Brexit is here and all seems very normal. Brexit will be completed as a result of the U.K. elections—the fulfillment of a prophecy, announced for the first time by then Prime Minister David Cameron when he called the referendum back in 2016—a referendum he himself did not even believe in.
The results of this election have led to the least contentious outcome that could have been hoped for in a divided country where the political, social and economic agenda has been dominated by Brexit. Now it is over, and Brexit is finally here.
Britain may be leaving the EU, but it is—and always will be—part of Europe’s neighborhood. Leaving the EU doesn’t change the U.K.’s geostrategic and political position on the European continent; as such, business in Europe will continue, because most businesses prefer dealing with neighboring countries, and tourism will continue for the same reason. This is true for most of the EU’s member countries, but in particular Spain, an important European partner.
So, now that negotiations have started—despite there already being so much uncertainty—how will businesses and individuals be affected?
The most noticeable changes will be the way we used to cross the U.K. border, due to the elimination of what is known as the “four freedoms” of the EU single market: the freedom of movement of goods, people, services and capital over borders—the key principles of the EU. In practical terms, that means the U.K. will be treated as a third country, so imports, customs and permits will apply to U.K. citizens and businesses in the EU.
The reality is that since 2016, from human resources to the financial services industry, many businesses have already been experiencing the effects of Brexit due to currency fluctuations and the shortage of qualified staff. Supplies of certain materials and services have also changed, and immigration, customs procedures and duties are due to change.
From a legal point of view, perhaps data protection, cross-border litigation, mergers and acquisitions, corporate finance, family law and intellectual property will most likely be the main affected areas.
From Expats to Immigrants
From an individual British expat’s—”Brexpat’s”—perspective, how will the upcoming changes affect their business endeavors?
The legal status of British expatriates remains—and will remain—the same until the London–Brussels negotiations are completed, which will be no later than 2020. Spain has insisted that British expatriates will enjoy the same privileges and rights they have had up until now as EU citizens. Once the U.K. has exited the EU, however, these rights will depend on the agreement that the U.K. comes to with the EU. The sooner the British government engages with specific countries, and in particular embraces a dialogue with Spain, the more likely Brexpats’ rights will be protected once the transition of the U.K. leaving the EU commences.
A two-tiered negotiation to strengthen Anglo-Spanish ties, both in the U.K. and in Spain, would be the best way forward, in the form of:
- the multilateral approach currently in place with all EU countries involved through EU institutions to keep current status under the European Economic Area Treaty; and
- a bilateral approach on a country-by-country basis with Spain to ensure reciprocal privileges are maintained where possible for existing expats.
From a legal and administrative point of view, certain matters will become more complicated—for example, the freedom to establish a residence, the ability to move investments, and to start up a business in Spain, because it will be treated like any other international country. Other aspects like consumer rights, mobile roaming, driving, banking and so on may also differ as the EU regulations will no longer be applicable to Britons.
But the most important area affecting British citizens is the fact that almost 500,000 Britons own property in Spain, and approximately 200,000 Spaniards live in the U.K. Arrangements are being made between the two governments (as well as within the EU) to ensure their rights are not affected, or at least that any adverse effects are minimized in terms of individuals moving between the two countries and establishing their residence from one to the other.
In Spain, British people may see first-hand how the term “British expat,” with its affluent and glamorous connotations, may become “British immigrant.” They may have to apply for long-term visas if they want to live in an EU country once the U.K. has left the bloc, in a similar way that EU citizens must apply for the Indefinite leave to remain (ILR) in the U.K.
Although it is not yet clear how the bilateral relationship will evolve, we can anticipate—EU permitting—that the Brexpats will not be treated in a discriminatory way, although some of the benefits applied to EU citizens may no longer be applicable to Britons.
From a tax point of view, British residents and businesses registered in the U.K. will experience very little change, as the double tax treaty between the U.K. and Spain will remain. The treaty—which is in place to ensure that British and Spanish residents are not taxed twice on the same income—covers income and capital gains both for individuals and corporations.
The Spanish nonresident tax (IRNR), wealth tax and inheritance tax obligations must be reconsidered in light of Brexit, so seeking expert tax and legal advice is recommended in each case.
Tax investigations of nonresidents are on the rise in Spain and this is not going to change. Of course, the “Beckham” rule, which allows a very favorable regimen to expats working in Spain, will continue, as will the “Golden Visa” scheme which offers residency permits to non-EU nationals in return for an investment of 500,000 euros ($558,000) or more in Spanish property.
On the other hand, some of the tax benefits applied to EU citizens by virtue of Spanish regional laws, for inheritance and gift tax purposes, were already extended to third countries in February 2018, when the Spanish Supreme Court ruled that tax residents in non-EU countries should be eligible for the tax benefits provided by the regional laws, just like individuals who are tax residents in Spain and in the EU. The Spanish government has created an informative page where different scenarios are outlined, depending on the type of deals that are executed during the Brexit process. The page can be accessed here.
We can conclude that there will be changes in the areas of immigration, customs, consumer law and other areas mentioned above, but the effects of those changes remain to be seen and will depend on the negotiations between the U.K. and the EU. We should not underestimate the significance of negotiations between Spain and the U.K. when it comes to areas such as family law and immigration, due to how many residents from each country live in the other.
It is also worth mentioning that there are so many individuals with interests between Spain and the U.K., so some of us are doing what we can within our sphere of influence to ensure that Spain continues to be a country where Britons feel at home.
Leon Fernando Del Canto is an international tax barrister practicing from Normanton Chambers in London. He is a member of the Honourable Society of Lincoln’s Inn, The Worshipful Company of Tax Advisers, the Association of Taxation Technicians and the Madrid Bar.
The author may be contacted at: email@example.com
Originally published in Bloomberg Tax