Preparing for Potential Exit Tax - What You Need to Know Before It's Too Late

As we approach the October 30th budget announcement, speculation surrounding the introduction of an Exit Tax is growing. While being frustrated by this potential change is understandable, it’s not the most productive way to navigate the situation. Here’s what you can do instead to prepare and protect yourself.

Exit Tax - What You Should Know

Capital Gains Tax (CGT) hasn’t been a major revenue generator historically—but that’s largely because there has never been an Exit Tax. If Rt. Hon. Rachel Reeves decides to implement this tax, it would fundamentally change the way capital gains are taxed upon leaving the UK.

Concerns about valuing non-publicly traded assets are valid, but in most tax regimes with an Exit Tax, the taxpayer determines the asset’s value—not the tax authority. That said, you’ll need to ensure your valuations are defensible with independent professional assessments that comply with GAAP standards to avoid disputes with HMRC.

The “fairness” of no automatic step-up to fair market value (FMV) upon establishing UK tax residency has also been raised. Some jurisdictions, like Canada, allow this step-up, while others, like the U.S., do not. The UK government could adopt either approach. Until then, the uncertainty remains.

Urgent Action Needed

The possibility that an Exit Tax could be announced on October 30th—and potentially applied retroactively as of October 29th—has motivated many prudent individuals to start implementing strategies to claim non-residence before the budget is released. If an Exit Tax is introduced, this proactive step could help you avoid a significant tax hit. And if it’s not? No harm done.

With just 19 days left to make these arrangements, the time to act is now.

Stay tuned for more updates as the situation develops, and don’t hesitate to consult with a professional to ensure you’re prepared for whatever changes may come.

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