What are the tax implications of a Brexit for British expats?

When Britain leaves the EU will British expats in France find themselves paying more tax and having their access to healthcare and ability to work in France restricted? Keep up to date with the latest information

Written by Kehinde Dauda, owner of Greenwich Taxation Services

The main challenge with trying to predict anything about the consequences of the UK’s exit from the EU (now universally known as Brexit) is we simply do not know what kind of agreement the UK will have with the remaining EU members post-Brexit. Nevertheless it is possible to make some educated guesses given what we already know.

What will the process be if Britain votes to leave the EU?

Prime Minister David Cameron has stated that if the UK votes to leave the EU, the government will not be entering further negotiations in order to remain. Article 50 of the EU Treaty would be invoked: the British government would notify the European Council of its intention to withdraw from the EU and negotiations would begin to come to an agreement on the UK’s future relationship with the remaining members. If an agreement is reached before two years, the UK will cease to be a member of the EU from the date agreed.

What happens if an agreement isn’t reached within two years?

If an agreement is not reached within two years, the UK would only continue to be a member of the EU if the UK and the other EU members agree unanimously to extend the two-year limit. Commentators have stated that two years is a short time when it comes to agreeing trade agreements – the trade agreement between the EU and Canada began in 2009, concluded in 2014 and it may come into effect this year. The UK could therefore cease to be a member of the EU within the next two years, but it should not come as a big surprise if it remains in the EU for several more years.

What impact would a Brexit have on taxes?

Tax laws are generally determined by the individual member states, and as long as they do not contravene the overriding EU principles such as freedom of movement of people and goods, they are not usually affected by the EU, with the notable exception of VAT (see below). National tax laws can be overridden by double tax agreements. Both France and the UK have double tax agreements with many countries, including with each other, covering income tax and capital gains tax. These double tax agreements do not depend on EU membership therefore we should not expect any real impact on income and capital gains tax as a direct result of Brexit. Other taxes which should not be affected as a direct result of Brexit include: inheritance tax, local property taxes (taxe d’habitation, taxe foncière) and stamp duty on property purchases.

However, these taxes may change as an indirect result of Brexit; for example the UK government may decide to increase income tax because of the economic impact of Brexit or it may decide to introduce tax breaks that would previously have been contrary to EU law.

What about VAT?

VAT for EU members is essentially an EU tax. Although it is collected by the individual member states, the rules governing VAT are determined at EU level. If the UK left the EU, we can assume it would no longer be bound by the EU VAT rules. Subject to whatever agreement is concluded upon exit, the goods and services provided by the UK to the remaining EU members would be classed as exports. This may mean UK exporters would have to pay import VAT when exporting to the EU. On the flip side, UK tourists visiting the EU may be able to reclaim VAT they pay on goods purchased in the EU; although import VAT may be due in the UK if they bring those goods back to the UK For private individuals, VAT is usually just a hidden cost of goods they purchase and they don’t have to worry about the associated paperwork. It is therefore businesses that will bear the brunt of the potential VAT shake-up post Brexit.

What about social security payments for healthcare and pensions?

Social security covers areas such as access to healthcare and pensions that are of importance to many people who will be affected when Britain leaves the EU. In my view, social security is the area where individuals are most likely to feel the effects of Brexit. Initially there will be uncertainty as individuals wait for what will replace the current system, followed by possible upheaval depending on what agreement is reached between the UK and the remaining EU members.

If the UK remains in the European Economic Area (EEA), like Norway, Iceland and Liechtenstein, then it is unlikely we will see major changes because the EU social security legislation extends to EEA countries.

However, if the UK doesn’t join the EEA then we need to seriously consider that the UK’s social security relationship with the remaining EU members could resemble what is in place with other nations. While I would not expect there to be visa requirements for holiday visits, we should prepare for the following scenarios:

• Those currently working in France may have to apply for work permits in order to remain in France

• It may not be so easy to retire to France in future and current retirees may not be able to remain in France indefinitely – they may have to demonstrate that they can support themselves financially

• Restrictions to access to the French state healthcare system

• Under current EU rules, periods of work abroad in other EU countries are taken into account when determining eligibility for state pension – this may end.

The reality is that British people living in France will most likely face a period of uncertainty as regards their status and rights which they currently enjoy automatically by virtue of UK’s EU membership. In order to retain some of these rights, those who have been living in France long term (over five years) and who wish to continue living in France may want to consider applying for permanent residence or French citizenship

More about Brexit:

What effect could a Brexit have on British expats in France?

Should property buyers be concerned about Brexit?

What impact could a Brexit have on my finances?

Would a Brexit stop you buying a French property?

How to become a French citizen