With Anne Tromans – Partner, and Verity Kirby - Legal Director
Thursday 26 November 2020
From 1 January 2021, the Brexit transition period will be over and the UK will no longer be part of the EU.
But what is the potential impact relocation to/from the UK (specifically England and Wales) may have on an individual’s UK tax position, principally inheritance tax in relation to domicile?
This webinar explores:
- Tax planning opportunities prior to relocation
- The associated impact on wills
- Practical considerations through the use of Powers of Attorney
Verity Kirby
Partner
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Webinar transcript
(Please note this is auto-generated and un-edited)
0:19
Hello, my name is Anne Tromans, I'm a partner and head of Shakespeare Martineau's wealth group, and let me introduce you to my colleague Verity Kirby a Legal Director with the firm.
0:28
Welcome to today's webinar on the tax implications of arriving, or leaving the UK due to Brexit. Essentially, we will be talking about residency and domiciled in this regard. There will be a question and answer option in your screen, so please use this to ask any questions and we will get back to you at the end of the webinar.
0:45
13, I'll be seeking to talk to you about the impact Brexit may have on UK residents in domicile looking at the potential pitfalls of an activity and the option opportunities may present themselves. We will also be talking about the importance and benefits of Powers of Attorney at this time.
1:03
We hope that this question and answer session will address some of your concerns on this topic, and we encourage you to contact us for any specific help we can provide. So Brexit the new abnormal.
1:15
Let's talk about residency and Thomas all. Thank you for that very kind introduction. So your residential status, and indeed almost all of always been incredibly important in the UK when we talk about income tax. Capital gains tax, or indeed inheritance tax.
1:31
But most recent changes in legislation in 20 13, of arguably, arguably provided much clarity and determination of these, But fortunately, Brexit has only served to replace UK clarity with Brexit uncertainty, whereas Arceo calls it the new abnormal.
1:48
Let us first look at residency. So what do you think will be the impact of Brexit on those planning to leave the EU and take residency in the UK?
1:57
Well, though, she that depends on whether someone is classed as returning to the UK or arriving for the first time, or the first time for more than five complete touches. The statue residents tests, as it's known. You may not be surprised to learn that there is no formal process for applying to be UK resident, and it is effectively determined on a self assessment basis.
2:20
So, if somebody's coming to take up full-time employment in the UK, and they're likely to be working over 365 day period, and, surprisingly, some three hours or more per day qualifies as full-time employment, than they are likely to be automatically considered as a resident, whether or not an arriva or a return, and, they will therefore pay income tax on capital gains tax on their worldwide assets.Â
2:44
So, what if somebody actually isn't seeking to be employed in the UK? How would this affect their residency?
2:50
Well, many facts are taken into account if they're not intending to be employed in the UK, such as the number of days spent in the UK.
2:58
If you spend more than 193 days in any one tax year, you will be considered resident.
3:03
Also whether there is available accommodation for you to use whilst in the UK and whether or not you have certain other family ties. It's quite clear then that it's important that you seek advice before arriving or departing so that any advantageous tax concessions can be maximized.
3:20
And can you give us some examples of any tax savings?
3:25
Well, it is certainly advantageous for non residents to realize any assets pregnant with gains before arriving in the UK. As they will be tax free at that point.
3:35
Certainly, those returning to the UK, who are holding assets acquired since leaving, and those assets are showing significant gains, should also seek to realize these before returning, but only after they have been out of the UK for more than five full taxes. As such gains will also be exempt from the UK capital gains tax.
3:56
However, please be aware that any non quiet qualifying disposals will get called to the Capital Gains Tax in the UK, in the first tax year of arrival.
4:07
Individuals taking up residence in the UK should also consider the potential to setup trust before arrival, and choosing non resident trustees to administer such a trust, as there can be penal tax consequences on individuals' setting up a trust once UK resident.
4:24
If at such a trustee set up prior to arrival in the UK, as a non UK trust, it will only suffer tax on each UK income, and capital gains tax only on UK London buildings. All other income and gains will be exempt.
4:40
UK Resident Trusts, on the other hand, will be taxed on all costing Kim and all capital gains wherever they arise in the world.
4:49
We've looked at residency but what about the potential impact of Brexit on domicile, domiciled. So, what is domicile? This is a concept which drives the UK inhibitions tax.
5:00
Very simply put, it tends to be the place that you consider is your permanent home as they say where the heart lies you can be resident in one place but domiciled somewhere else.
5:11
So, how do you actually go about determining what your domicile is?
