Key Issues For British Expats As Brexit Deadline Looms

Carlie: Hey there, it’s Carlie with another episode of the Expat Focus podcast.

The dreaded C-word has really dominated the year, but now we’re reaching the end of 2020, and it’s the B-word that a lot of British expats in particular are worried about, as they rush to secure a base in mainland Europe.

Oliver Heslop from GETS – Global Expatriate Tax Services – is back on the show today to talk through where things stand when it comes to residency, benefits like healthcare, tax and pensions. We also touch on home working and the possibilities for moving to another country and taking your existing job with you.

At the time of recording this, of course, Brexit talks are still ongoing, so for the most up-to-date advice, specific to your situation, you can drop Oliver a message through the Expat Focus website.

Oliver, this big deadline coming up …

Oliver: Yes. It’s really funny, isn’t it? Because Covid-19 has just pushed it off the front page so much. And I think people are relieved, because people got so sick of it, but now we’ve got a big cliff edge coming up: 31st December. So, yes, it’s a thing. It is a big thing, isn’t it?

Carlie: I have been reading online, just in the last couple of days, that there are calls to delay Brexit because of Covid-19. But at the time of recording this, that’s not looking like it’s going to happen. Is it?

Oliver: No. And I always remain neutral politically, but it’s not the personality of our prime minister either. He was voted in on a mandate of just getting it done. So, it will just happen regardless. And, therefore, we may have to muddle through a bit next year, but [as of] New Year’s Eve 2020, the UK is completely out. That is the end of it.

Carlie: I was going to say. So, tell me, what does this mean? We’ve been in this transition period of a year. [In] 2021, what are the big changes?

Oliver: In January of this year, the UK left the EU. So, if you imagine the constant, political unit, that’s gone. The UK is its own sovereign state again. But we said for the whole of 2020, we’ll carry on in terms of citizens’ rights and trade, because there’s so much to sort out. We were out, but we pretended that things were as before to give us 12 months to sort it out.

There’s obviously Covid-19, which is interrupting everything. But when we get to this New Year’s Eve, we are completely out, which means that there is no trade agreement. There’s nothing.

All these extra tariffs and charges are going to come in on 1st January … That’s not going to happen, but what I’m saying really is that New Year’s Eve is a big cut-off, a key date for expats, and just something to think about. We need to take certain steps to avoid calamity regularly, without wishing to be too dramatic.

Carlie: Oliver, what has been agreed and signed, especially with regard to policies that affect expats?

Oliver: There’s some good stuff. There are some great things about Brexit, in terms of benefits and pensions. We’ll come on to that stuff. So, it’s looking quite healthy. There are new sets of rules about where you live and whether you’re a resident, and just new rules to follow.

And I’ve got clients who are calling me now. They know the rules as well as I do, but not everybody does. So that’s why it’s good to cover them again, just in case people don’t know about rights to live in certain countries and what it’ll mean next year. That’s what’s worrying me.

Carlie: And we have seen, on Expat Focus forums and Facebook groups, a lot of chatter about British citizens looking to move to Europe and get their residency status sorted before the end of the year. Are they basically too late, if they have not made a move yet?

Oliver: No. They’ve still got time. I had a British woman yesterday in London, [who] said to me, “I’m going out to Spain. I’m going to get my rubber stamp, and I’m going to become a Spanish resident.” Quick overview on the rules without any jargon: if you’re already out there and you’ve got five years under your belt – in Spain, France, [or the] Czech Republic – you are a resident.

So, you’re an EU person that can travel freely anywhere. So, that’s that person – tick. Let’s park them, in a way, because their lives won’t change. Let’s think of the London woman who is going to go out now. She’s got to become a resident, because if she doesn’t, she’ll be a foreigner in the EU with no rights, because she won’t be an EU person.

That’s what the big rush is about. And that’s happening now up until 31st December. People are going to these EU states and registering locally. People say to me, “What should I do, Oliver?” I can’t say, because each one of the 27 member states is different, but they are still welcoming Brits.

They still want you there, but you’ve got to register and get that residence label. And then you’ll be like an EU person, who can travel around the whole continent. That’s the key thing, I suppose. If you’ve missed either of those two scenarios – you haven’t got your five years, or you’ve just arrived and you don’t have that residence label – then it’s going to be much more difficult.

You’ll suddenly be on less than 90 days. You’re going to be looking at visas, permits, all that stuff. That’s where the stampede is coming from in certain areas.

Carlie: Oliver, what are you advising your clients who might be coming to you now, this late in the year, and saying, “I want to move to Europe and get everything sorted before Brexit.” Is it feasible? We’re now talking at the start of November. Is it really feasible to do that before the cut-off?

