“Deal or No Deal”: What Will Brexit Mean for Private Clients?

Arabella Murphy, Maurice Turnor Gardner LLP

In the latest edition of WWL: Private Client, Arabella Murphy at Maurice Turnor Gardner LLP explores the impact that Brexit will have on the private client market. 

DEALORNOEDEAL

With less than six months until the UK leaves the EU and no prospective deal yet, public focus is very much on whether trade can still be done and planes still fly on 30 March 2019.

Over the past 18 months, many matters relevant to private clients have been agreed in principle, but there are many others that remain unresolved (VAT, for example). In recent weeks, following unproductive discussions and the increasingly realistic prospect of a ‘hard Brexit’, many EU states have begun to indicate a willingness to discuss the crucial roadblocks further. However, if there is no deal on those issues, then everything else falls away too. Both the UK and EU are now making greater efforts to prepare for a “no-deal” scenario, and there is a fairly clear picture emerging of what that would look like. Can we, then, say with a degree of clarity what are the possible implications for private clients in a deal or no-deal scenario?

The issue at the forefront of many clients’ minds has been whether they can stay in the UK if they are a citizen of another EU state. We now know that, with or without a deal, the answer is yes. The Prime Minister has pledged that the UK will unilaterally offer EU nationals who arrive before 30 March 2019 the right to stay in the UK. If a Brexit agreement is signed, it is already plain that this would be the case, and others arriving during the 21-month transition period would also be allowed to stay. It remains unclear what the EU’s position will be on UK nationals resident in EU states without a deal. Presumably, those who arrived in exercise of their EU rights, and whose permanent resident status has already been recognised, must be able to stay; but this has not been confirmed. Those who have been resident abroad for less than five years are more at risk.

Travel to the UK from the EU for business or on holiday should not – whether Brexit is hard or soft – be affected. The UK will allow visa-free travel, as it does for the citizens of most other countries. The EU says that the UK would either be placed on the list of countries for which no visa is required, or the list for which a visa is required, depending on the outcome of negotiations. Taking your pets with you is likely to be more complex, as British and EU vets will no longer automatically be recognised as having the relevant authority to issue certificates for the other – the process may be similar, but more time should be allowed.

While the complex issues affecting airlines are beyond the scope of this article, private planes should be free – as they are now – to fly to and from the EU. Certificates of airworthiness may no longer be recognised, and may need to be reissued: plane owners may need to take action, as a valid certificate is a prerequisite for any flight. For all private transport, owners will need to have evidence of where VAT has been paid (or an exemption granted) and consider whether this creates any risk of a further charge. Planes are more likely to take short trips (with available reliefs), but a plane that was originally imported into the EU through the Netherlands, say, and is now kept permanently in the UK may attract further VAT. Yachts may be more affected if, for example, bought VAT-paid in the UK and currently kept in France; after Brexit, if there is no customs union, the first time the yacht leaves and re-enters EU waters it may become subject to VAT unless relief is available. An owner considering taking his or her yacht to France for an extended period is probably sensible to think about doing so before 29 March.

Families with a home in the EU and another in the UK may, similarly, wish to think about personal assets such as art, wine, jewellery and other valuable items. At present, families can move items freely between their homes; after Brexit, if the UK is not in a customs union with the EU, VAT and/or import duty may be charged on items entering the EU or UK for the first time.

Hiring skilled foreign employees (or bringing existing employees into the UK) may, ironically, be easier if there is no Brexit agreement. Families and family offices will be able to recruit from any foreign country on the same terms, rather than having to seek to fill roles from the EU first. However, tighter immigration rules apply to lower-skilled jobs, so a no-deal Brexit does not allow a nanny in from the EU or elsewhere. If there is a transition period following a Brexit agreement, EU employees are likely to continue having preference for 21 months (and lower-skilled roles can be filled by EU citizens freely during that time).

So far, so simple, you may think. The issues become a great deal more complex once private clients start considering their banking and financial arrangements, however. Key to the success of the City of London is the fact that foreign banks and institutions can have offices and staff here, and offer their services across the EU. The UK will offer a temporary passporting regime for up to three years, so that financial businesses currently operating in the UK under EU passporting rules can continue to do so while they gain recognition under any new post-Brexit authorisation system. EU financial institutions can, therefore, continue to offer services to UK nationals and EU citizens from London (or anywhere in the EU). The position for UK banks in the UK (or in the EU) is less clear. Can they, for example, continue to provide banking services for a British national resident in France, or a German national who has returned to Germany after a period of residence in the UK? The EU says that if there is no deal it will not begin the process of recognising the ‘equivalence’ of the UK regulatory regime (even though it is identical to EU rules) until the UK has become a ‘third country’ on 30 March 2019. At worst, EU-resident customers (of any nationality) may be unable to receive all the banking, investment, insurance and other financial services that they currently receive from UK firms until recognition is given.