5:15
There are rules in England and Wales Governing domicile which include consideration as to such things as how many years you have lived in the UK. And if you have lived in the UK for 15 or more of the last 20 years, you will be deemed to be domiciled in the UK. Also, whether you were born in the UK, whether you've always lived there, whether you are married there or whether it's some other reason which binds you to the UK.
5:39
I know there's certainly considerably lots of factors when determining domiciled and we've often prepared reports to help people achieve that domicile. But once they've actually determine where that domicile is, what impact does that have on your tax affairs?
5:54
If you consider domiciled in England and Wales, and you may be even if you've lived and worked in the EU for many years and indeed are considered non resident for income tax on capital gains tax, then you will potentially be subject to inheritance tax on your worldwide assets up to a rate of 40%.
6:11
Further, it can take up to four years to shed a UK domicile and requires careful planning. And certainly, she has lived in several countries then, HMRC may argue that you have not acquired a new dom assault and indeed retain your UK domicile of origin. It really is important that you take advice if you're contemplating changing your domicile and certainly we can help.
6:34
I had a client who emigrated to Spain some years ago, and died, 2.5 years after arrival in Spain. Most of our assets when Spain, Jersey, and the Isle of Man with only a small bank account remaining in the UK unfortunately have entire estate attracted inhibitions tax. And this was due to her, not having lived outside the UK for long enough. OK, there's not much you could do about that but she had failed to put in place a Spanish whale. And so this presented further complications in relation to the beneficiaries who she would have intended to benefit and also in relation to tax.
7:09
Same for UK, inheritance tax on if you're deemed to not be domiciled in the UK, but you hold assets here in the UK.
7:18
If you're not domiciled in the UK, then you will potentially only be subject to inheritance tax on UK assets, not those that held elsewhere. But Brexit does create a new uncertainty for those arriving in the UK, owning assets elsewhere, particularly in the EU.
7:35
Whilst inheritance tax, maybe chargeable on worldwide assets because of domicile, there is the added worry of succession planning.
7:42
As there has been little guidance given on the impact leading the UK will have on the evolutionary offsets, I think you just touched upon it a moment ago. But it seems particularly critical, therefore, that everybody keeps they're willing to review if this is something they're considering.
7:58
Agreed Verity you may have a well prepared in EU country, in which you reside! But, you may own assets. You know that in other EU countries, not covered by that, will It really is essential that you look to update your will regularly and particularly leaving the EU to come to the UK.
8:16
Why is that so important?
8:19
Well, many EU countries have what is not have what is known as forced as sheep rules which can dictate where your property passes on death.
8:30
particularly if you have no will covering those assets. This can be detrimental for both inheritance tax purposes and your intended beneficiaries who may deeply, who may be deprived of their inhabitants because of those as she rolls And these actually rules apply in such countries as France and Spain and surprisingly Scotland to just to name a few.
8:50
And I think we've had even more recently, and in various clients we've dealt with on end.
8:55
So, why is it necessary to prepare new will, just because I'm losing, even if my assets remain exactly the same as they were before?
9:06
UK will be prepared to curvier worldwide offsets. This may be preferable to having a number of different wills which may inadvertently cause a conflict. However, the ability for a UK Well, if you're moving to the UK to be recognized and accepted in other EU countries, may be rescinded as a result of Brexit. We just don't know. Currently, there is the option to choose within the EU which country's rules can apply to a will.
9:33
These options may be withdrawn post Brexit, think it's quite clear and important that advice is so as soon as possible, so that the clouds position can be properly evaluated. Is there any Mary Anning having a separate will for each jurisdiction in which somebody holds an asset?
9:51
It may well be appropriate voting to have a separate will. In each country where you own property, we often recommend this. Why would that be the case? What's whatsapp contagious?
10:02
one of the advantages is that it may assist the administration of the state as the will, will be in a familiar format, the language of that jurisdiction, and the consequences of that should avoid unnecessary bureaucracy, potentially reducing death taxes.
10:19
There are double taxation agreements with some countries, including some within the EU.
10:24
It is therefore important that you seek advice from an expert who's familiar with cross border states to help mitigate death taxes, and to ensure the correct evolution of your estate will occur, particularly to the intended beneficiaries who you really want to benefit.
10:43
And then as part of the wider planning clients readily ask us whether a power of attorney, which could be a lasting power of attorney or an enduring power of attorney, for example, can be used in a foreign jurisdiction. In the same context, this question is often reversed querying whether a power of attorney executed in a foreign jurisdiction can actually be used in the UK.