Oliver: I think that’s a great question. When clients come to me in a rush to move to any other country, I always say, “Don’t let your country move wag the dog.” What I’m really saying is: there’s a whole host of other things. We’ve got Covid-19 to think about. Is it really realistic to go to Madrid at the moment?

You know, Boris Johnson’s lockdown prohibits international travel in the main. So, how would it work? How would you get accommodation in those places? But, on paper, yes, it can be done. But the stress that’s involved … If you’re a single person, perhaps, but if you have a family … How on Earth would it work in terms of registration for schools, etc.? It’s looking very impractical, isn’t it?

Carlie: The year, for so many people, has been disrupted on so many levels by this pandemic, and best laid plans have gone straight out the window. I don’t blame anyone for essentially giving up on trying to beat the deadline.

Oliver: This client I’ve got in mind … Well, I’ve got two different families that are thinking about it. I think they’ll do it. They’ll pull it off. But the stress involved will be unpleasant. But they are very mobile people, and they’ve lived in the Middle East and Australia. I’m sure they’ll achieve it.

But, in terms of regulations and getting things done and the effect of the quarantine and the travel corridors … It just makes everything twice as hard, doesn’t it?

Carlie: Speaking about mobility, Oliver … A little upside of this pandemic has been the real normalisation of remote and home working. And another topic that comes up pretty much weekly in the Expat Focus Facebook groups, is people looking to move to another country, now that they can essentially take their UK job with them.

And there’s always going to be someone in that comment thread that flags your tax obligations. And it’s not as simple as deciding to work for your UK employer from somewhere else. Have you had many clients this year looking to work through those scenarios?

Oliver: Yeah. Great question. There’s something happening at the moment with one of my clients [who is] going to Spain, and she wants to get a visa. She wants to get something called the lucrative visa, which allows her to remote work in Spain but not trigger tax.

That’s fascinating to me, as a tax person. So, you leave the UK for good. You go to Spain, [and] they won’t tax you, and potentially you’re switching off the UK for tax as well. So, yes, it’s definitely going on.

Carlie: Is that actually possible, though?

Oliver: It’s a biggie, but I’m looking at it at the moment. Under UK law … I can look at each country separately. I won’t bore you with the details, but I think it is possible. I don’t think it’s a cheap solution. I think if somebody came to me, I’d say, “Well, if we’re doing it for two or three years, let’s get the paperwork in place.”

But, if they said [that] they were just doing a 12-month jaunt, I’d say the red tape involved in getting it all right – the cost of that – might outweigh the benefits. But there will be some clever planning going on. I’m amazed that Spain are saying, “Please come and live here.” I guess they want the input into their economy. They want people spending [money there], but they are saying, “We’re not going to tax you.” So, it’s a very strange world, isn’t it?

Carlie: What’s the general rule when it comes to working remotely and where your tax obligation is?

Oliver: So, if you work remotely … Prague is very popular. So, if you went to Prague and you were starting in your bedroom or sitting in cafes on your laptop, the Czech government would tax you, because you are sitting on their soil. So they’re going to tax you, unless you can use a treaty or certain exempt. There are certain exemptions around, but you find that most people want to settle.

I had one guy say to me, “Can I hop around Hungary, Bulgaria and avoid tax and all?” And I said, “Well, you can, with little, short bursts in all those countries.” But again, it’s a stress. It’s not that practical. But yes, for short visits to certain countries exempt from tax. For a longer time in Prague, the Czechs will tax you, and your home country won’t anymore. That’s as simple as I can make it, I’m afraid.

Carlie: It’s not just about tax when it comes to Brexit and the pandemic and all of the consequences that we’re seeing. There’s also the issue of healthcare, which is a big one, particularly for British expats looking to establish themselves in Europe or who are doing that currently. What happens to your healthcare rights, and who is responsible for that?

Oliver: Well, I’m not always a big fan of Brexit, because it does disrupt the lives of some of my clients. But amazingly, the whole benefits area is very generous under Brexit. The UK and the 27 nations have agreed to continue entitlements to benefits. So British people living within the EU can carry on their entitlement to state healthcare.

So, if the NHS would fully cover a hip operation in Hungary, they’ll continue to do so. If the NHS agreed to pay for parts of an operation, they’ll continue to do so. So, it’s very generous, and that’s a very pleasing aspect of Brexit.

And if you think about it, people who are 60+ [and] living in France and Spain … [They] didn’t want that worry of suddenly having a state healthcare pulled away from them, and that’s not going happen. There’s been a preservation of benefits.

