Once Brexit takes full effect in a few months' time, can we expect the tax burden for expatriates to increase for UK property, investments and pensions?
Taxation after the Brexit transition period
Brexit itself will not affect the double tax agreements that determine which country has the right to tax expatriates. However, two key changes are set to happen from 2021 that may change the tax treatment.
First, UK assets will no longer be EU/European Economic Area (EEA) assets. In some cases, this means they may stop receiving favourable tax treatment abroad.
Second, the UK government will no longer be bound by EU freedom of movement rules for capital, potentially giving them more scope to tax non-residents.
Tax on UK property
Capital gains tax
The UK has gradually increased the tax burden on property for overseas residents. For example, after years without capital gains tax liability, ‘non-resident capital gains tax’ (NRCGT) started applying to non-UK residents selling UK residential property from 2015, and most commercial UK property and land from 2019.
Beware that from April 2021, non-UK residents face a new 2% stamp duty surcharge when buying property in England and Northern Ireland. If they are resident in the EU and already own a home, even outside the UK, this means they could face up to 17% UK stamp duty costs on UK purchases.
When considering UK property as an investment, residents of Spain or France also need to remember that worldwide property counts towards wealth tax liability there.
Tax on UK investments
While the tax rules that apply to British expatriates today should not change after Brexit, watch out for situations where non-EU/EEA assets are taxed differently to domestic/EU assets.
In Spain or Portugal, for example, there are no capital gains tax charges if a property is sold there for reinvestment in a new main home within another EU/EEA country. In January 2021, once the UK leaves the EU/EEA, expatriates reinvesting gains into UK property may no longer be eligible for this relief.
France residents need to be aware that some key French tax advantages only apply to EU life assurance/assurance-vie policies, so UK equivalents may incur a higher tax bill post-Brexit.
Tax on UK pensions
Of course, many retired British expatriates have pension funds in the UK, leaving them there and drawing income as needed. But, there are also a significant number who choose to transfer their UK pension(s) to a Qualifying Recognised Overseas Pension Scheme (QROPS).
This can provide various advantages for EU residents, including the transfer itself to EU/EEA based QROPS currently being tax-free for EU residents. But, there is a fear the 25% ‘overseas transfer charge’ which is place on transfers to a QROPS outside the EU, or where planholders themselves are outside the EU may be extended by the UK government to cover the EU, once it is no longer bound by the bloc’s rules.
About the author
Jason Porter is a Director of Blevins Franks, which provides international tax and wealth management advice to Britons living in France, Spain, Portugal, Cyprus, Malta and the UK, through 22 offices.