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Private Client - Brexit Considerations

on Thursday, 04 February 2021.

Private Client analysis: On 24 December 2020, seven days before the end of the Brexit transition period at 11pm on 31 December 2020 (IP completion day), it was announced by the Prime Minister, Boris Johnson, the UK and EU had negotiated a deal.

Angharad Lynn, Senior Associate at VWV, considers the impact of the Trade Cooperation Agreement upon private client law in the UK.

What Are the Key Issues For Your Clients Now That the Implementation Period Has Ended?

There are few immediate implications for private clients as a result of Brexit, in terms of the law relating to Wills and estate planning. Unlike some areas of law, it has not yet been necessary to make big changes to the advice we give. However, it will be necessary to keep a close eye on any changes in legislation.

The main implications are for cross-border families who are used to being able to live, work and study freely across the UK and the EU, and who will face restrictions, for example, on how long they can spend in their second homes on the continent. They may face increased property taxes, and those who take up positions abroad may require work visas.

What Will Brexit Mean For Trusts?

Trusts are a common law concept. Some civil law jurisdictions in the EU do give trusts some recognition, and some have implemented The Hague Convention on the Law Applicable to Trusts, notably Italy in 1992 and the Netherlands in 1996. However, many civil law countries impose onerous tax regimes on trusts, and where trusts are not recognised, trustees can find themselves treated as beneficial owners of trust assets, which can cause problems. One of the downsides of the UK leaving the EU is that, as the UK was one of the few common law jurisdictions in the bloc, it was able to have a say in EU policy that affected trusts. While there remain a few common law countries in the EU, such as Ireland, the loss of the UK at the negotiating table on legislation that impacts trusts, means that the difficulties around working with trusts in a cross-border European context are likely to increase.

One of the big changes in recent years has been the increased transparency surrounding trusts, as a result of EU Money Laundering Directives (MLD). Directive (EU) 2015/849, the Fourth MLD, which was passed into law in June 2017, saw all express trusts with a UK tax exposure having to register with the Trust Registration Service (TRS). Directive (EU) 2018/843, the Fifth MLD, was implemented in January 2020 by the Money Laundering and Terrorist Financing (Amendment) Regulations 2019, SI 2019/1511 and, in relation to trust registration, is being implemented by the Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 (MLR 2020), SI 2020/991. MLR 2020 came into effect partly on 6 October 2020 and implementation period completion day and the rest will come into effect on 6 April 2021 and fully on 10 March 2022. As a result of MLR 2020 by March 2022 all UK trusts, with a few exceptions, will need to register with the TRS. HMRC guidance is expected in early 2021. It is possible that there may be some divergence in money laundering regulation following Brexit and the UK government’s decision to opt out of the Sixth Money Laundering Directive. However, the UK government has always been committed to implementing a gold standard in relation to beneficial ownership transparency and therefore it seems unlikely that any regulation in this area (particularly regulation which has already been fully transposed, such as the Fifth MLD) will be diluted, at least in the near future.

A divergence from EU rules in the future is expected. Trusts have fallen greatly in popularity with the UK public, largely as a result of loss of tax advantages. An increased administrative burden will only reduce their popularity further.

What Impact Will Brexit Have on Estate Planning for Clients Who Have Property in the EU?

Regulation (EU) No 650/2012, the EU Succession Regulation, was designed to simplify the administration of cross-border estates in the EU so that a single law would apply to the whole estate administration. The UK was never a signatory to the EU Succession Regulation (along with Ireland and Denmark). When the Regulation first came into force in August 2015 there was a lack of clarity about whether the UK was a ‘third state’ or not. Post-Brexit that point is now resolved.

Even though the UK was not a signatory, the EU Succession Regulation could still impact UK citizens with second homes in EU Member States, or those habitually resident in a EU country. This is unlikely to change so UK nationals resident in the UK can still elect for their national law to apply to the succession of their home abroad, to avoid, for example, forced heirship.

Brexit Implementation Legal Advice

How Likely Do You Think it is That Current Inheritance Tax Exemptions For EU Charities, Business Property/Assets and Agricultural Property Will Be Retained?

Charities

Since the Finance Act 2010 came into force in April 2012 it has been possible for British citizens to donate to EU charities (and those in Norway and Ireland) and claim tax relief. Similarly, citizens of EU countries have been able to obtain tax relief when donating to UK charities. Altering this position would require a change in legislation, and this has not yet happened, although the position is currently uncertain.

Due to the lack of certainty at present, a testator making a Will who wants to leave money to an EU charity would be advised to include a legacy to a UK charity that has links to the intended EU charity, to have certainty that tax relief will be granted, and to avoid possible scrutiny by HMRC.

Business Property and Agricultural Property

As with changes to exemptions for charities, a change to Business Property Relief (BPR) and Agricultural Property Relief (APR) will require a change in legislation, and, so far this has not yet happened.

BPR is currently available on business assets worldwide, and so it is unlikely that the position relating to BPR would change to specifically exclude EU countries. The position with APR is different, in that the agricultural property must be situated in the UK, Channel Islands, the Isle of Man or the EEA.

With the hole in the public finances left by the pandemic, the Chancellor is looking to find ways of raising taxes and reducing the current BPR and APR allowances are one option that has been mooted, and so it may be that the availability of BPR and APR are reduced universally regardless of what happens in relation to assets and land located in EU Member States.

What Will Be the Main Points Private Client Lawyers Should Be Aware of in Respect of the Provision of Legal and Trust Administration Services in the EU?

The TCA gives UK solicitors, barristers and advocates the right to provide legal services to clients in the EU using their home professional titles. However, you should be aware that this:

  • covers legal services relating to UK and public international law (excluding Union law) only,
  • does not apply where EU Member States have placed specific limits on this activity.

Likewise, EU lawyers may provide legal services in the UK in relation to Member State law (including Union law) and public international law (excluding Union law).

You should consult the TCA for the definition of legal services.

The TCA also allows UK law firms to establish branch offices in the EU (and vice versa), for the purpose of supplying these legal services. This is without prejudice to any requirements that certain percentages of the shareholders, owners, partners or directors of a law firm be legally or otherwise qualified.

Where EU Member States require UK lawyers to register in order to provide advice on UK and public international law, this cannot mean requalification or admission to the local legal profession.

As well as including specific provisions about the supply of cross border legal services, the TCA also covers other professional services, which will cover ancillary services provided by law firms which do not fall within the definition of legal services (for example some trust administration or accountancy services). Suppliers of such services would be entitled to fair market access and non-discriminatory treatment between UK and EU service suppliers.


For more information on aspects covered by this article, please contact Angharad Lynn in our Private Client team on 020 7665 0904 or complete the form below.

This article was originally published by Lexis PSL on 26 January 2021.

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