The Transition Period put in place by the Withdrawal Agreement between the UK and the EU came to an end on 31st December 2020. The UK’s relationship with the EU is now managed through the 2020 Trade & Cooperation Act, finally agreed by both parties on 24th December 2020.
Whilst you may be aware that certain things have changed and others have not, what does this mean for individuals?
Let’s look at a few of the main areas an individual would need to consider:
1. Residential property ownership rights
Property ownership rights are protected by the United Nations Universal Declaration of Human Rights and the European Convention on Human Rights, which means individual property rights must be respected by EU member states.
Nothing in the rules about owning property, renting, taxation or shared ownership has changed. However, if you are buying a new property some EU countries have different property acquisition laws for EU citizens and non-EU citizens, though you would certainly struggle to see any differences in Western Europe.
Property ownership does not confer an automatic entitlement to residency. However, above a certain price, it does entitle you to apply for particular visas which might allow greater freedoms than standard residency permits. Countries such as Spain, Portugal, Greece, Malta and Cyprus have seen considerable inward investment from all over the world, the majority of which has been focused on visa-qualifying residential property.
2. Travelling to the eu
There was some hope before the 2020 Trade & Cooperation Act that the UK/EU might find agreement on a preferential arrangement for UK and EU nationals to travel freely within each other’s jurisdictions. The actual result was not as bad as it might have been – where any trip would require a visa, the Act merely confirmed that UK nationals would be restricted to the same movements within the EU as any other national of one of the other 63 third states, i.e. no more than 90 days in any 180-day period.
Visits exceeding this number of days will require a visa. This is a particular concern for those UK nationals who previously spent the winter or summer at their European holiday homes without any concern for the number of days they spent there (although the majority knew not to exceed six months, so as not to become tax resident). Many thought it might be easy to simply exceed the 90-day allowance. However, the ramifications of an ‘overstay’ stamp on your passport could mean being excluded from returning for a period of time. It could even have a negative impact on any future residency permit application for those planning on moving permanently.
The fact that UK nationals can no longer queue in the EU passport lane at European airports or be able to use the ‘e’ electronic passport gates will make it more obvious they are restricted in the number of days they can spend in the Schengen Zone. The immigration officials managing the non-EU lanes will be looking for those exceeding the 90-day allowance. This all becomes even more real when the EU’s ‘Smarter Borders Package’ goes live in late 2022, with the new European Travel Information and Authorization System (ETIAS) and the Entry-Exit System (EES). ETIAS – a visa approval system – and EES – for monitoring movement of third state nationals in, out and around the Schengen Zone – will mean the EU has much greater control of third state nationals than ever before.
EITIAS will be similar to the US’s ESTA system, where after completing a short application and paying a small registration fee, UK nationals will receive a visa valid for three years which will allow them to visit the EU for up to 90 days. EES will then more closely monitor their entry, exit and movements around the Schengen Zone, and advise the police and immigration authorities accordingly.
3. Moving to the EU
It has always been the case that nationals of EU member states are supposed to apply for residency permits when moving from one EU member state to another. But the reality has often been far different, with freedom of movement and the Schengen Zone limiting passport checks.
Some UK nationals have remained completely undocumented while living for many decades in the EU. The fact that the UK is now a third state will mean this becomes almost impossible to maintain going forwards.
Those UK nationals who were settled prior to 31st December 2020 were able to apply for particular residency permits from the member states they are located in. These state the beneficiary will benefit from the terms of the Withdrawal Agreement, which bestowed certain advantages that those who have moved since will not have.
In addition, the whole process has changed. Prior to 31st December 2020, a UK national could buy their new home, move, settle in and then ‘at their leisure’ apply locally for a residency permit. Because freedom of movement meant they were not restricted in how long they stayed without a residency permit, they could afford to take their time and even get it wrong on numerous occasions before a permit was finally issued.
Now, this must all take place in advance of any move. As a general guide, you must now apply for a visa at the consulate in the UK of the member state you want to move to 30-90 days before you actually want to move.
You will have to complete an application form and provide extensive background documentation, much of which will need to be translated by an authorised translator. You must attend an appointment at the consulate and, once you have your visa, you will normally have only 90 days to ‘activate’ this locally when you move.
This will involve another appointment at the local police station, mayor’s or immigration office where the visa will either be stamped to convert it to a residency permit, or the visa is exchanged for the permit. This will make it more difficult to ‘time’ any move for a fixed date or period, certainly before you actually have the visa in your hand.
The Social Security Coordination rules within the EU make the provision of medical care relatively straightforward. Visitors to other member states can obtain an EHIC (European Health Insurance Card) which provides them with emergency care for the first 90 days (travel insurance would then hopefully cover the rest).
Those who wanted to move permanently have to apply to join the state system (those moving on retirement or living off capital and investments need to establish their means of covering medical expenses as a prerequisite to successfully obtaining a visa). Healthcare in the EU is somewhat different to the UK. Member state coverage is normally only subsidised to a certain extent – normally 70%-80% of regular care, though major operations might be 100%. Any excess would then be down to the individual. Many take out additional, relatively cheap private insurance, widely available across the EU, which kicks in on a claim.
