Since the EU referendum result, in which the UK voted to leave the EU with an overall 52% to 48% majority, mobile employees and their employers are concerned how this will impact them, both personally and financially. This month's newsletter provides an overview of the implications of Brexit for mobile employees.
At present, as highlighted in the media, the only thing we are certain of is that nothing is certain. Interestingly, the Prime Minister, David Cameron, chose not to invoke Article 50 of the Lisbon Treaty, which outlines the process and deadlines that would govern an exit from the EU, immediately after the referendum results, despite hinting before the vote that he would. Instead, he tendered his resignation and left this to the new incoming Prime Minister, Theresa May, to take action. Only once Article 50 is invoked is the UK committed to an exit from the EU with a two year time frame for negotiations. That means, as of today, nothing has officially changed and the UK is still a member of the EU. For more information regarding Article 50 please follow this link: http://www.lisbon-treaty.org/wcm/the-lisbon-treaty....
The other interesting development was the Chancellor, George Osborne's, decision to postpone the emergency budget he had originally suggested would take place immediately after the vote, with promised tax increases and other austerity measures that would be needed to plug the projected £30bn hole in the UK economy. Osborne had suggested the need for a potential 2% increase in basic rate tax (up to 22%), a 3% increase in the higher rate (up to 43%) and a 5% increase in inheritance tax (up to 45%) prior to the referendum. After the result, he announced an intention to reduce corporation tax rates to 15% which would be the lowest rate in any major economy. Following Theresa May's appointment as Prime Minister, Philip Hammond was announced as the new Chancellor and confirmed that that there would be no emergency budget and that he would deliver his Autumn Statement as normal.
But what will the situation be after the UK has left the EU and what is the outlook for mobile employees moving in and out of the UK?
There is a growing possibility that not much will really change. While those supporting the exit from the EU based their campaign on controlling immigration by moving to a points system for high skilled labor, the message from Brussels is that the UK must keep free movement of labor if it wants access to the single market. This could retain the ability for UK mobile employees to work in the EU and EU mobile employees to work in the UK. Given the commitment to controlled immigration, it remains to be seen whether it will then become more difficult for non-EU citizens to gain visas to work in the UK. We may see negotiations that allow some form of controlled "EU" immigration in addition to access to the single market. It seems unlikely the UK will want to strike a deal that removes free trade completely. The fact the UK is Germany's 3rd largest export market after the US and France (worth over Euro 89bn), may well give the negotiations some added spin.
One area that has already had a financial impact on mobile employees is the significant fall in the pound since the referendum result. Many British citizens that have retired overseas will have seen a large cut in their spending power from UK pensions. Similarly, those with rental (or other) income in the UK and those who are planning to sell their UK property to move overseas will suffer. Conversely, mobile employees that are working in the UK, but paid overseas, will be better off. One, often forgotten, consequence of such exchange rate fluctuations is the "currency gains" that UK residents with overseas investment income may see, which can increase the amount subject to UK tax on the disposal of foreign assets.
A significant issue facing many British mobile employees living in the EU will be the potential loss of reciprocal agreements on EU wide healthcare. For example, a British mobile employee in Spain, post Brexit, may not be able to obtain free healthcare in Spain nor the UK (unless they spend 6 or more months back each year). This lack of coverage will likely require the mobile employee to purchase private healthcare insurance. In addition, pensions, which are linked to inflation under EU rules, may be frozen, thus eroding their value over time. This is something we have already seen with British citizens that have retired to Canada.
For employers with international assignment programs, concern will inevitably be directed to social security issues. If the UK does leave the EU, then reciprocal agreements with EU countries on social security may be lost and new bilateral agreements may be needed. In the meantime, it is quite possible that social security will end up payable in both the UK and overseas country on the same earnings. This is similar to the situation already faced by many employees that are assigned from the UK to a number of other non-EU countries, including Brazil. The "double charge" may inevitably have to be funded by the employer, thereby increasing the global assignment costs of sending employees to and from the UK.
Of course, much of this is unknown, but we can be certain that more details will evolve once (or perhaps, if) Article 50 is triggered. In the meantime, we will need to wait until the Autumn Statement this year for details of any changes to UK tax rates. Whether these tax increases will be in line with the outgoing Chancellor's pre-referendum predictions, remains to be seen.
For further information on this newsletter, please contact Richard Watts-Joyce CTA, ATT at +44(0)20 7100 2126 or via email at rwattsjoyce@globaltaxnetwork.co.uk.
The information provided in this newsletter is for general guidance only and should not be utilized in lieu of obtaining professional tax and/or legal advice.