As everyone knows, there are huge economic implications from the UK’s decision to leave the EU. While no one can say with any certainty what these implications will be, big changes will occur, and it is very likely that many of these changes will happen to the UK’s tax system. In this guide, we’re going to take you through some of the potential impacts Brexit might have on UK tax policy – let’s take a closer look.
It is unlikely that most of the UK’s direct tax laws will change after Brexit. However, the EU directives forcing compliance on the ‘four freedoms’ might not be relevant, depending on the type of deal the UK manages to strike. This means the issues like the EU Parent-Subsidiary Directive and the EU Interest and Royalties Directive could mean the UK is reliant on making sure it has the right double taxation policies in place. The EU Merger Directive may also prove problematic, in that when the UK leaves, parts of the directive will no longer apply, which could mean a rise in tax costs for UK businesses.
A change to VAT is difficult to judge, as we don’t know what the future plans for the creation of some kind of customs union will look like. However, we do know that unless there is a trade agreement, exports and imports to and from the EU are likely to be hit by customs duties and import VAT. It’s also likely these charges will be more far-reaching than just the EU, too – given that the EU enjoys favourable conditions with many other countries.
Individuals and personal taxes
There could be enormous changes for individuals when it comes to their taxes – and in fact, they are already occurring with the announcement that wealthy individuals who make the UK a long-term home will be taxed more. Individuals who own properties in EU countries could also suffer, as they may no longer be able to get protection from taxes and social charges – in France, for example, non-EU nationals face capital gains taxes of up to 40%. However, there are benefits, too. The UK will have a lot more flexibility to offer incentives to potential investors.
Are there any benefits of Brexit?
While much of the talk about Brexit is fairly gloomy, there is a lot of potentials when it comes to the tax system. Ultimately, many tax experts see a lot of opportunities to reform our current taxes, which are often seen by many as ill-fitting. As long as the UK takes care to devote enough time and energy to the process, there could be benefits worth exploiting. For example, banks and insurance companies who offer financial services within the EU are unable to get VAT back because the supplies they use or VAT-exempt. Outside the EU, however, this VAT could be recoverable – but it all depends on whether the Treasury will be willing to accept this argument.
Clearly, big changes are afoot. And while there are plenty of existing models that the UK could choose from, we are still unsure which, if any, the UK will plump for. We will have a much better idea of what will happen once the government makes its plans clear.