Following a national referendum on June 23, 2016 the UK voted by a margin of 52 million to 48 million in favour of leaving the EU. In March 2017 the UK government formally invoked Article 50 of the Lisbon Treaty that started the two year process of leaving. The date when the UK will leave the EU is March 29, 2019.

The first stage of the process consisting of the terms of separation was agreed on December 15, 2017. These are:

Citizens' rights

About 3.5 million EU citizens in the UK and 900,000 Britons in the EU will have their rights to live, study, work and retire underwritten by the agreement. They will be allowed to bring family members with them, a right that extends to unborn and adopted children but not future spouses.  Over an eight year period British courts may refer disputes to the European Court of Justice.

Irish border

There is to be no hard border between the Republic of Ireland and Northern Ireland. It is not clear how this will be achieved in the light of the UK's decision to leave the customs union and the Single Market. Until a solution is found the UK will maintain 'full alignment' with EU rules on the single market and customs union in areas relevant to the Good Friday Agreement of April 12, 1998 and the 142 areas of cooperation between Northen Ireland and the Republic.

Note: Some 30,000 people cross the border both ways each day, in a year, 110 million. The EU has helped fund the peace process.  The Good Friday Agreement consisted of two agreements: one between the political parties of Northern Ireland, the other between the British and Irish governments.

How to achieve an open Irish border remains a sticking point in negotiations. What is being proposed by Brussels is a so called backstop, that is a regulatory line along the Irish sea with Northern Ireland remaining in the EU's trade and regulatory zone. The Republic of Ireland has said that there will be no withdrawal agreement without a backstop. The British government has so far rejected this option and the likelihood of a no deal Brexit is increasing. A no deal would mean the return of a hard border.  FT October 31, 2018.

Divorce Bill

No final amount has been agreed but it is likely to be £35bn to £39bn which will be paid over a number of years, possibly decades. The figure comprises 17bn to 18bn euros payment to the EU budget in 2019/2020; 21bn to 23bn euros on unpaid bills; and 2bn to 4bn euros on other liabilities such as pensions minus assets returning to the UK.

A two year transition period has also been agreed as preparations are put in place for the new trading relationship between the UK and the EU. During that period the UK will continue as members of the customs union and the Single market and be subject to the jurisdiction of the European Court of Justice.

The way is now clear for the next stage in negotiations which is to set up a trading agreement. This is expected to be much harder than the first stage.

The British overall starting position on Brexit was set out in the Prime Minister's speech at Lancaster House, London, on February 12, 2017.

The Prime Minister spoke again on March 2, 2018 setting out her vision of a future trading relationship with the EU.

Transition agreement

On March 23, 2018 the UK and the EU agreed a 21 month transition after the UK leaves the EU in March 2019. Under the terms of the agreement the UK will abide by all rules of membership without having any say in decision making. No agreement was reached on the contentious issue of the Irish border. Until December31, 2020 the free flow of goods, capital, services and people will continue under EU law.

The agreement paves the way for the third phase of negotiations which will include Ireland, the most important political risk to an eventual agreement, and future trade relations in parallel. The extension of participation in the customs union and Single Market will give business more time to prepare for whatever new trading relationship is agreed. 

Customs union

The Cabinet is debating the merits of two alternatives to the existing customs union that the government has committed to leave when leaving the EU. One is 'maximum facilitation' which relies on technology and trusted trader schemes. The other is a 'customs partnership' that would see the UK remaining a part of the customs area and collect tariffs on behalf of the EU.  The head of HM Revenue and Customs claimed on May 24, 2018 that the extra form-filling required under the 'max fac' option would cost between £17bn and £20bn a year. The customs partnershp he claimed would be a negligible cost to business. It is thought unlikely that Brussels will accept either scheme.