UK Expats & Brexit – Planning for Financial Security
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 Year’s Day. For example, rules regarding the registration of foreign national’s
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
expat financial
planner stability, with
residency only offered to applicants who can demonstrate certified financial planner. 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 Recognized 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:
·
Analyze 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 expat financial planning
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.
Original source
:- https://chasebuchanan.com/uk-expats-brexit-planning/
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