Last month’s decision by the United Kingdom to leave the EU sent shockwaves across the financial world. Financial markets became reacted with volatility, and the value of the British Pound plummeted to 31 year lows. Brexit will also have a unique impact on US expats living in the UK.
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- The drop in the price of the pound will improve the value of the American Dollar in UK-based purchases. There have already been reports of increased interest in travel to the UK, as tourism is about to become much cheaper for foreigners. So if you have family or friends who have toyed with the idea of paying you a visit, this might be the right time to plan the trip!
- The EU has a tax treaty with the US which applies to all EU members. Until now, the UK has been bound by this treaty. But now that the UK will have to negotiate its own, unique tax treaty with the US, there is a certain level of uncertainty as to how this treaty will differ from the EU treaty. For example, there may ultimately be different applications of tax treaties that minimize double taxation by countries on the same income. There could also be changes on withholding taxes on interest, dividends, and royalties.
Probably larger issues, or at least concerns, of Brexit for the US is its effect on the US’s relationship with Britain, the US economy, and taxation of US multinational corporations operating in the UK. The US’s relationship with the UK is important, among other things, because of the fight against acts of terror, and trade between the countries. The UK has had a strong role in countering acts of terror in Europe, coupled with the cooperation of the rest of the EU. The UK, currently the 7th largest trading partner of the US, will be more easily able to be a major trading partner if a US-UK free trade agreement can be negotiated. Likely, both of these items can be addressed successfully between the US and the UK.
The US economy will be affected by Brexit mostly by trade, tourism, and global finance. We already discussed trade and tourism above. If anything, we might expect that global finance with regard to the US and the UK will only be improved as a result of Brexit. London and New York are considered the top two global finance centers in the world, and the UK is the US’s top importer and exporter of services. There is a strong regulatory environment in the global finance between the EU and the US, because the EU rules are not conducive to financial competition. With Brexit, the British environment seemingly will be less regulated, allowing a more innovative, free, and competitive environment.
While there will be challenges for all as a result of Brexit as the UK will have to rework many of its laws and policies, the bottom line is that the effect of the many changes will be seen in the long run as excellent by some, and regretted by others, depending on one’s role and perspective with regard to the UK.
