The Shelved 2025 Exit Tax Proposal
Official 2025 reports revealed that Chancellor Rachel Reeves had considered imposing a 20% UK exit tax on high-net-worth individuals leaving the country. The proposed measure would have targeted those with assets exceeding £10 million who had been UK residents for at least four years, applying the tax to unrealised capital gains at the point of departure.
However, the proposal was quickly dropped following pushback from the wealth management industry and policy think tanks. The 2025 Budget ultimately contained no exit tax provisions, leaving the UK without the kind of departure levy that countries like the United States impose on expatriating citizens.
Current UK Tax Rules Still Catch French Expats
While the dramatic exit tax proposal never materialised, existing UK tax rules continue to surprise British expats settling in France. The temporary non-resident provisions remain particularly relevant for those planning extended stays across the Channel.
You’re classified as a temporary non-resident if you were UK resident for at least four out of the seven years before leaving and return within five years of departure. During this period, you may face UK tax on all capital gains realised while living abroad, even if you’re French tax resident.
For British expats in France, this creates a potential double-taxation scenario. French tax authorities will expect you to declare worldwide gains as a French resident, while HMRC may also claim its share under the temporary non-resident rules. The only way to definitively escape this classification is to maintain non-residence for more than five years.
Capital Gains Thresholds Have Tightened
The capital gains landscape has become less forgiving in recent years. The annual exemption for 2024/25 stands at just £3,000, a dramatic reduction from previous levels. This means even modest investment gains can trigger UK tax obligations for temporary non-residents.
British expats in France often discover this when selling UK property or liquidating investment portfolios to fund their French relocation. A property sale that seemed straightforward can suddenly involve dual reporting requirements and potential tax in both jurisdictions.
The personal allowance remains at £12,570 for 2024/25, and you won’t lose this allowance as long as you maintain UK or EEA citizenship. However, the reduced capital gains exemption means the threshold for triggering tax obligations has dropped significantly.
Inheritance Tax Tail Periods
Beyond capital gains, inheritance tax (IHT) creates another layer of complexity for British expats in France. The length of your UK residence before departure determines how long you remain within the UK inheritance tax net after leaving.
If you were a UK long-term resident for fewer than seven years, there’s no IHT tail period. However, longer residence periods create extended exposure: seven to 13 years of UK residence results in a three-year tail, 14 to 19 years creates a six-year tail, and 20 years or more means a 10-year tail period.
For British expats in France with substantial assets, this can conflict with French succession law, which applies forced heirship rules to French property regardless of your nationality. The interaction between UK inheritance tax and French succession planning requires careful structuring to avoid double taxation and ensure your estate planning objectives are met.
Returning to the UK after 10 years resets the long-term residence test for IHT purposes, which can be relevant for expats considering eventual repatriation.
Structuring Assets Before Departure
Given these complexities, many British expats benefit from restructuring their assets before establishing French tax residency. Investment portfolio management becomes crucial when navigating dual tax obligations.
Prudential International assurance vie bonds offer particular advantages for British expats in France. These policies provide tax-deferred growth under French tax law, with favourable withdrawal taxation after eight years of holding. The multi-currency flexibility also helps manage exchange rate risk between sterling and euro assets.
Unlike UK ISAs, which lose their tax advantages once you become French tax resident, assurance vie maintains its preferential treatment. The succession planning benefits also align well with French inheritance law, potentially offering more flexibility than direct asset ownership.
How We Can Help
International Wealth Ventures specialises in setting up Prudential International assurance vie bonds for British expats in France, providing tax-efficient growth, flexible income, and succession planning that works with both UK departure rules and French residence requirements. Speak to our France specialist to review your cross-border tax position.