11:05
I mean, this is, of course, so relevant now. Because so many of our clients own assets in foreign jurisdictions and quite frankly, on a weary, Thursday, November, he wouldn't want a lovely sunny, foreign getaway. But obviously, lots of these clients want to retain these assets for the future. Or if they are indeed relocating, they might need to access them at any time.
11:26
And this issue was really addressed, or look to be addressed in the Hague Convention with protection of adults 2000, and primarily this looked at how and power of attorney in another country could be enforced.
11:40
Now, the UK signed up to the convention but sadly they didn't ratify it and actually, only a handful of countries did including France, Germany, Austria and indeed, Scotland.
11:51
So, what is the impact of the Convention on Powers of Attorney Parity?
11:56
So, bringing terms, it means that if I executed a Power of Attorney here with England, it was certificated to say that it was valid. This could well be accepted in another country, for example, if I had assets that I needed to access in Germany, for example.
12:14
What about the impact of, of powers of attorney in those jurisdictions who have not signed up to the convention, then?
12:21
Well, actually, it's quite Kate mentioned that there's obviously a number of other countries that haven't signed up at all to the convention, but a lot have agreed that they are willing to recognize the power of attorney in a foreign jurisdiction, But, I think the important thing to note is that they may still have their own requirements initial God, so, it might mean that they have tough document translated or indeed notarized.
12:44
What about the UK?
12:46
So, in the UK, we have the Mental Capacity Act 2005, which means, or indeed, allows a foreign power of attorney to be recognized. In reality, as we know, there is, however, a great deal of a number of issues in this regard in an institution might still request a declaration from alcohol to protection, that this power of attorney is indeed recognized, so that they know that they are safe to allow this to be used.
13:11
Indeed, I had a case, recently, where, by an individual who had been granted access to deal with an individual's bank, accounts in Ireland, But here, the bank in the UK wouldn't accept that order. So, sadly, it's not as simple as the convention suggests.
13:27
So, what about the position in the UK then?
13:31
So, we've got a few options available to us, but, unfortunately, most, if not, all, of them, will actually require a court application. And, as we know, the court process is often slower than we might hope, and indeed, costly. Type of application that we might need will depend on the type of power that was originally granted in that foreign jurisdiction. So typically it might include the Court formerly recognizing the power of attorney, or indeed issuing a declaration to state that those powers, which the attorneys using, and indeed exercising into that foreign power to earlier lawful in the UK. And we've also got the Court's power to even go so far as to issue a normal, what we would call a Deputy ship order, allowing an individual to deal with those assets here in the UK.
14:15
So I think, whilst the UK have been slow to ratify this convention, Brexit itself might actually see the UK and courage to deal with this issue. Enabling assets to be dealt with more readily and actually easily, as people move between these European countries, and indeed, capacity becomes an even greater issue than before.
14:35
Would seem then Verity that whilst on the face of eight, powers of attorney should be recognized in a number of jurisdictions it is always advisable to take advice in that jurisdiction. For administrative and cost reasons, it may still be advantageous to execute a Power of Attorney in the jurisdiction, where we're trying holds assets. Similarly, as we have discussed earlier, in preparing wills in that particular country, for example, a power of attorney in Spain maybe need to deal with a disease state or sale of the property. We find more and more clients owning assets in these Mediterranean jurisdictions, and if any urge and legal transactions are required, having a power of attorney in place in advance can avoid critical delays. So I think the facts surrounding the impact of Brexit on those leaving the EU in favor of the UK, oppressively quite unclear. But I believe that there's a degree of certainty that can be achieved by preparing appropriate documentation in the relevant jurisdiction.
15:31
Residency and Domus Sua, however under UK law, generally based on the facts, and therefore we strongly recommend that you talk to us at this difficult time, so that we can help you determine the facts and circumstances that are most appropriate to you. We can then look to tailor our expert taxation and succession planning advice to the new abnormal.
15:52
Well, that brings us to the end of this webinar. We hope that you found it useful and relevant. If there is something that you would like further information on, or have a specific query on any other matter, please do let us know, and we'll be happy to help.
16:05
The recording of this webinar will be posted on the Shakespeare Martineau on Demand page on our website, along with the other webinars or leadership talks, that might also be of interest to you.
16:15
Also, just a quick reminder, that we do have a free legal help line giving you direct access to our senior team of experts for free legal guidance. This could be over a 20 minute telephone or video call.
16:27
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16:30
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