Travers Smith's Alternative Insights: Brexit and immigration rules

A regular briefing for the alternative asset management industry.

The UK government is determined that a post-Brexit Britain should continue to be a world-leading financial centre. Recent announcements – including a call for evidence on the UK funds regime, and a consultation on asset-holding companies – lend support to that ambition. But many in the finance community believe that policymakers will have to work very hard if they are to make up for the costs of Brexit, and to capitalise on the opportunities. Britain's openness to skilled workers is a critical component in that mix: as an international hub, drawing on a diverse, multi-national workforce, the alternative asset management industry needs the government to take a pragmatic approach to immigration rules.

Brexit – and, in particular, the UK's decision to end freedom of movement for EU citizens coming to live and work in the UK – will inevitably make it harder for UK businesses to recruit EU nationals. However, it is not yet clear how big the impact will be for alternative asset managers: the relatively high levels of remuneration and skills of those working in the industry means that it is unlikely that the UK's new rules – now effectively the same for EU and non-EU nationals – will stop firms from getting visas for foreign recruits. In fact, it may now be easier for those coming from outside Europe than it was before. (Unfortunately, the position will be more difficult to manage for many UK-based portfolio companies. Recruitment may be a particular headache for businesses in sectors that have been heavily reliant on EU workers who may not meet the minimum skills and remuneration thresholds which the new rules set.)

Of course, COVID has meant that the new system has not yet been properly tested, but employers who prepare now for the post-Brexit regime – including by becoming a registered sponsor, so that they can certify that prospective employees meet the "skilled worker" requirements to obtain the requisite visa – will be well-placed to get the paperwork through relatively quickly. At the same time, firms that had EU nationals living and working in the UK before the end of last year can help those employees by encouraging them to apply for settled or pre-settled status by 30 June 2021.

Time will tell how well the system operates in practice and, indeed, whether the longer-term effect of Brexit will be to make EU nationals more reluctant to apply for jobs in the UK. At the same time, some UK asset managers will be looking to build a bigger presence in the EU, perhaps reducing the need for EU staff to come to the UK. Many firms have already concluded that a base in the EU will make it easier to market investment products across Europe, and it is likely that more of the activity of UK-headquartered firms will shift there in the coming years.

...the relatively high levels of remuneration and skills of those working in the industry means that it is unlikely that the UK's new rules – now effectively the same for EU and non-EU nationals – will stop firms from getting visas for foreign recruits. In fact, it may now be easier for those coming from outside Europe than it was before...

That shift in activity to continental Europe will be made more difficult because UK passport-holders now need to study the business visitor rules and visa requirements in each jurisdiction. The EU does not have a uniform set of rules, so country-by-country advice is needed and this is something that we are being asked to advise clients on more and more frequently. There will also be a need to monitor time spent in the Schengen area: UK nationals can only stay for 90 days in a rolling 180 day period. The common travel area between the UK and Ireland may become more important, especially for firms that opt to put their EU base in Dublin.

Tax is, as usual, a complicating factor. Getting the tax right is critical to a smooth transition of a team member to working in a new country, and that is further complicated where the individual does not move to work full time in a new jurisdiction, but instead carries out part of their role there – travelling back-and-forth as required. There was some welcome post-Brexit news when all members of the EU signed-up to consistent rules on operating social security measures. However, there are many other things for asset managers to consider, including the impact of the move on the individual's overall compensation package – the taxation of their bonuses, their share options, restricted stocks and carried interest where relevant. The business may have to operate local payroll taxes and consider whether the employee's activity in another country creates a new taxable presence there for the asset management house.

When business travel finally returns, the rules will have changed. If the UK government follows through on its commitment to allow foreign nationals with appropriate skills to obtain working visas quickly and easily, there will be manageable additional red tape and corresponding costs from new immigration rules, and some opportunity to take advantage of liberalised rules for non-EU migrants. But there is little that the UK government can do to ease the tax and compliance burden on firms that want their UK-based employees to travel across Europe, or to re-locate to an EU member state. For those firms, new procedures and clear advice is the best preparation for life after lockdown.

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