Brexit: implications for private clients

Although there is an immediate impact on the personal finances of individuals from the volatility in stock markets and the value of sterling, the immediate impact of the referendum vote on the tax affairs of individuals is expected to be minimal. However, in the longer term, there could be substantive impacts if the UK tax legislation no longer has to comply with EU law. It could, though, potentially be five years before the negotiation is successfully concluded and there is certainty in the post-Brexit world.

 

 

For wealthy individuals considering a move to the UK, these uncertainties, together with the previously outlined future changes in the tax law for non-doms, could discourage them from moving to the UK. In addition, we also wait to see what changes to immigration law will follow. Commentators are suggesting that property prices may fall, which may initially discourage but later encourage investment from overseas. However, it would be good to have clarity over the proposed changes to these rules too.

 

Having ruled out an emergency Budget before the summer parliamentary recess, it will be interesting to see if the government pushes ahead with ongoing consultations or shelves them pending cabinet changes.

 

The next stage of the consultation on non-doms is expected before the summer recess. If there is no progress, the delay may be seen as signalling a change of approach or a deferral in the introduction of the rules. A new chancellor could take a different view on the deemed domicile proposals if he or she is concerned to maintain the UK’s attractiveness to internationally mobile business generators – be they internet start-up entrepreneurs or hedge fund managers.

 

 

As regards changes to UK legislation, which no longer has to comply with EU law, a clear example arose from the UK’s transfer of assets abroad (TOAA) legislation. Although this is anti-avoidance legislation, it was found to inhibit both freedom of establishment and the free movement of capital enshrined in the EU treaty; and was the subject of EU infringement proceedings taken against the UK in 2012.

 

Aiming to make the legislation EU compliant, in FA 2013, the government created an exemption for ‘genuine’ transactions (i.e. those without a tax avoidance purpose). Some leading commentators have suggested that this legislation was still not EU compliant; but we may no longer need to concern ourselves with such arguments. Similar amendments had also been made to the provisions of TCGA 1992 s 13 (attribution of gains to participators in certain non-resident companies).

 

Assuming the eventual Brexit settlement removes the CJEU’s authority over UK taxes, the TOAA rules (and other exit or cross-border taxes) will no longer need to be EU compliant. I am not suggesting that the UK will create a broad range of exit taxes or quasi capital controls – that would probably be counterproductive. They would, however, be possible.

 

 

The idea of removing UK personal allowances from non-UK residents was considered in 2014 but was shelved because of the complexities of applying it under EU law. This could be revived as a way to raise tax revenue. It may also prove attractive to restrict or reduce the personal allowance for inbound non-doms for an initial qualifying period (perhaps four years, as with the state benefits proposals).

 

Going forward, our treaty network will be of importance to international families and their businesses.

 

Offering a specific offshore avoidance amnesty only to those who bring the capital back to the UK and invest it here (with some minimum retention period) may also be seen as a desirable way to raise both tax revenue and boost UK investment.

 

Finally, it will be interesting to see what happens with those cases that are heading towards the CJEU. For example, Fisher v HMRC [2014] UKFTT 804 (TC) (involving the TOAA provisions) was on its way and presumably this will still be heard, but the position going forward is far from clear.

 

At this stage, we can only speculate about what other changes may eventually affect private clients, as we live in this period of uncertainty. This year’s Autumn Statement may prove to be more interesting than that of 2015.