a federal tax and does not include other taxes on that same income, which are payable to local municipalities or provinces.
Let’s explore what Brexit means for UK nationals living overseas, and why planning is the crucial factor in securing your future.
How Brexit Will Impact UK Expats
The first point to note is that, if you are an existing expat living legally in a European country, and have established residency or permanent residency status, your right to live in that country is assured.
While other things might change depending on your tax status, income and living circumstances, you will be entitled to remain resident in your host country as long as you wish. For expats this is often the biggest worry, and is covered by the terms of the Withdrawal Agreement.
‘The Withdrawal Agreement sets out the terms of the UK’s withdrawal from the EU and provides for a deal on citizens’ rights. You will be covered by the Withdrawal Agreement if you are a UK national lawfully residing in another EU country by the end of the transition period, on 31st December 2020.’
The Brexit Transition Period
Concerns raised by British expats are coming to a head now, as although the UK officially left the European Union some time ago, we have been in a period of hiatus while the terms of that departure are negotiated. This is called the Transition Period, during which time trade, movements and taxation rules remain unchanged from before the departure.
However, this period ends on 31st December 2020. Therefore, any changes that impact expats will come into effect from 1st January 2021 onwards. It is worth noting that any significant regulation changes will come with an implementation phase, so it is improbable that any UK nationals will suddenly experience any sudden changes come New Years Day. For example, rules regarding the registration of foreign nationals resident in EU countries allow until 30th June 2021 for this process to take place.
That said, the time to act is now, whilst there is still sufficient time to make changes to your affairs, assets and investments, particularly for options such as pensions transfers which typically take several months to complete.
Expats Relocating to Europe After Brexit
From 2021 onwards, the visa requirements and residency eligibility for British citizens wishing to relocate to an EU country are liable to change, in some cases significantly. It is, therefore, crucial to understand your tax residency status now, to leave sufficient time to make the appropriate registrations in advance of the rush once the Transition Period ends, and the cut-off date comes into play.
Many EU countries will experience a flood of last-minute applications, which will put a strain on the processing systems, potentially cause delays, and pose more uncertainty for applicants who haven’t prepared well in advance. New UK citizens claiming residency after this time will be liable to different terms depending on the host country. Some nations will welcome expats, provided they meet eligibility criteria such as fulfilling a skills shortage or investing a minimum value in the country – often through property investment.
Other nations will switch to similar visa application processes as are currently offered to non-EU citizens wishing to take up residency. The scenario will vary between countries – in different states, this could be:
- Based on a quota system depending on the targets set, or limits established, for the number of applications approved per annum.
- Dependent on your financial stability, with residency only offered to applicants who can demonstrate financial independence. Often, this is accompanied by the inability to access state services or social security benefits for a period of time.
- Assessed on the reason you wish to relocate. Family reunification visas are usually granted provided you can prove that you are moving to join immediate family members. Some assessments will look at how long you wish to live there, and whether you plan to work, study or retire.
Given the uncertainty about how visa systems will work in each EU country – and that there are likely to be variances between member states – relocating in advance of December 2020 is expected to be the most streamlined way of moving to the EU while free movement rules remain in place.
Taxes for UK Expats in 2020
Taxation systems are diverse and very much dependent on the individual state. In most EU countries if you already have an established right to live there, you’ll be paying local taxes. This means that the end of the Transition Period may not have a direct impact on your day-to-day life.
However, it is vital to consider your UK assets, as the treatment of this foreign-source income from a non-EU country may change dramatically. Consider assets and income such as:
- Pensions
- Rental income
- The sale of property
- Ownership of assets – including shares, stocks, investments and property
- Inheritance
- Overseas savings accounts
- ISAs and Premium Bonds
For example, existing expats will continue to receive the UK State Pension, and the annual cost of living increase, provided they are legally resident in advance of the end of the Transition Period. If you own a private pension scheme, this might not be so simple.
Often, the most cost-efficient option for UK nationals is to transfer their UK private pension fund overseas. This avoids the complication of having to claim back tax at source through double taxation treaties and means that you are not exposed to the volatility of currency fluctuations impacting your regular income. The most common options for overseas pension transfers are Recognised Overseas Pension Schemes (ROPS) and Self-Invested Personal Pensions (SIPPs).
Should the UK government proceed with rolling out hefty taxation charges against UK pension funds transferred overseas, you might lose as much as 25% of your pension fund, in tax liabilities arising from the transfer.
It is, therefore, crucial to seek expert support with identifying the most tax-efficient treatment of your UK based assets, as far in advance of 31st December 2020 as possible.
Expert Tax Planning for UK Expats in Europe
The key factor is to seek advice as quickly as you can.
Financial planning is the best way to:
- Analyse your income requirements.
- Establish key priorities from your investments, and;
- Create a future-proof wealth management strategy to ensure you are prepared for all the changes that Brexit will bring.
Leaving such decisions to the last minute may prove costly in terms of not having sufficient time to reinvest funds, not having the option of restructuring assets in the most tax-efficient way, or not having the requisite lead time to select attractive transfer options.
Chase Buchanan is an established wealth management advisor, with local offices across Europe and our UK Administration Centre. This enables us to harness the power of local, on the ground knowledge, along with a global network of expertise and an understanding of how UK tax laws work and may change.
Download our updated, comprehensive Expats Guide to Brexit for a more detailed analysis of the country-specific legislation changes and anticipated tax rules.
Contact us for bespoke, professional advice to ensure that you have a complete understanding of the impact of Brexit on expats in each EU state, and how to structure your finances effectively to prepare for the end of the Transition Period.