British prime minister Theresa May officially signed the letter triggering Article 50 on Tuesday evening. It has now been sent to president of the European Council Donald Tusk, who is expected to receive it at 12:30pm (BST).
The letter will kick off a two-year period of intense negotiations, with May keen to secure reciprocal rights for millions of British citizens currently living in the EU.
The move is also expected to add further uncertainty for providers of qualifying recognised overseas pension schemes (Qrops) which, in the UK Spring Budget earlier this month, were hit with a surprise 25% charge.
Aimed at individuals seeking to reduce their tax payable by moving their pension wealth to another jurisdiction, the 25% charge affected those requesting an overseas pension transfer on or after 8 March 2017.
Overseas pension transfers in the Economic European Area (EEA), where both the individual and the pension are based, will be exempt from the new tax charge. This is to meet the EU condition of free movement of capital.
In addition, there is a five-year rule for those transferring their UK pensions to a Qrops on or after 6 April 2017, where the 25% levy would still apply if the pension is transferred from an EEA to non-EEA country within this timeframe.
EEA exemption lifted
However, with the UK now one step closer to leaving the EU, there are concerns that the EEA exemption on the 25% Qrops charge could be removed if, as part of the negotiations, Britain also exits the economic zone, according to Mike Morrison, head of platform technical at AJ Bell.
“The interesting aspect [of the Qrops charge] is that if both parties are in the EEA then there’s an exemption. However, when Britain exits the EU, do we automatically come out of the EEA?
“Once Brexit happens, the UK government no longer has to guarantee people free movement of capital, which means will this exemption still apply?,” he told International Adviser.
David Denton, head of international technical sales at Old Mutual Wealth, told IA that the uncertainty around Brexit would leave anyone transferring into a Qrops in the EEA after the 8 March deadline in limbo, especially if they then decided to move back to the UK within five years.
“Triggering Article 50 won’t have an effect. If Britain decided the leave the EEA, it might have an effect.
“It’s not helpful. I’ve had many discussions about this and we’re not all in agreement here because it’s not obvious.
“There is this five-year rule on the transfers, it’s not 100% clear what happens if a British expat moves back to a UK that is no longer a part of the EEA, and whether that has an impact on transfers made after 8 March 2017,” he said.
Denton added that he is currently in contact with the UK Treasury to clarify the issue.