What really happens if you leave the UK, and then come back?

Leaving the UK does not always mean leaving UK tax behind.

In Episode 17 of the Tax Compass Podcast, we break down one of the most misunderstood areas of UK tax law: Temporary Non-Residence.

If you are considering relocating overseas, even for a few years, this is essential reading.

What Is Temporary Non-Residence?

Under UK tax law, if you:

• Have been UK tax resident for 4 of the previous 7 tax years, and
• Leave the UK but return within 5 full tax years,

You may be treated as a temporary non-resident.

If that happens, certain income and gains realised while you were non-resident can be brought back into UK tax when you return.

This often comes as a surprise.

Why Does the Rule Exist?

The rule was designed to prevent individuals from:

• Leaving the UK briefly
• Realising capital gains in a low-tax jurisdiction
• Returning shortly afterwards

In other words, it is an anti-avoidance measure.

But it catches far more ordinary scenarios than many people expect.

The 5-Year Rule

In most cases, you must remain non-resident for at least five full tax years to avoid being classified as temporarily non-resident.

The clock usually starts:

• From the start of the tax year following departure, or
• From the split-year departure date (if split-year treatment applies).

The timing matters.

Getting this wrong can invalidate planning.

What Income and Gains Can Be Caught?

Temporary non-residence can apply to:

• Capital gains
• Certain pension lump sums
• Dividends from close companies
• Certain distributions
• Other specific income categories

If you return to the UK within five years, these amounts can crystallise in the tax year of your return.

There is no top-slicing relief.

That means multiple years of gains or income could be taxed in one single year, potentially at higher rates.

A Practical Example

Imagine you:

• Leave the UK
• Sell shares with significant capital gains
• Pay no tax in your new country of residence
• Return to the UK after three years

Those gains may fall back into UK tax in the year you return.

The same principle can apply to certain pension withdrawals or dividends extracted from a close company.

Why This Matters Now

We are seeing an increasing number of individuals leaving the UK.

Historically, relocation was often driven by lifestyle or employment opportunities.

Today, tax is more frequently a primary factor.

However, leaving without understanding temporary non-residence rules can undo careful planning and create unexpected liabilities.

Interaction with Split-Year Treatment

Split-year treatment can help you break UK tax residence in your year of departure.

But it does not override temporary non-residence rules.

Even if you validly become non-resident, returning within five tax years may still trigger these provisions.

Is an Exit Tax Coming?

There has been increasing political discussion around tightening non-resident rules.

While the UK does not currently operate a formal exit tax, changes to:

• Capital gains
• Dividend treatment
• Pension relief
• Inheritance tax residence rules

Suggest a clear direction of travel.

Planning early is essential.

The Key Message

Temporary non-residence is not niche.

It is highly relevant if you:

• Own investments
• Run your own company
• Hold shares in a family business
• Plan to draw pension lump sums
• Expect to return to the UK in the future

If you are leaving the UK, you must think beyond the first year.

The five-year horizon is critical.

How LSR Partners Can Help

Temporary non-residence rules are technical, but with the right planning, they are manageable.

You get:

• Clarity on whether the rules apply to you
• Certainty around the five-year window
• Strategic guidance on timing disposals
• Confidence that you will pay the right tax in the right place

If you are planning to leave, or planning to return, it is far better to structure things correctly from the outset than to unwind them later.

Listen to Episode 17

You can listen to the full episode of the Tax Compass Podcast here.

If you would like to discuss your position, contact LSR Partners.

You’ll get clarity and confidence, and a clear plan forward.

Contact LSR Partners today to speak with our expert team and pay the right tax, in the right place, at the right time.