Prospect of ‘Exit Tax’ highlights the importance of accelerating your exit planning

News | by Stephen Kiggins
Rachel Reeves Chancellor of the Exchequer

As Labour’s first Budget [Wednesday 30 October] approaches, speculation is mounting that a new ‘Exit Tax’ could be imposed on individuals leaving the UK.

'The Resolution Foundation' think tank [whose CEO, Torsten Bell, is now a Labour MP] has proposed the new ‘exit tax’ to stem the anticipated exodus of High Net Worth (HNW) and Ultra High Net Worth (UHNW) individuals and business owners over the next four years - with recent research¹ forecasting that 490,000 millionaires will leave the UK by 2028
driven by the prospect of higher UK Capital Gains Tax (CGT) rates.

The Resolution Foundation is proposing that “An Australian style² exit charge should be introduced that levies capital gains tax when people move out of the country”.

On the basis of this policy, a top rate taxpayer would pay £20,000 exit tax on every £100,000 gained from the disposal [or deemed disposal] of their assets when leaving the UK.

But with CGT rates potentially set to be aligned with Income Tax Rates in the forthcoming Budget, this could increase to an exit tax of £45,000 on every £100,000 gained.

Speak with us to explore your options

As the Budget draws closer, now is the time to explore your options.

As international financial planners and wealth managers, we can provide you with expert advice on protecting your wealth and securing your financial future.

So if you are thinking about your business exit or re-locating away from the UK and would like to schedule an initial consultation, contact us today or email us at [email protected].

1 Source – Henley Private Wealth Migration Report 2024
2 Please refer to the FAQs for further information on the Australian exit tax process.


This communication is for information purposes only and does not constitute financial, legal, or tax advice. Please schedule a meeting to receive advice on international financial planning and wealth management.

FAQs

How does the Australian ‘Exit Tax’ Process Work?

When Australians leave Australia and become non-residents for tax purposes, they face a form of
‘exit tax’ through Capital Gains Tax (CGT) rules. Here's how it works:

1. ‘Deemed Disposal of Assets’ - On leaving Australia, certain assets are treated as if they’ve been sold at their market value, even if they haven’t. This means CGT is triggered on the increase in value since they were acquired. This ‘Deemed Disposal of Assets’ applies to assets like shares, bonds, and foreign investments but excludes Australian property.

2. CGT Deferral Option - Individuals can choose to defer paying the CGT until they actually sell the assets. Once deferred, the tax liability remains in place, and they must pay CGT when the assets are sold in the future. If the assets increase in value during the deferral period, then the CGT payable when the assets are sold will reflect that increase in value.

3. Assets Not Subject to CGT - Australian property (e.g. real estate) and some other Australian business assets are not subject to CGT upon departure. These will only be taxed when sold, regardless of residency status.

4. Superannuation - Superannuation [pension] funds are generally not affected by CGT on leaving the country. Withdrawals from superannuation are taxed similarly to how they would be for residents.


Australian ‘Exit Tax’ Worked Example:

Jane, an Australian resident, decides to move abroad and becomes a non-resident for tax purposes.
She owns:

  • Australian Property - Valued at AUD 1.2 million. No CGT on departure.
    She will only pay CGT if she sells this property while living abroad.
  • Australian Shares and Bonds: Jane is deemed to have "disposed" of her Australian company shares and bonds upon becoming a non-resident. The Capital Gain would be calculated as:
    - Market value at the time of departure: AUD 500,000
    - Purchase price: AUD 300,000
    Capital Gain: AUD 200,000
  • Foreign Shares: These foreign assets also trigger a CGT event upon leaving Australia.
    - Market value at the time of departure: AUD 200,000
    - Purchase price: AUD 100,000
    Capital Gain: AUD 100,000

Total Taxable Capital Gain Upon Departure: AUD 300,000

Jane has the option to pay the CGT immediately or defer it until she actually sells the shares and bonds.
- If she pays CGT immediately: She will pay tax on the AUD 300,000 Capital Gain at her marginal tax rate.
- If she defers CGT: She will only pay when she sells the shares, but CGT will be based on value at time of sale.

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