I will be wrong if an Exit Tax is introduced at the upcoming Autumn Budget

In recent months, questions have arisen over whether the Labour government will introduce an ‘Exit Tax’ on individuals who cease to be UK tax resident.

What is an ‘Exit Tax’?

An Exit Tax is usually a Capital Gains Tax (CGT) levied on individuals and/or businesses when permanently leaving a country.

The idea is to prevent people from avoiding tax by leaving before a taxable event occurs. Typically, it taxes unrealised gains on assets as if they were sold at the time of departure.

The UK tax legislation does impose a charge to Corporation Tax on the unrealised gains of a company that ceases to be resident in the UK.

For individuals, the UK does not yet have a formal Exit Tax like the US, Australia, and Canada. Instead, it relies on rules such as the temporary non-residence provisions (which claw back certain gains and income if an individual leaves but returns within five years). For trusts, there are already exit charges if a trust ceases to be UK resident.

However, there is growing speculation that it may be introduced as part of the government’s strategy to raise funds for the treasury.

What are the current tax implications of leaving the UK?

While there is no Exit Tax in the UK, a number of reliefs can be lost, either immediately or after a short period such as:

• Personal allowance for Income Tax if not covered by treaty or nationality.
• Business Asset Disposal Relief – the 10% rate at risk.
• Gift/Holdover Relief – the exit clawback.
• Principal Private Residence (PRR) Relief – the 90-day trap.
• Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) – reliefs clawed back.

As such, the loss of these allowances and reliefs could potentially lead to a higher tax liability for the individual or business.

Why clarity from Labour matters

Rachel Reeves has been urged to clarify whether she intends to introduce an exit regime in the next Budget.

Tax Policy Associates Chief, Dan Neidle, warned that ambiguity over such a measure undermines both taxpayer certainty and investment planning which could be damaging for the UK economy. This is particularly relevant for high-net-worth individuals and entrepreneurs contemplating relocation or investment decisions.

The Risk of ‘wealth flight’

A growing concern is that sudden or poorly communicated tax changes may prompt wealthy individuals and business owners to leave the UK.

Following the recent abolition of the non-dom regime, higher CGT rate, and reduced Inheritance Tax reliefs, some reports estimate a 40% surge in company directors relocating overseas, particularly to the UAE. A formal exit charge could potentially compound this figure.

The Exit vs Wealth Tax debate

The debate on Exit Tax intersects with the UK’s ongoing conversation about wealth taxes. As explored in our recent analysis on the potential introduction of a UK Wealth Tax, a Wealth Tax, whether annual or one-off, would require careful structuring to avoid unintended behavioural consequences, such as pre-emptive emigration, which is where an Exit Tax could theoretically act as a backstop.

Some experts believe that an annual Wealth Tax would likely result in a net loss of tax revenue due to wealthy individuals leaving the UK whereas an Exit Tax would be simpler and more effective at generating tax receipts for the Treasury when individuals exit the UK.

Although ‘Exit Tax’ makes for an eye-catching headline, the reality is that it remains firmly in the realm of speculation, not policy. The Autumn Budget is far more likely to target property and Inheritance Tax reform than to introduce a complex new regime that risks damaging the UK’s reputation as a place to live, work and invest. However, I will be wrong if an Exit Tax is introduced…