‘B’ Day … Midnight Friday 29 March 2019 … so what exactly has been agreed and how might it affect me?

‘B’ Day (BREXIT) has officially been declared as 11 pm UK time (midnight Central European time) on Friday 29 March 2019. After this the UK will no longer be part of the European Union.

So, what are the divorce terms?

On 8 December 2017 the UK and EU provisionally agreed on the three “divorce” issues:

• How much the UK owes the EU

No specific figure is in the document but Downing Street sources say it will be between £35bn and £39bn, including budget contributions during a two-year “transition” period after March 2019.

• What happens to the Northern Ireland border

The UK government and the EU want to maintain the free flow of goods, without border checks that they fear could threaten a return to The Troubles, with a guarantee that there will be “no hard border” between Northern Ireland and the Republic and that the “constitutional and economic integrity of the United Kingdom” will be maintained.

• What happens to UK citizens living elsewhere in the EU and EU citizens living in the UK

There are three million EU citizens living in the UK and more than a million UK citizens in EU States (I believe this figure is much higher in reality due to UK nationals living ‘unofficially’ in EU countries). They will have their rights to live, work and study protected. The agreement includes reunification rights for relatives who do not live in the UK to join them in their host country in the future.  The plan is that UK citizens living in an EU country would get the same rights, although they would not retain them if they moved to another EU country.

The European Commission president said it was a “breakthrough” and he was confident EU leaders will approve it. Talks are now moving on to future relations, after agreement was reached on a 21-month “transition” period to smooth the way to post-Brexit relations.

What is the ‘transition’ period?

It refers to a period of time after 29 March 2019, to 31 December 2020, to get everything in place and allow businesses and others to prepare for the moment when the new post-Brexit rules between the UK and the EU begin. It also allows more time for the details of the new relationship to be fully hammered out. Free movement will continue during the transition period as the EU wanted. The UK will be able to strike its own trade deals – although they won’t be able to come into force until 1 January 2021.

I live in Spain but declare tax residency in the UK – do I need to consider obtaining Spanish Tax Residency or Citizenship before 29 March 2019?

Tax residency, yes! The final period pre-Brexit is now upon us and you may find yourselves vulnerable to changes in residency rules after Brexit. There are a number of reasons why you should consider becoming Spanish tax resident in relation to Spanish Inheritance Tax, which I detail below:

In January 2018 a new €1 million inheritance tax nil rate band was introduced (working in a similar way to the UK nil rate band) allowing each beneficiary to inherit up to €1 million provided they do not have pre-existing wealth of over €1 million. The deceased and beneficiary must be resident in the EU to benefit from this new nil rate band.

The main issues for UK expats in respect of the new generous €1 million nil rate band are:

• the UK leaving the EU will mean that British expats who are not Spanish tax  resident will not qualify for this nil rate band as they will no longer be EU resident.
• British expats who are Spanish tax resident, who have beneficiaries in the UK (typically children and/or grandchildren) will not qualify for this nil rate band as their beneficiaries will no longer be EU resident.

So, a married couple living in Spain unofficially will not benefit from this new nil rate band in the event of either of their deaths, but a married couple living in Spain as Spanish tax residents will.

Take advice in connection with your tax residency as there are also other benefits available to you as Spanish tax residents in the form of tax efficient investments and savings. Spend some time housekeeping and reviewing what you have in place. We can help you future proof your tax planning and reduce/eliminate unnecessary exposure to potential Inheritance Tax Liabilities moving forward.

Don’t mistake tax residency for citizenship – they’re different

In 2017 Germany followed France and Belgium in reporting a record number of Britons applying for citizenship in the wake of the leave vote. Citizenship is complicated because access to citizenship is governed by the individual member states and it’s different to tax residency. You can remain a British citizen whilst being a Spanish tax resident.

Dual citizenship is tightly controlled in Spain, the Spanish naturalisation process requires applicants to give up their right to return to the UK, so this isn’t really a route that most expats would consider.