Introduction

On June 23 2016 the United Kingdom voted to leave the European Union by a majority of 51.9% to 48.1% (of the 72.2% turnout of eligible voters). In fact, Scotland and Northern Ireland voted to remain in the European Union, with 62% and 55.7% respectively of voters in favour of staying; but England and Wales took the opposite view.

Over the weeks that have followed, the position has become increasingly uncertain, with upheaval in the markets, the resignation of Prime Minister David Cameron and the appointment of Theresa May in his place, her reorganisation of the Cabinet and the ongoing opposition leadership election. Nothing is fully clear at the moment, either politically or economically, and it is likely that negotiations with the European Union – whether formal or informal – will take months or years to resolve.

In the meantime, what are the potential consequences of the vote for wealthy international individuals and their families? While it is hard to say anything of any value, as so much remains up in the air, this update identifies a number of issues and their possible implications.

Tax

Following an announcement at the UK Summer Budget in July 2015, the government has been consulting on proposals for changes to the taxation of non-UK domiciled individuals to take effect from April 6 2017.

At the same time, it also proposed changes to the inheritance tax rules in respect of UK residential property held by non-UK domiciled individuals through offshore companies and other entities, either directly or within trust structures. This proposal was effectively to look through such structures in order to tax the underlying residential property.

However, a consultation is still awaited on the details of the proposed new inheritance tax rules, despite the fact that they were due to be implemented in April 2017.

It was expected that further details regarding the rules for non-domiciled individuals and a consultation on the proposed inheritance tax changes would be forthcoming after the EU referendum and before the parliamentary summer recess, in order to provide time for such proposals to be digested and commented upon with a view to properly informing the draft legislation.

However, the vote to leave the European Union has understandably become the main priority of the government and as such it now seems likely that publication of further details on these proposals will be postponed, at least until the autumn. If this is the case, it is possible that the government may decide that it is necessary to postpone their implementation until 2018 or even later. Alternatively, it could perhaps decide to proceed with the proposed changes to the taxation of non-domiciliaries for implementation in April 2017, as they are at a more advanced stage, but delay the development and implementation of the proposed inheritance tax changes to residential property held in offshore structures until the following year.

This is all speculation and, as such, for the time being individuals considering investing in UK residential property or looking at restructuring existing wealth holding structures should plan on the basis that the current proposals are implemented, but avoid making a decision until a clearer picture emerges later this year.

EU Succession Regulation

From the point of view of private clients and their wealth and succession planning, the EU Succession Regulation (or 'Brussels IV'), which came into effect in August 2015, is probably the most significant piece of existing EU legislation in this area. This regulation aims to determine which jurisdiction's laws should govern succession to the estate of a national or habitual resident of an EU member state, as well as the appropriate courts in which any issues arising with regard to such an estate should be determined. It also provided for the creation of a European certificate of succession that would be accepted in all member states.

However, the United Kingdom – in common with Ireland and Denmark – did not sign the regulation and, as such, following exit from the European Union, the United Kingdom will continue to be a 'third state' for the purposes of this law. Nevertheless, its provisions will still be potentially relevant to the estates of UK nationals who are habitually resident or have assets in an EU member state, as well as to those of nationals of participating member states who are habitually resident in the United Kingdom but have property in other parts of the European Union. As such, UK nationals and residents with cross-border interests, together with their EU counterparts, will continue to require advice on its provisions when considering the succession of their estates.

Comment

There is no doubt that these are interesting times. Wealthy individuals would be well advised to continue to review UK property holding structures on the basis that the promised tax changes will come into effect but, as far as possible, delay implementation of any restructuring until the position is clearer.

Given the likely economic pressures on the United Kingdom as it begins the process of exiting the European Union, some of which are already being seen, the government may take a more welcoming approach to wealthy foreigners than it has done in the recent past. Its priorities may begin to shift from ensuring that such individuals are taxed to the fullest extent possible to concern over their possible departure from the United Kingdom and that of their investment. There will continue to be a need to maximise tax revenue and this may increase rather than decrease in the future, but the need for inward investment to build the economy may offset this where foreign investors are concerned.

For further information on this topic please contact Catherine Bell, Nick Jacob, Anthony Thompson or Daniel Ugur at Gowling WLG (UK) LLP ?by telephone (+44 20 7379 0000) or email (catharine.bell@gowlingwlg.com, nick.jacob@gowlingwlg.com, anthony.thompson@gowlingwlg.com or daniel.ugur@gowlingwlg.com). The Gowling WLG website can be accessed at www.gowlingwlg.com.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.