Posted by Nick Day on 04 Jul 2016
Brexit Tax Implications and Advice
On 23 June 2016 the majority of voters in the Referendum opted for the UK to leave the EU (“Brexit”) after 43 years of membership, setting the scene for the most significant change in the political and legal landscape of the country for more than a generation. Whilst there is little information forthcoming from the campaigns as to the shape that Brexit will take once Article 50 is invoked, as tax advisers, we want to set out our initial thoughts on the Brexit tax implications of the vote for business tax, personal tax and expat tax.
What Brexit Tax Implications are there?
It is important to remember that no laws have been enacted or repealed and, for now, the tax system continues to operate exactly as it did prior to the referendum. The public has given its opinion and we must wait to see how the government interprets the decision.
Will the 2016 Finance Bill be Enacted?
George Osborne has ruled out a snap budget in the wake of the referendum result, therefore the process of passing the 2016 Finance Bill into law is expected to continue, although there may be further delays whilst the Conservatives determine who will be the next occupant of No. 10 Downing Street. There is nothing to prevent the current draft legislation from being altered, but we have no reason to expect this.
What Brexit Tax Implications Are Likely After We Leave?
Value Added Tax
VAT is likely to be most significantly affected, as this is an EU wide tax that is based on EU directives. After Brexit, supplies to and from the EU could be classified as VAT imports and exports (unless the VAT system is changed). As imports and exports, these supplies would have a different set of regulations for determining the applicable VAT. Cross border schemes such as the new VAT-MOSS may cease to function, adversely affecting businesses providing digital services to EU consumers, and the Tour Operators Margin Scheme may also come to an end.
It is difficult to predict how the rates of VAT will be affected: As value added tax is one of the most efficient taxes to collect. It is easy to use a VAT increase to raise significant tax revenues; however, a VAT cut is a quick way to stimulate the economy, if required (the 2008 2.5% VAT cut gave consumers and businesses an extra £1bn every month).
Any increase in the rates of VAT, income tax or National Insurance will require the triple tax lock, introduced after the 2015 election to be broken. This lock was always a political device, rather than a binding legal position: the government cannot be bound by previous law, so would always be able to repeal this lock and increase the tax rates.
Corporation Tax Changes
Corporation tax is unlikely to see a rise (and indeed George Osborne is indicating it may decrease to stimulate growth post-Brexit) as the government will want to continue to attract companies to base their operations here. Capital gains tax (CGT) and inheritance tax (IHT) are free of the lock, however the take from these taxes is very small in comparison to personal taxes, VAT and duties (which together comprise around 86% of HMRC’s total tax take), so any changes in rates would have little impact on the country’s finances.
The main changes are likely to be in the way the taxes are applied to non-residents. For example, all EU citizens receive a full income tax personal allowance, no matter where they reside. This is likely to be restricted to UK citizens, meaning that non-resident EU citizens who own UK property will have to pay tax on their full profits, and such investors may have to consider their portfolio prior to Britain exiting from the EU. The extension of CGT on UK residential property to non-residents could be broadened to include all UK property.
Transfer Pricing and State Aid
The government could also be free to change its position on transfer pricing and state aid rules (which curtail reliefs for research and development, the enterprise investment scheme etc) as these would no longer need to meet the existing EU requirements.
It is important to remember that any trade deal with the EU, or access to the single market, will come with requirements which may prevent any changes which breach existing EU law, meaning that the possible tax changes resulting from Brexit may be limited in scope, and no dramatic changes can be expected until negotiations on Britain’s EU exit have begun.
Will Leaving the EU Change Previously Announced Tax Advice?
It is possible that the proposed changes to Domicile rules will be delayed or re-shaped by a new Chancellor who may have to reconsider the treatment of non-UK domiciled individuals as the UK’s economic relationships with the rest of the world are redrawn.
What are the Brexit Tax Implications and Impact On Property Prices?
If, as experts have predicted, property prices fall, UK residential property owned by Non-UK residents could quite quickly move into a loss making position for capital gains tax purposes. This is because generally in most instances non-UK residents elect for capital gains on their UK residential property to be calculated by reference to the increase in value from April 2015. This means that those properties could be moved into new, more beneficial ownership structures without triggering a capital gains tax charge. This provides an opportunity to revisit the ownership of such properties to ensure they are held as tax-efficiently as possible for one prices start to creep back up.
What Tax Advice Can You Give Me Regarding Brexit?
Unfortunately, the only solid advice we can give is to carry on as normal and wait to see how the Brexit process will unfold, what agreements are made with the EU and whether any tax changes are announced by George Osborne (or his successor) once our next Prime Minister is in office.
What Brexit Tax Implications Will Happen Now?
We will continue to monitor the situation and will post updates as and when there is any news. In the meantime please contact us if you have any specific tax or accounts queries.
If you would like any advice regarding the Brexit Tax Implications or would simply like to discuss other ways in which we could help you or your business, please contact us via our website or call 01962 856 990 or email firstname.lastname@example.org.
- The Import One-Stop Shop (IOSS) for EU VAT
- UK Property Sales: Capital Gains Tax for Non-Residents
- Capital Gains on Residential Property
- Family Investment Companies
- Late Tax Return Penalty Pushed Back