Exit Tax: A Complete UK Guide to Temporary Non-Residence

The UK's exit tax rules, formally known as the temporary non-residence provisions, prevent individuals from leaving the UK for a short period, realising capital gains free of UK tax, and then returning. These rules are found in section 10A of the Taxation of Chargeable Gains Act 1992 (TCGA s10A) and are among the most important considerations when planning a move overseas.

The Five-Year Rule

If you are absent from the UK for fewer than five complete tax years, you are treated as temporarily non-resident. In that case, any capital gains you realise during your period of non-residence are brought back into charge to UK capital gains tax in the tax year you return to the UK. The gains are taxed as if they arose in the year of return, at the rates applicable in that year.

The five-year period is measured in complete tax years, not calendar years. For example, if you leave the UK on 1 May 2026 and return on 1 July 2030, you need to check whether you have been non-resident for at least five complete tax years. The tax years of departure and return do not count as complete years of non-residence.

Deemed Disposal and Chargeable Gains

Under TCGA s10A, gains realised during the temporary non-residence period are deemed to arise in the year of return. This means you must report them on your self assessment return for the year you resume UK residence, even though the disposal occurred while you were non-resident. You cannot use foreign tax credits or reliefs available to non-residents at the time of disposal.

The rule applies to all chargeable gains, whether from UK or foreign assets. However, assets acquired after you became non-resident are generally excluded from the charge, provided they are not connected to your UK residence or business.

Planning to Avoid Exit Tax

The simplest way to avoid the exit tax rules is to remain non-resident for at least five complete tax years. If you do this, gains realised during your non-residence period are permanently outside the UK tax net, and you can return to the UK without triggering a charge on those gains.

However, this requires careful planning. You must ensure that you meet the statutory residence test for each year of absence. A single year in which you spend too many days in the UK could break the continuity of non-residence and restart the clock. The automatic overseas test (fewer than 16 days in the UK, or 46 days if previously resident) is the safest route.

If you cannot stay away for five complete tax years, consider realising gains before you leave the UK. UK residents can use their annual exempt amount (£3,000 from 2025/26) and may be able to time disposals to fall in the most favourable tax year. Alternatively, hold assets until you are confident you will be non-resident for the full five-year period.

Interaction with Other Rules

The temporary non-residence rules interact with several other provisions. The remittance basis (or the new FIG regime from 2025) can affect how foreign gains are taxed during non-residence. The non-resident CGT rules for UK property continue to apply regardless of residence status. And the split year treatment may determine which gains fall in the UK tax net and which fall outside it.

Trust structures are particularly affected. If you are a beneficiary of an offshore trust and the trustees realise gains during your temporary non-residence, those gains may be attributed to you under the temporary non-residence rules when you return. Trust planning must take account of the five-year rule.

Returning to the UK

When you return to the UK after a period of non-residence, you become liable to UK tax on worldwide income and gains from the date of your return. The split year treatment may apply in the year of return, so only post-return gains are taxed. If you have been away for five complete tax years or more, pre-return gains are not affected by the temporary non-residence rules.

Returning to the UK also has implications for your domicile status, your IHT exposure, and your ability to claim the remittance basis. The new four-year FIG regime from 2025 means that returning residents who have been away for at least 10 consecutive years may qualify for a fresh four-year FIG period.

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