Carlie: That really is good news, because I’m sure it could have been very easy for the EU or the UK to just split that out and say, “Okay, third country rules now apply.”

Oliver: I think that’s right. And there could have been an aspect of sour grapes from certain EU states, but they are very grown up. It’s practical. The people living there want to stay there, and the countries want them there. So, yeah, it’s a good outcome.

Carlie: Now, it’s no secret that the talks to reach all of these agreements before Brexit have been greatly disrupted, not just by Covid-19 this year, but by other tit for tat things going on – people playing politics, essentially. What’s going on when it comes to trade tax agreements and that sort of thing? And what’s concerning you, in terms of what’s still on that to-do list and that to-agree list?

Oliver: Well, it’s funny, actually, because the things that are holding them up … I was reading the conversation from this week on the debates. There are big, heated debates over fisheries and the idea that certain EU member states want to carry on fishing as they are.

And the UK has suddenly developed this, as we know, strong sovereign personality, and it’s trying to block access to certain British waters. So, for me, in our lives, the world of tax and mobility, that’s irrelevant in general, but that is what’s holding up the whole agreements and everything else.

We want things signed at Christmas to say, “Right, we’re a block outside the EU, but we wish to be friends. We wish to carry on trading.” And an argument over fishing is stopping everything. It’s crazy. Well, it’s quite funny in a way. There’s a great guy on Twitter who sits in Gibraltar and monitors Spanish ships that stray into British waters. And it’s a huge … We can laugh, but if you’re in that industry, it’s a big thing, isn’t it?

Carlie: Absolutely. We don’t mean to put down the fishing industry. And right now, it’s proving very important to every other tax agreement.

Oliver: It is. It’s affecting things as well. The other thing is that they talk about no deal, and I don’t think either side really wants that. So, what we’re saying is that, if there was no deal, there’d suddenly be an extra 10% tax on cars coming into the UK.

So, again, I’ve got automobile company clients, but not that many. I’m more worried about the free flow of people and the assets and their money. But again, the argument given over cars is stopping us settle this other stuff.

Carlie: And what about things like double taxation agreements, tax returns? How does that all get affected by Brexit? And do we know for sure yet?

Oliver: So, that’s all very easy for me. I know it only because it’s my bread and butter, but Brexit is not touching any of those things. So, when we talk about Brexit, and I’m talking about personal tax, just forget it. Imagine Europe as a map without the European Union overlaid across it.

We have tax treaties with individual countries. Our social security is affected a bit by the EU. But, essentially, we have individual agreements with each state, and we don’t have to worry about Brexit at the moment. The European Union does not dictate personal income tax rules.

There are a few little tweaks, which we can talk about in a second, that I’m a little bit worried about, but overall, there’s no big change on that. It’s more about the right to live somewhere. Residence – that’s the worry, and most Brits know about that. And if they don’t, I’m really glad that we’re raising it today.

Carlie: So, what are these little tweaks, Oliver?

Oliver: Well, a big one for me is that in Spain, if you sell your house, there is a massive tax relief – it is free of capital gains tax, if you’re an EU citizen. So, if I’m a Brit living out there now, and I’m an EU citizen, great. I sell my house, no capital gains. But after 1st January, if I’m not a resident, it’s taxable, because I’m not an EU resident. So, the practical implications of that are quite massive.

I suppose, when we think about it, retiring people, moving on or wanting to come back here, selling either a bar they own or a holiday cottage or their permanent residence … Suddenly, it’s all taxable, because they’re not EU people anymore. So, the solution to that is again – go back up to the top, to the first thing we talked about – to get yourself an EU citizenship.

I am here, and immigration lawyers are here, to help with that sort of thing. Because it would be 20% to 30% suddenly, as opposed to 0%.

Carlie: Can we move on to pensions and what the situation is with them when it comes to Brexit?

Oliver: Yes. I’ve just got one thing to say. It’s another great aspect of Brexit, which is that for people retiring within the EU who are claiming UK state pension, it’ll carry on going up year on year with inflation and consumer price index. You might say, “Well, of course it will.”

But countries like Australia and America don’t follow the same rules, especially Australia. There’s a freezing going on. So if you imagine you retire and you have a state pension of about $9,500. In 20 years’ time, it would be a disastrously low.

So again, Brexit means, the EU means, retiring to one of those states, and the British government is going to still increase, year on year, your pension, as if you were still at home. So again, that’s great, isn’t it?

Carlie: It must be so reassuring for so many people who … For years, it’s been a bit of a pilgrimage, hasn’t it, for British people, upon retirement, to look to somewhere like Spain or France, to take their GVP pension and live it up in their later years?

