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The EU Referendum

Following the referendum of 23 June, it has today been announced that voters in the UK have elected to leave the European Union. 

Whilst, as expected, there was an inevitable and immediate reaction in the financial markets, we do not currently anticipate that anything else will immediately change. The UK remains a full member of the EU for a period of at least two years while negotiations as to the terms of its exit, and its ongoing relationship (if any) with the EU, are agreed.

 Institutions, family offices and private individuals will clearly want to keep the situation, and future opportunities, under review, as clarity emerges over time.  There are one or two topics in particular which are worth monitoring.

Topic

Impact

Family offices

Family offices based in the UK or the EU should review their regulatory position.  Currently, EU regulatory rules apply to investment activities across the EU (including the UK).  These should continue to apply during the anticipated two-year negotiation period while the UK remains a member (albeit an exiting member) of the EU, but at the end of that period, even if (as seems likely) the UK takes no immediate steps to introduce new regulatory rules or alter the rules which currently apply, family offices within the UK will become non-EU entities.  During this time, family offices will need to look at their regulatory permissions to see if they can continue to buy, and provide, services in the way that they currently do, and may need to consider whether they need a separate or branch entity to carry out business across the new border. 

Immigration/residence

Individuals with investor, student or other visas should be unaffected, as these are granted under the UK’s own rules to non-EU citizens.  It is unlikely that those from other EU jurisdictions who are currently living, working or studying visa-free in the UK will be affected in the short term, as they are here under the freedom of movement principle, to which the UK will remain subject throughout the two-year negotiation period.  Grandfathering (i.e. allowing those who are here to remain, perhaps with a requirement to re-register) seems a likely option; removal of UK-resident EU nationals would imply a similar loss of residence rights for UK nationals resident abroad, and both would be undesirable.  EU citizens who are not yet UK resident may (unless the UK remains an EEA/EFTA member and subject to freedom of movement) need to obtain visas after the expiry of the two-year negotiation period, and we will monitor the proposals closely.

Personal assets

While no immediate changes are likely, owners of private aircraft and yachts may need to consider their VAT status.  Currently, such craft generally have free movement within the EU provided that VAT has been paid at some point of entry to the EU.  While existing VAT-paid craft will presumably be grandfathered, owners may find that they do not have VAT-free movement across the EU/UK border in future (unless the UK remains part of the EU’s VAT territory).  Similar issues may affect art, fine wine, jewellery and other items commonly moved by private individuals within the EU free from additional taxation.

Real estate

A number of contradictory factors are at play.  Property (particularly prime London residential real estate) could in the short term become more attractive to international investors if the effect of Brexit is to cheapen the value of sterling substantially over a medium-term period.  Some current UK residents may return/move to the EU as a result of business decisions driven by the referendum result and this may release properties into the market, reducing prices.  The UK Government’s increasing focus on the taxation of UK residential property held by non UK residents may have a balancing effect.

Tax

No changes to the remittance basis or other direct taxation rules seem likely as a direct result of the referendum.  Post-Brexit, the UK should be free to set its own indirect tax rates and rules, and will need to balance its desire to be competitive with its need to manage a newly-independent economy.  However, its ability to do so completely freely may depend on what ongoing arrangement it has with the EU, which might mean that VAT rules have still to comply with the EU format, for example, and might still prevent our tax rules operating in a way which offends against free movement principles.

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