UK Exit Tax and Capital Gains on Departure: The Temporary Non-Residence Rules

The UK's Approach to Exit Taxation

Unlike Germany, France, and many other European jurisdictions, the United Kingdom does not impose a formal mark-to-market exit tax when a taxpayer leaves the country. An individual who departs the UK retains their historic UK asset base costs without crystallising a UK tax charge on unrealised gains simply by virtue of leaving.

However, Parliament has enacted a targeted anti-avoidance rule in section 10A of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) — the temporary non-residence (TNR) rules — that effectively deters the most straightforward form of departure-followed-by-disposal planning. Under these rules, gains on certain assets that are disposed of during a period of temporary non-residence are treated as arising in the year the taxpayer returns to the UK, and are taxed in that year.

Understanding the precise scope of section 10A — which gains are caught, which disposals are exempt, how the five-year clock operates, and how treaty provisions interact — is essential for any individual planning to leave the UK tax net with the intention of realising capital assets.

The Five-Year Clock

The temporary non-residence rules apply where an individual is UK resident, then becomes non-resident, and returns to UK residence within a "period of temporary non-residence." The period of temporary non-residence begins immediately after the last UK tax year of residence before departure and ends immediately before the return to UK residence.

The critical threshold is five complete UK tax years. If the individual is non-resident for fewer than five complete tax years (i.e., years in which they are entirely non-resident — not split years), they are within the TNR provisions when they return. If they are non-resident for five or more complete tax years, section 10A does not apply.

Years of Non-Residence	TNR Rules Apply on Return?
1 complete tax year	Yes
2 complete tax years	Yes
3 complete tax years	Yes
4 complete tax years	Yes
5+ complete tax years	No

The five-year count uses complete tax years of non-residence. A person who is non-resident in 2025/26 and returns to the UK on 1 September 2030 has been non-resident for 5 complete tax years (2025/26, 2026/27, 2027/28, 2028/29, 2029/30 — the latter being a split year), and section 10A does not apply. A person who returns on 1 January 2030 has been fully non-resident for only 4 complete years and is within TNR.

Note that split years do not count as complete non-residence years for TNR purposes. The year of departure (if a split year) and the year of return (if a split year) are both counted as UK residence years for TNR purposes.

Which Gains Are Caught by Section 10A

Section 10A applies to gains on "section 10A assets" — assets that were held by the individual immediately before the year of departure. Specifically:

1. Assets owned by the individual at the start of the period of temporary non-residence — i.e., assets held at the time they left the UK
2. Assets received as consideration for those assets — where an asset is exchanged or replaced during the TNR period, the replacement asset inherits the section 10A characterisation

The gains caught are those arising on disposal of section 10A assets during the period of temporary non-residence. If the individual returns within five years, those gains are treated as accruing in the year of return (the "period of return").

Which Disposals Are Exempt

Importantly, section 10A does not apply to:

1. UK residential property gains — these are already subject to UK CGT for non-residents under the non-resident CGT (NRCGT) rules and the PAIF regime
2. UK commercial property gains — similarly, these are caught under the April 2019 extension of NRCGT to non-residential property
3. Assets acquired after the date of departure — gains on assets first purchased after the individual became non-resident are not caught by section 10A on return

This creates a clear planning principle: any asset acquired after the departure date and disposed of before return is not subject to TNR taxation. The TNR rules are targeted at gains that were "embedded" in assets at the point of departure — the concern is that the taxpayer is banking pre-departure gains and realising them offshore.

Treaty Tiebreaker Considerations

Many departing UK residents establish tax residence in another jurisdiction and rely on a double tax treaty to override any UK residence claim for treaty years. The interaction between section 10A and double tax treaties is complex.

Under the UK's treaty network, where an individual is resident in both the UK and a treaty partner state, the tiebreaker provision (usually Article 4(2) of the relevant double tax agreement, based on the OECD Model) will determine which country has primary residence rights. A UK national who moves to Switzerland and is a treaty-defined Swiss resident in the years of non-residence will not be UK tax resident for treaty purposes in those years.

However, section 10A does not require UK tax residence during the TNR period — it applies based on the fact of UK residence before and after. A treaty-resident non-UK-person who returns to the UK after three years and re-establishes UK residence will face section 10A treatment on their pre-departure UK assets, notwithstanding that they were treaty-resident in Switzerland throughout.

The one exception is where the gain would have been exclusively taxable in the treaty partner country under the treaty's capital gains article (Article 13). Where a treaty specifically allocates taxing rights on particular assets to the non-UK state, UK domestic law cannot override that allocation.

Planning Strategies

Accelerating Disposals Before Departure

The simplest and most robust strategy is to dispose of UK assets before leaving the UK — realising gains while still UK resident and potentially using the annual CGT exemption (£3,000 in 2025/26) and any available losses. While this results in immediate CGT, it eliminates the section 10A risk entirely and removes the five-year constraint on returning to the UK.

Waiting Until the Five-Year Threshold

For individuals committed to long-term non-residence — genuinely living and working abroad for career or personal reasons — waiting until five complete tax years of non-residence have elapsed before disposing of pre-departure assets ensures section 10A does not apply. This requires genuine adherence to the non-residence conditions throughout the period; any inadvertent return to UK residence during the five years resets the TNR analysis.

Using Offshore Trusts

A non-domiciliary who, before departure, settled an offshore trust containing their investment portfolio could argue that post-departure gains realised within the trust are not section 10A gains of the individual (since the individual does not own the assets — the trust does). The technical merits of this position depend on whether the TCGA 1992 trust attribution rules (sections 86-87) cause the gains to be treated as the settlor's for TNR purposes.

In practice, HMRC has argued that gains attributed to a settlor under section 86 are "gains of" the individual for section 10A purposes. This analysis has not been definitively tested in the courts, making it a higher-risk planning approach.

Year of Departure: Timing Matters

The year of departure is typically a split year, with a UK part and an overseas part. Disposals made in the UK part are UK CGT events. Disposals made in the overseas part of the split year are also technically outside current UK CGT (as the individual is non-resident for that part), but HMRC's position is that split-year overseas part disposals of section 10A assets are caught on return under TNR. This interpretation has been contested, and specialist advice is warranted for significant disposals in a split year.

HPT Group works with high-net-worth individuals at the pre-departure stage to map all UK CGT-exposed assets, model the section 10A implications under different departure and disposal scenarios, and identify the most efficient approach for each situation. The interaction of section 10A with split-year treatment, trust structures, and treaty tiebreakers requires careful analysis. Contact our international tax team or book a consultation to discuss your specific circumstances.