Family offices may need to consider the practical issues arising. Even if not regulated themselves, they commonly engage regulated third-party managers (and banks) to look after the liquid assets of family members who may be based in more than one country. If they have not already done so, this is the time to identify whether all members of the family can continue to benefit from all the same services post-Brexit.

Family offices and family businesses are among those affected by GDPR, the new EU data protection regime – and less than a year after they have implemented it, the UK will become a ‘third country’ (as will the EU for the UK). As such, businesses holding personal data about individuals, and transferring it across borders, will need to apply different standards after 29 March 2019. A UK family office that deals with advisers in the EU will need to ensure that the recipients of personal data will hold and process it in accordance with the UK’s GDPR principles, and may need to provide assurances to those advisers on how it handles data.

Taxation and succession are two areas where families are likely to see change. In particular, the gift and inheritance tax regimes of some EU countries do have concessions offered only to EU citizens. The case of Persche (2009) established that German tax laws must offer the same tax relief to a German taxpayer giving money to a Portuguese charity as he would have received if he had given money to a German charity. That will cease to have effect in relation to UK charities once the UK leaves the EU, and many UK-based charities with substantial EU donors are considering establishing “friends of” or associated charities in the EU. Other tax systems are more generous. Spanish inheritance tax laws, in contrast, were changed in 2015 to apply the same rates of tax to residents and non-residents of Spain, whether from the EU or not, so those owning or inheriting assets in Spain post-Brexit should not need to make changes.

Entire books have been written on the EU Succession Directive and its application (if any) to nationals and residents of the UK, and to UK assets. Now, deal or no deal, the UK will be a ‘third country’ after Brexit, meaning an end to the debate about whether one should only apply a single law to the whole of a deceased EU or UK person’s estate, or several. An EU national living in the UK can make a single valid will (under the law of their nationality or habitual residence) dividing their estate (including their UK assets) among their intended heirs, or can have more than one will, so long as one of them deals with the UK estate. Otherwise, English intestacy rules will pass their UK real estate in accordance with English rules, and distribute their UK-situated movable assets in accordance with the law of their domicile. A British citizen living in an EU state is likely to find his or her EU assets pass under local laws and his or her English estate under English principles – just as they would have been before the Succession Directive – and should make either one will (electing to use the law of his or her nationality) or several if he or she wishes.

Finally, families and family offices accustomed to dealing with a variety of lawyers and other qualified professionals across the EU may see changes in the way they deliver services. The UK, and most EU states, generally allow the delivery of services across borders by visit, correspondence or phone. Establishing a business (or working) in another state is more problematic. If there is no Brexit agreement then, for example, a German doctor hoping to work in the UK may find that he or she has to pass a language test or other competency exams before he or she is authorised to practise medicine, and an English lawyer wanting to live and work in Spain may find his or her professional qualifications are not recognised. While the UK has proposed that any deal should include automatic mutual recognition of professional qualifications and regulatory standards, the EU’s starting point is that it operates an ‘equivalence’ regime (which requires express recognition of standards and qualifications as they change over time) and does not currently propose to diverge from that.

The UK is criticised for wanting at the same time to leave the EU and keep many mutual advantages of membership, while the EU is criticised for unnecessary dogma in refusing to grant automatic recognition to rules that are the same as those it now recognises. The new United States of America may not have had to deal with VAT or AIFMD or pet passports when leaving the British Empire, but compromise was needed when it came to signing the new Constitution in 1787, and Benjamin Franklin’s speech still rings true: 

I confess that there are several parts of this constitution which I do not at present approve, but I am not sure I shall never approve them… I doubt too whether any other Convention we can obtain, may be able to make a better Constitution. For when you assemble a number of men to have the advantage of their joint wisdom, you inevitably assemble with those men, all their prejudices, their passions, their errors of opinion, their local interests, and their selfish views. From such an assembly can a perfect production be expected? … Thus I consent, Sir, to this Constitution because I expect no better, and because I am not sure, that it is not the best.

Weary pragmatists may hope that a similar compromise can be found to the Brexit conundrum; but private clients and their businesses are sensible to prepare equally for a failure of common sense.

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