The United Kingdom is preparing legislation that would impose a 20 % exit tax on unrealised capital gains when a taxpayer ceases to be a UK tax resident. The measure is aimed primarily at high‑value businesses and other capital assets, and it would require payment even if the taxpayer does not have liquid cash to cover the liability.
How the exit tax would work
- Rate: 20 % of the deemed gain on assets deemed to be owned at the date of departure.
- Scope:
- Businesses – The value of a company, whether self‑assessed or determined by HMRC, would be taxed on the full amount of the gain. For a business valued at £10 million, the tax bill would be £2 million.
- Cryptocurrencies – Treated as capital assets, crypto holdings are subject to the same rule. A holder of 10 BTC bought at $10 000 each and now worth $100 000 each would have a gain of $900 000; the exit tax would be 20 % of that, i.e. $180 000, payable even if the holder does not sell the coins.
- Real estate – Excluded from the exit tax calculation.
The tax is payable on the deemed disposal of the assets, meaning the taxpayer must generate cash (for example by selling a portion of the holdings) to settle the liability.
Determining UK tax residence – statutory residence tests
HMRC uses a set of “automatic overseas” and “automatic UK” tests to decide whether an individual is a UK tax resident for a given tax year.
Automatic overseas tests
| Test | Condition for non‑residence |
|---|---|
| First overseas test | Fewer than 16 days spent in the UK during the tax year. |
| Second overseas test | Not resident in the UK in any of the three preceding tax years and fewer than 46 days spent in the UK in the current tax year. |
| Third overseas test | Working full‑time abroad, having overseas assets, and spending fewer than 91 days in the UK, with less than 31 days of work in the UK (≤ 3 hours per day) and no significant break from overseas work. |
Automatic UK tests
| Test | Condition for residence |
|---|---|
| 183‑day rule | 183 days or more present in the UK during the tax year. |
| Home tie | Owning or renting a UK home for at least part of the year and being present in that home for at least 30 days in a period of 91 consecutive days. |
| Sufficient ties test | A combination of family, accommodation, work, and previous‑year residence ties. For example, having a spouse or children in the UK, maintaining a UK property, or earning UK‑sourced income can trigger residency even with fewer than 183 days. |
Because the tests interact, individuals who retain UK ties (property, family, work) can remain UK residents despite spending limited time in the country.
Relocation options for high‑net‑worth individuals
To avoid the exit tax, individuals must become tax non‑residents in the UK and establish tax residency elsewhere. Several jurisdictions offer favorable tax regimes, residency programmes, or citizenship routes:
| Jurisdiction | Key features for high‑net‑worth individuals |
|---|---|
| Ireland (passport by descent or investment) | EU citizenship, freedom of movement within the EU. |
| Poland | Corporate tax rates of 9 % for small businesses or 19 % for larger entities; EU member state with relatively stable social environment. |
| United Arab Emirates (Dubai) | 9 % corporate tax, no personal income tax, “golden visa” residency programmes for investors and property owners. |
| Switzerland | Cantonal tax regimes, high‑net‑worth residency permits. |
| Paraguay, Panama, Mexico, Thailand | Low‑tax or territorial tax systems, relatively straightforward residency processes. |
| Italy | Flat personal income tax of €200 000 per year for new residents who transfer foreign wealth. |
| Greece | Flat tax regime for high‑net‑worth newcomers (specific rates vary). |
| Portugal | Non‑habitual resident (NHR) regime offering reduced tax on foreign income for ten years. |
Practical steps to achieve non‑residence
- Assess the statutory residence tests – Calculate days spent in the UK and evaluate all “ties” (family, accommodation, work). Aim to satisfy an automatic overseas test (e.g., keep UK presence under 16 days).
- Sever UK ties –
- Sell or relinquish UK‑based residential property.
- Relocate family members and cease UK‑based schooling.
- Transfer employment or business activities abroad.
- Establish residency abroad –
- Obtain a long‑term visa or residency permit (e.g., UAE golden visa, EU citizenship).
- Purchase or lease property in the new jurisdiction to satisfy local residency requirements.
- Register a company or open a bank account to demonstrate economic ties.
- Document the move – Keep records of travel dates, property disposals, and foreign employment to prove non‑residence to HMRC.
- Seek professional advice – The interaction of UK residence rules, exit tax calculations, and foreign tax laws is complex; specialist guidance is essential to avoid inadvertent liability.
Risks and caveats
- Liquidity risk – The exit tax is payable on unrealised gains, potentially forcing the sale of assets at inopportune times.
- HMRC valuation disputes – The tax authority may challenge the declared value of a business or other assets, leading to higher assessments.
- Residency traps – Retaining a UK home, family, or regular short trips can trigger the automatic UK tests, nullifying the non‑resident claim.
- Double‑taxation – Without a proper treaty claim, foreign tax paid may not fully offset the UK exit tax.
- Legislative change – The exit tax is still a proposal; details may evolve before implementation.
By carefully managing the statutory residence criteria, severing UK connections, and establishing a clear tax residency in a jurisdiction with favorable treatment, high‑net‑worth individuals can mitigate the impact of the proposed UK exit tax.