Oliver: I think, also, because I know lots of Brexiteers and they are just so delighted about it all going through. And I have to say to them, in very practical business terms, that the NHS news is fantastic, and it is fantastic that countries have come up with a practical beneficial understanding. They’re not punishing Brits for staying in their EU states.

Carlie: What other issues are still on the table that need to be worked out that concern expats, when it comes to Brexit?

Oliver: I’ve got one more big thing to talk about, which is inheritance tax, just briefly. This has been floating around since about 2015. And there’s a rule in the EU that says if you’re living in any country, regardless of where you’re from, you can use something called the Brussels IV rule.

You can put your hand up and say, “I may be living in Hungary or Sweden, but I wish my will to be regulated by UK law.” And you just have to invoke that law. So, your will has to say that. So, I love that rule, but it’s got to be in your will. If it’s not in there, then, in the case I just said, you’d fall into Swedish rules of inheritance tax.

So, it’s such a simple change to your will, but if your will doesn’t take account and say, “I’m just holding my hand up. I know what this rule is. And I want to ignore where I’m living. I want to invoke UK law.” Your will has to say that. I think that’s a great concession, but it’s one that you have to make sure you’re up to date on.

Carlie: And why is it so important for some people to follow UK law in their wills and not the law of the European country they’re living in?

Oliver: Yes. So, in the UK, we’ve got huge tax-free limits for couples – you know, like inter-spousal transfers on death – and our rates are fairly beneficial compared to certainly the Nordic countries. The other thing is that European countries with a socialist history will have higher rates of inheritance tax.

So, the UK is not hugely generous, but it is not extravagant either, so it’s certainly worth looking at. But there are certain reliefs in terms of gifts you can make during your life. One of the things we have are these things called exempt transfers, PETs (potentially exempt transfers), whereby you gift monies and property to your children in your sixties and seventies, and you avoid tax on death.

Those laws will not exist across the EU. So, this is very appealing. And it’s familiar, isn’t it, to stay within your home tax law? It’s quite unique, really. You can’t do that with other taxes.

Carlie: So, Oliver, what’s your recommendation, if people realise that something on this list is something they need to address? Is there an urgency to sort things out before the end of the year, or, at this point, should you just hold steady and focus on being healthy and getting through?

Oliver: I would say that probably 80% of this list my firm can do. There are a few immigration things on there … I’m a tax advisor, but I always say, just drop me a line, and let’s have a discussion. It’s interesting. We talked about stress and impracticality. It may be too late, but, as I say, there are families who are still pushing, and they are trying to make the move. So, it’s still doable.

Carlie: It will be interesting to see what people choose to do over the coming months. And also, fingers crossed that these latest lockdowns happening across Europe do the job, ease the pressure on our health systems, and allow people to hopefully have a bit of a break at Christmas.

Oliver: I think that’s right. We just talked about delaying Brexit. It’s just so tempting, isn’t it? I don’t have a strong view either way. On the one hand, you think, well, we are where we are. Let’s just get it finished. But if you look at it, you think, well, another three to six months would be nice, wouldn’t it, to do these things properly?

But there are certain parts of the English parliament who will always be asking for an extra year. So, it’s an impossible discussion. Isn’t it? Who knows what the right thing to do is?

Carlie: [What’s the] best way for people to get in touch with yourself, Oliver, to have one of your free tax consultations and understand their way forward?

Oliver: If you go on the Expat Focus site, there’s a form. You can contact me. Let’s have a chat. It’s all free. We don’t bill for phone calls or initial chats. It may just be, “Yes. Okay. You’re fine.” And hopefully that’ll be a comfort.

I had a guy write to me today. He said he wants me to help with residence planning in the Bahamas. And I just can’t do it. But I’ve got a network over in the Caribbean that can. So, you know, we’ve got this huge maze of all these different countries of experts that I’ve built up over the last 25 years. So, we can certainly direct you.

Carlie: So, if you can’t help, you probably know someone that can.

Oliver: Yes, as they say.

Carlie: Oliver, it’s always a pleasure to chat. Keep safe and well.

Oliver: Thank you, Carlie.

Carlie: That’s it for today, and expatfocus.com is where you can head if you want to get in touch with Oliver. Simply click on the ‘Services’ tab at the top and go to ‘UK tax advice.’

You can also find all of the links to our Facebook groups on the website. Be sure to check out our other episodes. We interview experts on all aspects of life abroad on this podcast. If you like what we do, please leave us a review, and I’ll catch you next time.