David Cameron has announced a referendum to be held on 23 June 2016 on whether Britain should remain in the European Union. The referendum is considered the most crucial event in this parliament and the most important in Europe in years.
From a legal perspective, a loss of influence will be felt across a host of substantive laws such as company, family, succession and crime, which will continue to apply in the EU to over a million UK citizens living there.
A considerable amount of legislation governing the UK is tied to EU law. A dramatic change could cause huge uncertainty. The complexity of a Brexit means there are legal issues to consider in nearly every sector.
This note looks at how succession and tax may be impacted by a Brexit.
EU Succession Regulation
Leaving the EU could potentially have an adverse impact on UK citizens with properties or other assets in the EU. The EU Succession Regulation is giving individuals the chance to opt either for the law of the country of their nationality or their last habitual residence to be applicable to their inheritance across Europe.
If the UK was to leave the EU, UK citizens lose the right to elect English law to govern the disposition of their English and foreign assets and could find themselves subject to a more punitive tax regime or forced heirship provisions.
Additionally, leaving the EU will cause more confusion in an area which remains largely untested. The Regulation does not define ‘last habitual residence’, but takes into account the length of time spent by the deceased in various countries. Both the UK and an EU state might claim jurisdiction over the estate and apply their own national inheritance law, unless a valid choice of law in favour of the EU state law was made. It is thus to be expected that the different definitions of residence under the Regulation and UK law will lead to conflicts.
A Brexit could mean a number of changes to the UK tax code, such as the removal of agricultural property relief in relation to farmland in EU countries and the removal of tax relief to charities located in the EU.
The UK could enforce the 1.5% tax charge on issue of shares and securities to clearance systems and depositories and could impose laws contrary to each of these Directives. However, there is a question over whether the UK would want to do so. VAT makes up a large proportion of the UK’s tax revenue and the other Directives are generally seen as business-friendly. Changing Directives would also hinder cross-border business due to levels of uncertainty.
It may become more difficult to live and work in different EU states. For example, the minimum deposit to get a mortgage in France increases from 20% for EU citizens to as much as 50% for non-EU citizens.
Businesses in the UK also benefit from EU measures which reduce the cost of doing business for groups operating in more than one member state, which may be removed if the UK decide to leave the EU.
As a result of its EU membership, the UK is subject to harmonised rules about the enforcement of judgments. Brussels I regulates the recognition of civil and commercial judgments across member states. It achieves this by setting out general rules governing cross-border jurisdiction disputes. Without these regulations, matters would be dependent on domestic rules of law in relevant countries, which can create uncertainty and disputes through a lack of harmonisation, as well as potential difficulties in the enforcement of legal rights and obligations including debts.
The position might be mitigated by means of two existing international conventions: the Lugano Convention has similar provisions to Brussels I, and applies to EEA and EFTA countries; and the Hague Convention on Choice of Court Agreements, to which all EU member states (bar Denmark) are bound. The scope of change would depend on the model of any new, post-Brexit relationship between the UK and the EU.