Last Updated on 30th January 2025
The Autumn Budget 2024 brought few surprises. Still, it provided clarity amid months of speculation about a proposed exit tax and reforms to the non-dom tax regime. Both of these, of course, have implications for wealthy foreign nationals currently resident in the UK and expatriates planning a relocation.
From April 2025, the new rules mean that anybody currently or previously classified as a long-term resident who ceases to satisfy the residency tests could potentially be exposed to a so-called exit tax of up to 6%, levied as Capital Gains Tax, although only against settlors of UK-based trusts.
There are also varied changes to the way foreign nationals pay British taxes. The experts at Chase Buchanan summarise these below, while considering some of the many aspects of the debate that continues to rumble on about whether exit taxes bring greater parity or are likely to dissuade wealthy investors and high-net-worth individuals from perceiving the UK as a viable destination.
UK Exit Tax and Capital Gains Tax Reforms: In Summary
At the time of writing, the scope of the exit tax announced thus far is somewhat limited. However, the impact is notable when combined with the changes to inheritance tax and tax-relieved pensions, with the potential for further reforms with greater financial penalties for those choosing to leave.
Some of the announcements made in the budget include:
- The abolishment of remittance-based tax for non-British domiciles, replaced by a residence-based regime. Those opting in are exempt from UK tax on foreign income and gains (FIG), but only for the first four years of tax residency.
- Changes to reliefs claimable, intended to encourage residents to spend FIG within the UK, including an extension to the Temporary Repatriation Facility (TPF). This scheme provides time-limited opportunities for foreign nationals to bring foreign-sourced assets into the UK at a beneficial tax rate, now including offshore structures, but again, limited to four years.
- Removal of tax exemptions on transfers of pension funds to approved Recognised Overseas Pension Schemes (ROPS), meaning these transfers will now be exposed to the 25% Overseas Transfer Charge.
- Reforms to increase the main Capital Gains Tax rates, reduce lifetime allowances associated with Investor’s Relief, and levy the tax against trusts where the settlor becomes a non-UK resident, as mentioned above.
Several indications suggest that these collective reforms pave the way for a trend. The government has published a request for evidence submissions to revise the rules around offshore anti-tax avoidance rules, noting that it intends to look at additional ways to update or improve the current regulations.
With this in mind, many expatriates are concerned that the UK government plans to introduce a more sweeping exit tax, in line with countries like France.
An Outline of Example Expatriation Tax Systems Around the World
The French system is just one example, but it is often cited as a potential source of inspiration for the British government.
French residents who have lived in the country for six of the last ten years and relocate, transferring their tax residency elsewhere, may have to pay exit tax if, for example, they own stocks and shares worth €800,000 or more or comprise 50% or more of a company’s ownership.
Designed to deter affluent individuals and businesses from using strategic relocations to gain tax advantages, the tax applies to profits and interests linked with financial assets worth above the threshold.
However, numerous allowances and exemptions apply, and more recent reforms announced in 2019 mean that most French tax residents can avoid paying the tax unnecessarily or minimise the real-world tax charge arising on their departure.
There is also a precedent for a similar tax system in the UK. Limited companies that become non-resident businesses are exposed to corporation taxation against unrealised gains, and trusts, ahead of the latest budget, are also subject to taxation, which is seen as a basic form of exit tax.
With several countries, including those within Europe and the G7, also imposing an exit tax of some kind, including Australia and Canada, the tone and purpose of the range of reforms points towards at least the possibility of an exit tax – or that combines some of the measures already announced.
However, the intricacies of introducing a completely new tax regime and putting the infrastructure and systems in place to measure and account for the tax and enforce it against those relocating mean it could take some time for any comparable tax to be introduced, debated, formalised, and legislated.
The Potential Positive and Negative Outcomes of a UK Exit Tax
From an objective viewpoint, exit taxes have proven effective and remain part of the tax landscape in multiple major countries. They tend to be simple to administer, with little scope for complexities since the tax is levied at a static point in time.
Some also hold the view that taxpayers who choose to relocate, whether or not they gain tax advantages by doing so, should be expected to make a proportionate economic contribution when leaving while ensuring capital gains that might otherwise be unrealised are dealt with.
That said, the opposing view is that the closure of some visa routes for affluent foreign nationals, the reforms to non-dom tax statuses and the reports that many wealthy international taxpayers have already relocated or are considering doing so would only increase.
Although only around 1% of the UK population comprises high-net-worth foreign nationals, this equally means that the taxes generated would do little to fix the ‘black hole’ in the budget referred to by the Chancellor while also possibly making other destinations far more appealing to investors.
A more comprehensive CGT exit charge may or may not be forthcoming, but a rationale of limiting lost tax revenues could counteract efforts to attract wealth and investment to the UK by making it harder and more expensive to relocate in the future.
The focus, for the time being, seems to be on tightening current loopholes and either keeping tax allowances and brackets static or introducing moderate increases to tax liabilities—but if the tax burden associated with relocating to or from the UK becomes significantly higher, the impacts could quickly become more apparent.
*Information correct as at January 2025