Understanding the talk around a UK exit tax before the 2025 Budget

With less than a month to go before Rachel Reeves Autumn 2025 Budget, rumours are abound as to how she is going to plug the blackhole in the economy. From a Wealth Tax to the abolition of the tax free 25% lump sum pension, speculation as to where she may find the funds is rife.

This week’s most persistent rumour is that of an exit tax.  This is a tax that would be levied on those leaving the country, something that UK companies becoming non-resident already face, and a tax applied by many other countries already – for example Canada, Singapore and Australia.

What could an exit tax look like?

We do not yet know for sure, but the suggestion is that those leaving the UK for “low tax jurisdictions” could be faced with a 20% charge on the value of “business assets” to make up for the fact that many assets fall outside the scope of UK Capital Gains Tax (CGT) once their owners become non-resident.

At present, when someone leaves the UK, provided they stay non-resident for at least 5 years, they are not subject to UK CGT when they sell assets (other than UK residential property) whilst they are overseas.  This provision allows those looking to sell their businesses to consider becoming non-resident prior to the sale, to avoid a charge to UK CGT, as long as they are willing to live overseas for a period of time – and many are! Of course, the country they go to may levy their own local taxes, but there are a number of countries which are understood not to charge tax on these sorts of disposals by individuals living there, and so of course that is where many are going, even if just initially before moving on to their “forever” country.

Usually, when an exit tax applies, it would not become due just because the individual sold the asset, instead this would be charged at the point of departure – after all, it is much easier to collect a tax from someone just about to leave the UK than someone who may be long gone and harder to trace.   But this could be problematic for those not wishing to sell their assets, and this tax could force them to do that to fund the tax, unless favourable instalment options are available.

But how effective would an exit tax be?

From our own experience over the last 18 months, we have been approached by an influx of families who want to leave the UK, usually heading for low tax / high sunshine destinations, and yes, many of them are business owners who plan to sell their businesses whilst they are away. But some just want to go to avoid what they see as punitive income tax rate on high earners, or simply to bring their children up somewhere other than the chilly UK.

If introduced, it is therefore a question of whether this tax could stem the current flow of those leaving, ensuring that high earners remain UK resident income taxpayers, or whether those determined to go would still go and pay the tax on their way out of the door. Either way, this could see taxes collected increase, with estimates being in the region of £2 billion.

What could get caught by an exit tax?

The current language used in the press suggests “business assets” and those going to “low tax jurisdictions”.  UK residential property is already subject to UK CGT on a sale so it would make sense to exempt that, but we would assume that shares in UK companies would be included, as those are definitely business assets. But it is not clear whether it would be extended to the contents of UK bank accounts, or to assets that are already overseas, or shares in companies which are property rich and already subject to UK CGT already.

Equally, it is not clear whether this would impact only those going to what are understood to be traditionally low tax jurisdictions, or whether it would also include those going to places with local taxes more akin to those in the UK. It is also not clear how that would be policed, if people move about between qualifying and non-qualifying countries.

Are there any alternatives to an exit tax?

A simple alternative could simply be to remove the CGT reliefs applicable to non-residents who sell any UK assets. This has worked for UK residential property since 2015 and at least would not punish those who want to keep running their UK companies and retain their shares.

Would there be any quid pro quo?

It seems that this change could be accompanied by additional CGT reliefs for those arriving in the UK from overseas. At present, anyone who is UK tax resident and who are not able to use the Foreign Income and Gains (FIG) regime is subject to UK CGT on their worldwide capital gains, even on assets they owned before they arrived in the UK. And those who can use the FIG regime only escape CGT (and income tax) on overseas assets for up to the first four tax years after arrival.  After that, the UK can tax the disposal of overseas assets in the same way as for someone who has always been in the UK, with a rate of up to 24% applying.

Changes could include CGT exemptions for assets acquired pre-arrival beyond the first 4 years, or perhaps some sort of tapering for those who remain here long term. However it is structured, this could erode some of the tax take from introducing an exit tax but may also have the effect of making the UK a more attractive place to come for those who wish to live and work here, and inevitably pay other taxes here, and boost the economy generally.

How quickly might an exit tax happen?

Because the UK already has a form of exit taxes for companies leaving the UK, there is already a framework in place that could be used to implement this is a relatively short time.  There are concerns that if there is a gap between the announcement and implementation, this could lead to a mass exodus of individual seeking to leave before the changes come into force. This would not have the desired effect, and so the assumption is that the tax would need to be introduced quickly to avoid this.

What can you do?

Whilst all of this is speculation and there are a number of things which could come about from the upcoming Budget, if you would like to discuss your current tax resident status or consider what steps you would need to take to leave the UK, please contact the Gravita Tax Consultancy team and we should be happy to discuss your options with you.