The remainder would have to cover the cost personally. Those of state pension age could apply for a form S1, from the Department of Work and Pensions. With fully paid up social security over their working life, the S1 meant the UK NHS would cover the costs of medical care across the EU and enable you to access the member states subsidised healthcare systems. There was considerable fear right up until the last few weeks of 2020 that both the EHIC and S1 systems would not be included in any agreement, and visitors and pensioners would potentially see an increase in costs for both travelling and moving to the EU. But these fears proved unfounded.
Whilst the EHIC from the UK’s perspective was abandoned, the government replaced this with the ‘Global Health Insurance Card’ (GHIC). Very similar to the EHIC, it currently covers the EU – not the EEA – which means it excludes Norway, Iceland, Liechtenstein and Switzerland. The 2020 Trade and Cooperation Act also renewed much of the social security coordination rules, including the S1. Some of the lesser-known benefits which were available for transfer to an EU state have fallen away, but the most important benefit – state subsidised health coverage – remains in place. One small change is the fact that UK nationals living in the EU with a S1 used to be allowed to get free NHS cover when they travelled back to the UK.
This is no longer available, and an EHIC does not provide alternative health cover in the UK. This is because you are relying on the NHS for your healthcare in the EU, not upon the member state you are living in. So, whilst an EHIC will be valid in other members states, it will not be valid in the UK. You will therefore need to consider far more comprehensive travel insurance when you visit the UK.
5. Financial services and advice
Most people in the UK have some form of pension. Many have ISAs and other investments, maybe some life insurance. Some will have handed over the advice in connection with this and other financial matters to a financial adviser, who will assist the individual and their families in making the important financial decisions that are needed at various stages in their lives. But somebody who moves overseas is entering an entirely different financial and tax system. Many of the financial products designed to work with the financial regulations and laws of the UK will either become tax-inefficient or simply no longer work. Over the past 30 years or so, the EU has developed a highly effective and efficient means of enabling most forms of financial institution to operate across all members states. With a common EU rule book, firms across the EU had common standards and regulations they had to maintain and work to.
On this basis, a firm in one member state who satisfied the requirements there would also satisfy those in the other 27 members states, as they were common across the bloc. Firms were therefore allowed to ‘passport’ across borders and sell their financial services and products elsewhere. The 2020 Trade and Cooperation Act makes very little mention of financial services. The aim was that the trading negotiations would have been dealt with by the summer of 2020, and then the discussion on financial services could have begun, and a lighter form of financial regulation coordination known as ‘equivalence’ could have been agreed. But the main negotiations soon became bogged down, and it is only now in March 2021 that financial services are under discussion between the two parties. At this point in time, most financial services offered directly from the UK to individuals living in the EU would not be authorised there.
You may have noted the newspaper articles on the plethora of UK banks who have written to their clients in the EU advising them their accounts will be closed. There are also many UK investment managers who, having looked at the situation, decided it is uneconomical to either open an operation in an EU member state and passport from there, or obtain individual regulator approval in each of the member states they have clients. These have also advised their clients they can no longer manage and provide a platform for investment portfolios in the EU. Many firms may be unaware they have clients living in the EU or may be hanging their hat on the UK and EU swiftly agreeing equivalence terms now.
But the 40-odd different areas of equivalence need to be applied for individually, and there remains significant gaps compared to the financial services previously covered by passporting. Also, any approval under equivalence can be taken away by the EU with only 30 days’ notice. It is therefore imperative that anyone who has moved or is considering moving to the EU speaks to a financial adviser who is qualified and authorised to advise in the relevant member state. They should also understand the tax system there and how it interacts with the UK regime.
As a member of the EU, the UK was subject to a number of EU Directives and Regulations, concentrated in areas such as customs duties, VAT and directives around cross-border dividends, interest and royalty payments. On the whole, direct taxes remain under the control of sovereign states. Some of the fundamental tenets of the EU have restricted the UK’s freedom and ability to legislate, particularly around companies.
But when it comes to the taxes that mainly impact individuals (e.g. income tax, capital gains tax and inheritance tax), very little should change. There are, however, one or two areas to be aware of. For example, Spanish source rental income will see an increased tax rate from 19% to 24% now that the UK is outside the EU/EEA. And UK nationals moving back to the UK and selling their old home in Spain or Portugal could see a restriction in the main home tax exemption.
The interaction between the UK and the 27 members states on general taxation should remain the same. A double tax treaty seeks to deal with the situation where an individual living in one state has income or gains in the other state, with the aim of eliminating double taxation, or where it exists allowing the tax from one state to be set off against the other. This continues to be the case, regardless of Brexit.
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Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals are advised to seek personalised advice. Blevins Franks Financial Management Limited (BFFM) is authorised and regulated by the Financial Conduct Authority in the UK, reference number 179731. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917 to provide advice in Malta and other EU countries in line with its [IDD and MiFID] passporting permissions. It is authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. This promotion has been approved and issued by BFFM.
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