15 Jan Tom LR Griffiths on the potential Brexit effect on US expats living in the UK
Following the 2019 General Election result, the path to Brexit is somewhat clearer. The new Government, headed by Prime Minister Boris Johnson, based its election campaign on the slogan of ‘get Brexit done’. With a Parliamentary majority and a pledge to get the UK out of the EU om 31 January 2020, there is no longer any doubt that Brexit will go ahead.
But what does Brexit mean for US expats living in the UK? Given that they are not specifically EU citizens, will there be any direct impact?
The Brexit effect on US expats and the value of the pound against the dollar
Since the Brexit vote in June 2016, the most reliable barometer for market reaction has been the value of the pound. And volatility has been the watchword. As the political turbulence continued through changes of prime minister, Parliament voting down Theresa May’s deal and three ‘set in stone’ Brexit dates being extended at the last minute, the pound has been on quite a journey. To better understand, it’s worth breaking down some of the key fluctuation points for the pound since June 2016:
June 2016: The referendum result shocked the markets, as polling initially suggested Remain would win. When the polls were released, the pound went up to $1.50 against the US dollar and 1.32 against the Euro. However, as the result came in, the pound plunged harder in one day than it had for 30 years, down to $1.32 against the dollar and 1.20 against the Euro.
October 2016: Prime Minister David Cameron resigned and throughout the ensuring leadership contest, the pound was even more volatile. When Theresa May became Prime Minister, the pound crept up to $1.34 against the dollar, before falling again when Article 50 was announced. This set the leave date as 29 March 2017 and saw the pound worth £1.23 against the dollar and then slipping down to $1.18.
March 2018: The original Brexit date was extended, and by January 2018 the pound rose to more than $1.40 against the dollar for the first time since Brexit. On 29 March 2018, a transition deal lasting 21 months was announced by the EU and the UK, which saw the pound rise against the dollar again to reach highs of $1.43 in April. However, it quickly declined by 3.5% in the wake of Ministers demanding a so-called ‘hard Brexit’.
August 2018: When then Brexit secretary David Davis resigned in July 2018, the pound climbed as markets saw this as a move toward a softer Brexit. However, the subsequent resignation of Foreign Secretary Boris Johnson triggered another fall. The pressure continued as the threat of a no deal Brexit increased.
2019: Throughout 2019 the pound continued its volatile trajectory as Theresa May’s deal was rejected by Parliament, she stood down, Boris Johnson took over as Prime Minister and prorogued Parliament. He was forced to recall Parliament when the Supreme Court ruled it was illegal. By mid-November the UK faced the second general election in two years, before voting for the Conservative Party on 12 December. The initial reaction of the pound after the election was to rise to $1.35, which is the highest since May 2018. It also increased to a 3.5 year high against the Euro.
A weaker pound is good news for US expats
For US expats, the pound’s struggle could be seen as a positive, as everything in the UK becomes cheaper and more cost effective. As many US expats working in the UK are still paid in US dollars, as they will effectively be paid more than if their wages came in pounds.
However, for dual citizenship US citizens, it’s likely to impact them in the same way as EU citizens. Any US citizen holding dual citizenship with an EU country, such as US Italians, US Spanish, and who has lived in the UK for five years, will have to apply for Settlement Status. And any US expats with EU spouses currently living in the UK will also be impacted.
After Brexit on 31 January 2020, there will be years of trade talks between the UK and other nations. At some point, there will be a new Free Trade Deal between the US and the UK. As part of this, it’s feasible that jobs previously taken by EU citizens could become available for US expats looking to work in the UK. Any US citizens working for companies in the UK that are owned by businesses headquartered in the EU may also have to relocate to that country.
Will Brexit effect the US/UK tax treaty?
Of course, one of the most important aspects of life for US expats in the UK is the treaty between the countries. The US/UK tax treaty prevents US expats paying double amounts of taxation. And questions have naturally been asked whether Brexit will affect other international agreements with the UK.
The treaty offers various exemptions, reductions, credits and exemptions for expats living in either of the two countries. For tax purposes, the treaty is disclosed to the Inland Revenue Service (IRS) using Form 8833, which is part of the annual federal income tax return. Failure to do so can mean a fine for the individual.
And while it can be assumed that the UK leaving the EU will have little impact on a treaty with the US, there is one article that will at least need redrafting. This is the ‘limitation on benefits’ (LOB), which determines who is eligible to use the treaty. It applies more to companies, as individuals are usually eligible. Businesses must take a number of tests to work out whether they are eligible, and this has a knock-, on effect for companies in the UK with head offices in EU countries.
When Brexit happens, company structures that have traditionally relied on UK owners being members of the EU, could feasibly lose access to the treaty benefits. While the country can now be sure that Brexit will happen, it is still far from clear exactly what the separation will look like.
For US expats living and working in the UK, any impact should be minimal or even positive. The effects are more likely to be felt by companies that hold cross-border structures. Negative consequences for US expats will only occur should they have dual citizenship or relationships with any EU citizens. If you have any concerns about your tax status as a US expat in the UK, and whether Brexit will impact you, contact the team at Ingleton Partners.