Minimising the cost of departure
As more UK residents explore the prospect of relocating abroad, particularly to attractive European destinations such as Portugal, there is increasing awareness of the financial implications of expatriation.
Tax Planning for leaving the UK
By Portugal team
This article is published on: 6th August 2025
While the UK does not impose a formal “exit tax” on individuals leaving or moving assets out (pensions being an exception), there are costs on departure in the form of the loss of certain reliefs and exemptions. Understanding these nuances and early planning is critical to minimise any costs and maximise the planning opportunities.
This article focuses on British individuals relocating to Portugal under its standard tax residency rules as the new tax incentive IFICI regime offers separate incentives and planning complexities.
So what do you need to be aware of when leaving the UK?
Avoid falling back in the UK tax system
The foremost consideration is ensuring that you do not inadvertently fall back into the UK tax system. This can happen simply by spending too many days in the UK. Depending on individual circumstances and the number of ties you maintain with the UK, this allowance may be as few as 16 days or as many as 182 days per tax year.
To give you the certainty of knowing where you tax obligations arise, it is important that you understand the day count allowance that applies to you and your family (based on the UK’s Statutory Residence Test) and keep detailed records of time spent in the UK and abroad.
Key reliefs and allowances lost on departure
Private Residence Relief (PRR)
UK residents can generally sell their main home without incurring capital gains tax due to PRR. However, once tax residency shifts to Portugal, this exemption no longer applies.
Portugal taxes gains on property sales regardless of whether the property is a main residence. Therefore, the timing of property disposals becomes crucial and could have a significant tax impact.
Business Asset Disposal Relief (BADR)
Formerly known as Entrepreneurs’ Relief, BADR allows UK residents to sell qualifying business assets at a reduced capital gains tax rate of 14%. However, this relief is not available once you become tax resident in Portugal as it is residence of the shareholder that determines the tax treatment, not the location of the business.
Under the UK-Portugal double taxation treaty, Portugal has taxing rights over such gains, where the rates start at 28%. Nevertheless, with appropriate structuring, these gains can be reduced—and in certain cases, eliminated entirely.
Pension Commencement Lump Sum
The so-called “25% tax-free cash” is a UK tax incentive and other countries, including Portugal, do not recognise the concept of this allowance. As a result, any amount withdrawn would be taxed as income in Portugal.
Historically, prudent planning would be to retain as much as possible within pension schemes as they are not (currently) subject to inheritance tax. However, two major developments have affected this planning:
1. Inheritance Tax (IHT) on Pensions: From April 2027, UK pension schemes will fall within the scope of UK IHT.
2. Residency-Based UK IHT: From April 2025, UK IHT will be assessed based on residency. Individuals who have been non-UK tax residents for 10 out of the previous 20 years will escape UK IHT—except for UK situs assets, including pension schemes left in the UK after April 2027.
As a result of the erosion of the tax benefits of pensions, more and more are looking to deplete their pension schemes, particularly if they hold Non-Habitual Resident status in Portugal.
Overseas Pension Transfer Charge
This point is slightly different to the others discussed above, as it doesn’t apply when the individual leaves the UK, rather it is when the pension scheme leaves the UK.
Since October 2024, transferring a UK pension to a Qualifying Recognised Overseas Pension Scheme (QROPS) may incur a 25% tax charge.
Whilst this will stop the majority of pension transfers taking place, some have decided to accept the 25% exit tax charge in order to save their beneficiaries from the 40% IHT charge to be implemented from April 2027, as discussed above.
Pension Contributions After Departure
UK tax relief on pension contributions is only available to UK residents. However, former residents may contribute up to £3,600 gross annually for up to five tax years post-departure.
EIS and SEIS Reliefs
Tax advantages associated with the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are similarly lost upon changing tax residence. Furthermore, if an EIS/SEIS holder ceases UK residency within the three-year qualifying period, gains previously deferred may trigger an immediate tax liability.
Additional tax traps and planning points
• Company residency risks: A sole director managing a UK company from Portugal could render the company Portuguese tax resident, triggering double taxation.
• Permanent establishment issues: Continued business activity from Portugal could create a “permanent establishment,” bringing local corporate tax exposure.
• Temporary Non-Resident Rule: Under this anti-avoidance rule, those returning to the UK within five years of departure may face tax on capital gains and income realised during their non-resident period.
The Prospect of a UK Wealth Tax
Recent discussions have reignited debate over the potential introduction of a wealth tax in the UK. While no formal proposals have been tabled, policymakers and think tanks are increasingly considering wealth taxation as a mechanism to address fiscal imbalances and fund public services.
Should such a tax be introduced, it could significantly alter the financial planning calculus for high-net-worth individuals contemplating emigration. Although the UK has historically avoided a net wealth tax, a shift in political direction could see assets—particularly those held in the UK—subject to new assessments.
This development, coupled with changes to inheritance tax and pension treatment, is leading many to explore pre-emptive planning, including asset restructuring, offshore trusts, and in some cases, accelerated departures. For those considering relocation to jurisdictions like Portugal, which offers comparatively benign treatment of foreign income and gains, the window to act may narrow.
Final thoughts
In the current environment, tax-efficient emigration from the UK is not as simple as buying a one-way ticket. The erosion of traditional tax reliefs, the complexity of cross-border rules, and the looming spectre of wealth taxation, demand early and strategic planning. Whether mitigating capital gains, managing pensions, or avoiding permanent establishment risks, proactive advice is essential.
As always, individuals should seek bespoke advice based on their circumstances and monitor regulatory developments closely—both in the UK and Portugal.