Recent press coverage has highlighted growing debate around the possible introduction of an exit tax in the UK.
While no formal proposal has been confirmed, the idea is being explored as a potential way for the UK Government to increase tax revenues.
Exit tax regimes already operate in a number of countries, including France, Spain, Canada and Australia.
As a result, attention has turned to whether a similar approach could eventually be adopted in the UK.
What is meant by an exit tax?
An exit tax would seek to tax gains built up during a period of UK tax residence when an individual leaves the country.
Rather than waiting until assets are sold, the regime could treat certain assets as if they had been disposed of at the point of departure.
This could apply to assets such as shares or property, with tax calculated on the growth in value up to that date.
Reports suggest that a charge of around 20 per cent could apply, although no detail has been confirmed and the structure of any future regime remains unclear.
How the rules currently work
At present, individuals who leave the UK can often sell assets after their departure without triggering UK Capital Gains Tax, provided they remain non-UK resident for at least five years.
This allows a degree of flexibility for those planning an overseas move. A shift towards an immediate exit charge would represent a significant change and could alter how and when individuals choose to relocate.
Potential impact on business owners and investors
Business owners and investors could be particularly affected by any move towards an exit tax.
Shareholdings in trading companies, growth shares and other long-term investments often carry substantial unrealised gains. If tax were due at the point of leaving the UK, individuals could face a sizeable liability without having received any cash from selling the asset.
This could create practical challenges, especially where assets are illiquid or intended to be held for the long term.
What should you be doing now?
There is currently no certainty that an exit tax will be introduced, nor clarity around how it might operate if it is. This makes forward planning difficult in the short term.
However, the discussion itself highlights the importance of careful planning around residence decisions, investment strategies and business succession. Tax rules can change and long-term decisions should always be considered in light of potential future developments.
Taking professional advice can help ensure your plans remain aligned with your objectives and your wider tax position. If you would like to discuss how these potential changes could affect you, the Brown Butler team is here to help.
