At the time of writing, two weeks after the momentous referendum vote to leave the EU, the political landscape continues to shift on a daily (often hourly) basis. Leaving the EU will affect individuals in many different ways, though at the moment we can only speculate as to what the impact may be. These are our initial thoughts on some of the possible consequences.
Immigration will naturally be an area in which we expect significant changes. Click here for our separate note on the implications of the vote for immigration.
CHANGES TO THE TAXATION OF NON-DOMICILIARIES
In 2015, it was announced that everybody who had lived in the UK for more than 15 out of the last 20 years would, from April 2017, be treated as domiciled in the UK for all tax purposes. Anybody born in the UK with a UK domicile of origin would also be treated as UK domiciled at any time that person is resident in the UK.
The government was due to provide its response to a consultation exercise which would set out further details of these changes, with a view to implementation in April 2017. However, given the current political uncertainty it is unlikely that further details will emerge until after the autumn.
We recommend that anyone who expects to be affected by the changes should be making tentative plans with their advisers now. If there is only a short time frame between the final form draft legislation being published and implementation, advisers could have limited capacity to implement major changes to structures.
Whilst we expect the changes which have been announced to be implemented, given the complexity and political sensitivity of the proposals, it is also possible that any changes could be delayed until 2018. It is also possible that some aspects of the proposals will change.
STRICTER ANTI-AVOIDANCE RULES
A number of anti-avoidance provisions relating to offshore structures have exemptions designed to make them compliant with EU law. Depending on the terms of the UK's exit, these may no longer be necessary once the UK leaves the EU. It should therefore be expected that the government will take the opportunity to tighten up some of these anti-avoidance provisions, albeit not perhaps for some time. It will make sense to review offshore structures with this in mind.
INCOME TAX, CAPITAL GAINS TAX AND INHERITANCE TAX
Generally speaking, these direct taxes are not affected by EU law and there is therefore no reason to suppose that any significant change will result from the UK leaving the EU.
There have however been suggestions that the anticipated economic slowdown will require tax rates to be increased. We may therefore see a return to the 50 per cent top rate of income tax, a reversal of this year's reduction in capital gains tax to 20 per cent or an increase in the rate of inheritance tax.
HMRC is in the process of conducting a review of business property relief and agricultural property relief for inheritance tax. The need to maximise tax receipts may encourage the government to use this review as a reason to restrict the scope of these reliefs. Individuals who have assets qualifying for relief should consider whether action should be taken to make use of the reliefs before any changes are made.
TAX AND INTERNATIONAL OWNERS OF UK REAL ESTATE
There are unlikely to be any changes to the recently introduced additional stamp duty rates for additional residential properties, or the non-resident capital gains tax changes which came into force in April 2015.
The fall in sterling could make property, particularly in prime areas of London, more affordable to overseas buyers. Whether this results in increased interest from overseas buyers will depend at least in part on how likely a return to political and economic stability seems.
At the time of writing, we expect the introduction of inheritance tax on residential property owned indirectly by non UK domiciled individuals to go ahead with effect from April 2017, although the detailed consultation document originally expected in late 2015 has not yet been published. Again, given the increased time pressure on government departments, it seems possible that this measure could be postponed.
The UK Chancellor has already announced that he is considering an even lower main rate for UK corporation tax than the cut from 20 per cent to 17 per cent currently scheduled to come into force in April 2020, with a view to making the UK even more competitive in international terms.
VAT is harmonised across the EU. However, we are unlikely to see significant changes to VAT given that it is the second highest revenue raiser for the UK government after income tax.
CUSTOMS AND IMPORT DUTIES
Individuals can currently move assets between EU countries without any import or customs duties as long as they are for personal use. Depending on the terms of the negotiation, this will no longer be the case once the UK leaves the EU.
The EU Succession Regulation, which came fully into force in 2015, is designed, as far as possible, to ensure that the law of only one country would apply to determine who is entitled to inherit an individual's estate when that person dies. The UK had in any event declined to adopt the regulation. It is therefore unlikely that the UK ceasing to be an EU member state will have any implications as to the law which applies to an individual's estate on his death.
DISCLOSURE OF INFORMATION
There have recently been a number of measures which either require information to be made publicly available (such as beneficial ownership of UK companies) or to be exchanged between tax authorities. Given the current climate, it is unlikely that this will reduce as a result of the UK leaving the EU.
There have however been some proposals that there should be a publicly available register of beneficial ownership of trusts. This has been resisted by the UK but has been implemented earlier this year by France. It is much less likely that there will be any publicly available register of the beneficial ownership of trusts following the UK's withdrawal from the EU.
At the present time, we do not anticipate any immediate significant changes for charities. Reliefs such as Gift Aid and exemptions from corporation tax are not subject to EU legislation and are likely to be maintained should the UK leave the EU.
However, the current system allows EU charities to register with HMRC and for the charity and donors to benefit from UK tax reliefs as a result. This may be reviewed if the UK leaves the EU. In the same way, the tax reliefs that UK charities receive in EU countries may be removed, which may have funding implications for UK charities.
In summary, given the high current levels of uncertainty, we would counsel against taking any immediate irrevocable steps without careful thought. Please contact your usual Macfarlanes partner if you would like to discuss any of the issues in this briefing.