Following the vote to leave the EU, the Penningtons Manches private wealth group offers some advice for high net worth individuals from the four perspectives of tax planning, immigration, family law and prime property.
Not surprisingly, given the state of bewilderment, absence of political direction and unknown constitutional implications, the overall message is to keep calm, carry on and avoid making any knee-jerk reactions – but do take some swift action to protect your immigration status.
The immediate impact of the Brexit referendum has been felt in falling sterling, volatile markets and an expectation that property prices will drop sharply but what will be the longer term impact on individuals who are tax resident in the UK?
Short term(ish), depending on who takes the helm after David Cameron, we may see an emergency budget around the same time as the changeover. Measures are likely to include rises in tax rates as George Osborne looks to balance the books, although he has confirmed today that he will be reducing the corporation tax rate to prevent capital and business flight from the UK and show that we are still ‘open for business’.
Internationally mobile families have long made a beeline for the UK, attracted by a stable economy with a world class financial centre at its heart, coupled with a relatively benign tax system for short to medium term residents. Anecdotally, wealthy foreigners were not feeling as welcome in the UK given the poorly managed flurry of recent and proposed tax changes aimed at non-domiciled individuals. The referendum result may well be the last straw, especially for those with business interests in Europe.
Speculation abounds as to whether the highly anticipated non-dom changes will appear in the Finance Bill 2017 with the consensus being that it is possible that the proposals will be delayed or even shelved. It may not come down to a policy decision in the end but simply to the lack of time available to Treasury officials to consult and legislate on the proposed new regime.
The Chancellor has had the residential property market in his sights over the last few years, leading to a bewildering array of new tax measures. Brexit is likely to be more successful than any tax measure in taking the heat out of the market in the short term but a cheap pound may well attract foreign investors looking for bargains.
Longer term, Brexit may force the Chancellor to use tax policy as a means of attracting outside investors to UK PLC and this might mean some interesting U-turns in determining what is a ‘fair’ share of tax for foreign corporates and individuals resident in the UK.
The likely implications of the referendum vote on EU/EEA nationals and their family members and those in the UK with Tier 1 Investor visas are summarised below.
EU/EEA nationals, those in the UK with residence cards and their family members
For the moment and until the UK formally leaves the EU, EU/EEA nationals will continue to be able to reside, work and travel freely. In the event that the UK leaves both the EU and the single market, it is expected that the UK will put transitional measures in place to cover those living in the UK and exercising treaty rights at that time.
EU/EEA nationals can exercise treaty rights by being self-sufficient including holding comprehensive medical insurance; working in employment or self-employment; or studying in the UK providing they hold comprehensive medical insurance. EU/EEA nationals who can demonstrate that they have been exercising treaty rights for five years would be regarded as permanent residents in the UK. Applications for confirmation of permanent residency are currently taking up to six months so anyone considering this option should apply as soon as possible.
Tier 1 Investors
Those in the UK under the Tier 1 Investor scheme are likely to be more immediately affected by the vote given the increasingly pessimistic outlook for the UK economy. The steps that Tier 1 Investors will now need to take depend on whether they obtained their Tier 1 visas under the £1 million or £2 million route.
Tier 1 Investors in the UK under the £1 million category
If you fall into this group, you should keep under review the value of your investment as you are required to maintain the level of funds in the UK at £1 million of which 75% should be invested in UK bonds/shares or loan capital in UK trading companies.
Tier 1 Investors in the UK under the £2 million category
If you fall into this group, the requirement to top up the value of your portfolio if the market value of your investment falls does not apply to you. However, if you do decide to sell some or part of your investment, you will need to make sure that your portfolio shows that the gross proceeds are re-invested in qualifying investments.
London gained its reputation as the “divorce capital of the world” in part because of the ease with which EU citizens could commence divorce proceedings here. The “first in time” rule, deriving from EU legislation, means that the spouse who petitions first secures jurisdiction.
We do not know whether the complex web of EU family law legislation will survive Brexit. If it does not, the first in time rule is unlikely to be mourned and is likely to be replaced by the English common law doctrine of forum non conveniens, whereby the divorce proceeds in the most suitable jurisdiction and less emphasis is placed on the order in which proceedings were initiated.
The European Maintenance Regulation (EMR) provides a framework for recognising and enforcing financial orders made in divorce proceedings in another member state. Although the aims of the Regulation are laudable, English lawyers have found it to be cumbersome in practice. Whatever the future of the EMR, the UK government will need to strive to ensure that effective measures are in place for the recognition and enforcement of financial orders between England and the EU. Failure to do so will cause hardship and expense for thousands.
The English courts have been sympathetic to separated parents wishing to move with their children to another EU state. EU legislation ensures that a child arrangements order made in England will be enforceable in all other EU states. Free movement and cheap air travel mean that it has become commonplace for judges to assume that a move from London to Dusseldorf is no more problematic for the left behind parent than a move to Newcastle.
Will judges be more reluctant to allow such moves when there is no certainty that free movement will survive Brexit, or that English orders about children will continue to be enforceable in the EU?
A Gallic shrug - if still allowed - is the most likely response from most people to the question of what will happen to the London prime residential market following the Brexit referendum result. And, if commentators in the media are to be believed, everyone is going to run for the hills with the market grinding to a halt or collapsing entirely. But is this the reality?
While no one really knows, the market is, of course, moved by sentiment and psychology neither of which can be predicted. The result is only the first step in a long, tortuous and unpredictable journey. But our discussions with agents, property search agents and clients on the prime London market suggest that it is not all doom and gloom.
In a nutshell, the current position seems to be:
So, for the prime property market, the message seems to be ‘Keep calm, sensible and selective and - eventually - carry on’.