To b, or not to b

04 / 06 / 2019

“To B, or not to B: That is the Question: Whether ’tis Nobler in the Mind to Suffer the Slings and Arrows of Outrageous Fortune, or to Take Arms Against a Sea of Troubles, and by Opposing end them?” 

Whether you are a Remainer or a Brexiteer or perhaps like many, a frustrated bystander, it will be important to think about how Brexit (if and when we get there) will affect your estate planning and tax position.

If you have property in the EU, you will be pleased to know that the fairly new EU Succession Regulation which seeks to harmonise all the differing succession laws across Europe will continue to apply as it does today. This is because the UK (together with Ireland and Denmark) refused to sign up to it in the first place. This means that UK citizens will still be able to elect for the inheritance laws of England & Wales to apply to their assets in the EU and thereby avoid local forced heirship rules which often trigger a premature tax charge when a proportion of assets pass away from an exempt spouse to non-exempt children. Blame Napoleon, whose Code was introduced in 1804 to ensure that wealth was distributed to the whole family and not just a single person such as the spouse or the oldest male heir.

What is clear is that, post-Brexit, if an election has not been made in the Will of the deceased then private international law dictates that a reference (also known as ‘renvoi’) would be made back to the deceased’s country of domicile or where real estate is located and local succession rules would apply and the terms of the deceased’s Will could be invalid.

Brexit per se does not affect UK tax policy directly, however 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. What about a “Red Brexit” I hear you ask? That is to say a mismanaged Tory Brexit which leads to a socialist Government and the introduction of some “Corbynomics”. 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) and a 50% rate on earnings could also be reintroduced.

Wealth and/or property taxes are another possible area of focus which feature 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).

Whoever is in power, tax changes will be inevitable; it is a question of what and when. Some clients are taking pre-emptive action whether that is moving custody of their assets overseas, accelerating income and gains now to take advantage of current rates and reliefs, relocating business HQs (James Dyson) and investment structures and ultimately relocating themselves (Sir Jim Ratcliffe). Portugal is a popular choice at the moment with property prices in Lisbon and the Algarve up by around 30% since 2015.

Finally, for the philanthropists, we have specific legislation in the UK 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. It remains to be seen whether these forms of tax relief for EU charities and donors will be withdrawn after Brexit.