Brexit begins: What you need to know about the Withdrawal Agreement

Brexit begins: What you need to know about the Withdrawal Agreement

While the transition period offers some certainty for UK expatriates in 2020, the clock is ticking to lock in protections for residence, healthcare and pensions.

Now that the UK has officially left the EU, the transition period is in motion and set to run until December 31, 2020. But has anything actually changed for UK nationals living in Portugal and do we have any certainty for 2021?

What changed on January 31?
There is little change for UK nationals living in the EU during the transition period, who will retain freedom of movement, the right to remain and access to broadly the same benefits as EU citizens.

The good news is that if you are lawfully settled in Portugal before the transition deadline, you can lock in a lifetime of citizens’ rights under the UK/EU Withdrawal Agreement. These benefits are protected for as long you are resident here. But there are currently no protections for UK nationals arriving after 2020.

What does the Withdrawal Agreement say about residency?
Proof of residence – To be covered by the Withdrawal Agreement, you must be settled in Portugal before December 31, 2020 and apply for updated residence documents (when available) before June 30, 2021. Although the Agreement allows a six-month buffer for applications, register as soon as possible to avoid potential disruption. If you already hold permanent residence, there is no cost to convert your paperwork.

Reunification rights – Partners and dependent family members are able to join settled residents in an EU country, so long as the relationship is established before December 31, 2020.

Expiry of residency rights – You will lose permanent residency status (and associated EU rights) if you are absent from that country for five consecutive years or more.

Onward freedom of movement – The citizens’ rights only apply to the country you are resident in before the transition period ends. This means that, after 2020, you cannot automatically work or reside in another EU state; instead you may have to apply as a ‘third country’ (non-EU/EEA) national.

What does the Withdrawal Agreement say about healthcare?
Existing entitlements to healthcare will continue for settled residents. As such, the S1 Form system will carry on providing free cover for British pensioners and those receiving certain long-term benefits, as well as their dependants. While the European Health Insurance Card (EHIC) will also provide free emergency care while travelling in other EU states, UK-issued EHICs will only remain valid up to the end of the transition period.

What does the Withdrawal Agreement say about pensions?
UK retirees settled in Portugal will continue to receive yearly cost-of-living increases to their State Pension payments. This will apply even if you start claiming your pension after 2020, so long as you meet the conditions to qualify for a UK State Pension.

As things stand, Brexit should not affect how you can withdraw or transfer other UK pensions. However, the UK currently applies a 25% ‘overseas transfer charge’ (effectively an exit tax) on pension transfers outside the EU/ EEA. This could be easily extended once the UK is no longer bound by EU freedom of movement of capital, so there may be limited time to transfer without penalties.

What happens after the transition period?
When the transition period expires on December 31, 2020, automatic freedom of movement will end for UK nationals and a new application process will apply to live or work within the EU. While it will, of course, still be possible to acquire Portuguese residency, we can expect these processes to be much less straightforward than today, particularly if the UK fails to secure new agreements with EU countries in time.

Under current rules for non-EU/EEA nationals, each individual needs to be able to demonstrate a minimum income to qualify for residence in Portugal, at least equivalent to the national minimum wage. This could prove especially difficult for retiree expatriates, although there are potential ways to restructure assets to meet the requirements.

Brexit beyond 2020
2021 still offers three possible scenarios: 1) the UK has ratified a new trade deal with the EU and the new relationship begins; 2) the transition period is extended as negotiations continue; or 3) the UK cuts trade ties with the EU (no-deal).

Although there may still be the chance of a cliff-edge Brexit and ongoing uncertainty in 2021, the transition period offers a window of certainty if you act this year. If you take steps to come under the protection of the Withdrawal Agreement, you will have locked in a lifetime of rights in Portugal, whatever the Brexit outcome.

To make sure you are making the most of other opportunities within this closing window – and ensure your tax and financial arrangements are optimised for a post-Brexit world – take specialist, cross-border advice.

Blevins Franks accepts no liability for any loss resulting from any action or inaction or omission as a result of reading this information, which is general in nature and not specific to your circumstances.

By Adrian Hook
|| [email protected]

Adrian Hook is a Partner of Blevins Franks in Portugal and has been providing holistic financial planning advice to UK nationals in the Algarve since 2008. He holds the Diploma for Financial Advisers (DipFA) and is a member of the London Institute of Banking and Finance (LIBF).