Brexit has added layers of cost and complication for those with assets in the EU, the authors of this article note, and spell out ideas on how to navigate these new challenges.

The UK’s exit from the European Union means that individuals with property in one of the 27 remaining EU states have new complexities to think about. People in the UK with continuing EU ties – such as family members and certain business relationships – have had much to contend with and that’s even before the pandemic hit travel. So what sort of advice makes sense to people in these situations? 

To answer these points are Matthew Biles and Robert Payne from the law firm Ince (more details about the authors and their firm below). The editors are pleased to share these views; the usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

The UK left the European Union on 31 January 2020 (a process colloquially known as “Brexit”), with a further “transition period” in which the UK and the EU determined their future relationship ending on 31 December 2020. The impact of Brexit has been wide-ranging and complex for those based in the UK with ties to the EU and its remaining individual member states.  

The UK is now a “third country” from an EU perspective, with no special treatment being granted for being a previous EU member. People from the UK with second homes or other assets in the EU must contend with increased administrative burden and costs, and certain activities may now be restricted. The burden will be more significant for those with property in multiple EU countries, as each country’s laws should be considered separately.   

Immigration issues
The right to move freely and to reside in the EU belongs to those holding citizenship of an EU state. There has therefore been a surge in UK citizens trying to obtain a passport from an EU country, for instance by ancestry or investment in an EU country.  

For those without such passports, there are limits on how many days they may spend in the European Union. The general limit applicable to those from the UK is that up to 90 days may be spent in EU countries in any 180-day period. This is likely to be restrictive for those wishing to spend significant periods within the EU during retirement or wishing to spend the winter in warmer EU climes. COVID-19 has also led to restrictions on travel to the EU from third countries and has raised practical issues for non-EU citizens that come close to the 90-day limit, as there is a risk that they will not be able to leave the EU/return to the UK when they planned and breach the day count limit. 

Non-EU citizens may be able to obtain a visa to allow for longer residence, potentially involving payment of a significant fee or requiring local investment.  We understand that certain countries such as Spain offer long-term visas to buyers of higher value property. Therefore, options exist for staying in the EU on a long-term basis, depending on the rules of the EU country in question.

Ownership
It is highly unlikely that Brexit will cause UK owners’ existing interests in EU-situated property to be at risk of any local government led seizure or confiscation. Article 1 of the ECHR provides that, subject to limited exceptions, no one shall be deprived of their possessions except in the public interest. Article 17 of the UN Universal Declaration of Human Rights provides that no one shall be arbitrarily deprived of their property. In addition, in limited cases, those from third countries may benefit from EU freedoms such as freedom of movement of capital. Even without these protections, it is very unlikely that EU countries would risk the negative consequences that would follow from depriving rightful owners of their property.  

It is possible that European Union states will introduce measures limiting the rights of UK persons (and/or non-EU persons generally) to purchase local property. It remains to be seen how specific EU countries will act in this regard. This may depend upon the status of ongoing negotiations between the UK and the EU and how these are perceived within the EU. It seems unlikely that EU countries will want to discourage external property investment and associated spending by visitors, especially whilst tourism has been curtailed by the pandemic.  

The current weakness of the pound against the Euro is likely to make investment in the EU more costly, in the short term at least. Practical issues are more likely to now arise in connection with property ownership, such as less beneficial mortgage terms for non-EU persons and requirements to appoint a local representative.

Taxation
EU states set their own taxes, subject to the principles of EU law. Whilst European Union law limits the ability of an EU country to require those from another EU country to pay more tax than those from its own, each EU country has scope to charge higher levels of tax to those from outside the EU.  

Therefore, UK resident owners of EU situs property may be negatively impacted by different tax rules that do not apply to residents of EU countries (certain rules may also only apply to non-EU citizens). We understand that Spain applies a higher rate of tax to, and disallows the deduction of property expenses from, rental income from Spanish property owned by non-EU residents. The income tax on rent is 5 per cent higher (at 24 per cent) for non-EU residents, an amount that may not be significant enough to justify acting. In many cases, we expect that these increased costs will be an additional and unwelcome cost required by Brexit. It is anticipated that any rise in tensions between the UK and the EU may well result in an increase in such tax inequalities rather than outright bans on property investment or the like.

Even when the tax position is equivalent to EU resident owners, there may be an increased local compliance cost. We understand that France applies different, more onerous, capital gains tax formalities to non-EU residents and Portugal imposes a requirement to appoint a local tax representative. As such, it may need to be considered whether a company or other ownership structure could improve this position. However, ownership by a structure will involve extra costs. Restructuring the ownership of EU property may well also create immediate tax issues, for instance by realising gains on disposals. Local advice would be essential to understand the costs and any potential benefits.

Yachts and movable property
Special care needs to be taken about yachts and the applicable VAT position. Care should be taken when yachts move between the UK and the EU and consideration given to where they are moored to avoid unwanted consequences. For instance, owners of yachts within EU waters may be liable to UK VAT if they do not sail it to UK waters before 30 June 2022. Yacht owners are advised by HMRC to be ready to produce their VAT records as may be required and HMRC has provided guidance on how flags should be flown on entering UK waters.   

The position is now also more complicated for other asset classes and activities. Those moving property between the UK and the EU (for instance when art has been kept in one territory and is to be sold in the other) may face an increased compliance burden and potentially increased taxation.  

EU entities
UK-based individuals may benefit from incorporating an entity within the EU, to be within the customs union and enjoy the EU freedoms. The preferred structure will very much depend on the assets involved; the circumstances and objectives of the owner; the rules of the EU country/ies concerned; and whether the costs involved would justify the benefits.  

Brexit has added layers of cost and complication for those with assets in the EU. Care should be taken to avoid a range of pitfalls that are now dictated by the rules in the EU country in which assets are held. With careful planning and strategic cross-border advice, these issues may be managed, and prior rights and interests maintained to the extent possible.

About the authors

Matthew Biles is a partner and head of the private wealth team at Ince. He specialises in private wealth law matters, with a particular focus on providing easy-to-understand advice on UK inheritance tax, capital gains tax and income tax. His experience includes advising both UK nationals on their personal tax and succession affairs, and international individuals on UK matters including residence, domicile and remittance issues. He also advises trustees of both UK and non-UK trusts and has extensive experience of setting up and advising UK charities. 

Robert Payne is a managing associate in the private wealth team at Ince. He advises clients on UK tax, estate planning and succession matters. Having worked in-house for a trust company, he has a keen understanding of the issues facing professional trustees. His experience includes advising clients on UK residence and domicile matters, including those arriving in the UK, those leaving the UK and those becoming deemed domiciled in the UK. Robert also advises on family governance issues and helps clients to structure their assets for future generations.

Ince, a law firm dating back more than 150 years, has offices in nine countries across Europe, Asia and the Middle East.