Brexit Implications - Private Client
How will Brexit affect estate planning for those with property and assets in the EU?
Since 17 August 2015, when the EU Succession Regulation 650/2012 came into effect, those with assets in an EU member state (with the exception of the UK, Denmark and Ireland who opted out of this Regulation) have been able to choose for the law of their nationality to govern the succession to those assets. This has the advantage of allowing affected individuals to avoid the “forced heirship” rules that exist in some EU states dictating to whom assets in that state should pass. The EU Succession Regulation therefore benefits UK citizens with assets in the applicable EU member states.
This will not change as a result of Brexit. UK citizens can continue to rely on the EU Succession Regulation and make an election in their Will for the law of England and Wales to apply to their applicable EU assets. However, what will change is the uncertainty on what would happen if such an individual did not make an election. Currently, prior to Brexit, it is unclear whether the courts of an applicable EU member state would accept jurisdiction over assets in that state, or in the UK, where the UK courts (as a result of our private international laws) rules that UK law does not apply. This might happen, for example, where the deceased is domiciled in an EU member state or has assets there. Following Brexit, as a result of the wording of the EU Succession Regulation, it is clear that courts of an applicable EU member state would accept jurisdiction if they were required to do so. This means that the EU member state would be free to apply their own “forced heirship” rules to the assets in question and the deceased’s Will would effectively be invalid.
Post Brexit, it is even more important for clients who are UK citizens to make an election in their Will for the law of England and Wales to govern the succession to all of their assets (UK and EU). This is the only way to guarantee that the “forced heirship” rules of the EU member state in which they are resident or domiciled, or where they have assets, will not apply, giving that individual the freedom to choose who they want to inherit their EU assets.
How will Brexit affect the UK’s tax policy for individuals?
Whilst Brexit will not affect UK policy on personal tax directly, due to the current political climate we are likely to see tax changes in the future. The current government has already asked the Office of Tax Simplification to identify inheritance tax simplification opportunities and has embarked on a separate “Taxation of Trusts” consultation. Further changes can also be expected should a Labour government come into power.
In accordance with the Labour manifesto, this could see taxes raised for the top 5% by lowering the threshold for the 45% additional rate of income tax to £80,000 (from £150,000). The 50% rate on earnings could also be reintroduced.
Wealth and/ or property taxes are another possible area of focus. A “wealth tax” is proposed in the manifesto to fund the party’s social care proposals.
The Labour party has signalled its intention to end “the social scourge of tax avoidance” and act decisively in relation to those using tax havens. This could include the imposition of a new offshore company property levy on those using such a structure to purchase UK residential property as well as making the UK’s register of beneficial owners of trusts fully accessible to the public. Given Labour’s obvious dislike of trust arrangements it is conceivable that they will raise tax rates applicable to UK trustees (and possibly UK resident beneficiaries of offshore trusts). In 2017, the Shadow Chancellor, John McDonnell, stated that the Labour Party had plans in place in the event that there was a fall in the value of sterling if they were elected into government. This led some to predict controls to prevent capital leaving the country. The Shadow Chancellor has since ruled this out, although many of our clients and contacts remain unconvinced. For more on potential reforms by a Labour government, please click here for a related article in our blog, Globally Speaking.
Whoever is in power, tax changes will be inevitable, it is a question of what and when.
How will Brexit affect charitable giving?
Brexit may have an impact on UK charities who receive donations from EU residents. At present, the ruling in Hein Persche v Finanzamt Lüdenscheid (Case C-318/07, 27 January 2009) means that member states cannot restrict charitable tax relief to organisations established in a member state, or deny tax relief on a donation made to a charity in another member state, as this breaches the principles of free movement of capital and freedom of establishment across member states. However, post Brexit, EU states will not be obliged to follow the Persche ruling in relation to the UK and could deny tax relief to EU residents making donations to UK charities. This may deter EU donors from giving to UK charities. Affected UK charities could consider setting up associated charities in the EU to deal with the issue.
Following Persche, the UK government amended UK legislation to allow EU, Norwegian, Icelandic and Liechtensteiner charities to claim tax reliefs in the UK and to allow donors resident in the UK to claim UK tax relief on donations made to charities in those states. Iit remains to be seen whether these forms of tax relief for EU charities and donors will be withdrawn after the UK leaves the EU.