Leaving the UK: Temporary Non-Residence and the Inheritance Tax Tail for Advisers
Published by 
Steffan Kharmaaiarvi, founder
A UK client planning to leave the UK often asks what happens to their portfolio. Two rules follow them abroad. Under temporary non-residence, gains made while away can be taxed when they come back. Under the residence-based inheritance tax rules in force since April 2025, a long-term resident's worldwide assets stay within inheritance tax for a tail of up to ten tax years. This note sets out both, with a worked example.
Temporary non-residence: gains taxed on return
HMRC's manual CG26540 sets three conditions, under TCGA 1992 s.10A:
- the individual has sole UK residence for a residence period, followed immediately by one or more periods without it;
- in at least 4 of the 7 tax years immediately before the year of departure they had sole UK residence (or a split year with a period of sole UK residence); and
- the period of temporary non-residence is five years or less.
When they are met, the helpsheet HS278 explains that gains and losses on assets held before leaving that arise during the period abroad are treated as arising in the tax year of return, with losses becoming allowable in the same year. Assets acquired after leaving are normally outside the rule, with exceptions. A client who sells a general investment account after departure and comes back within five years therefore pays UK Capital Gains Tax on return. The destination country may tax the same gain; credit for that is outside this note.
The conditions use the statutory residence test and split-year treatment, so the count of years is a matter for the residence history, not the calendar. Gains inside a SIPP are not chargeable gains in any case (TCGA 1992 s.271(1A)).
Inheritance tax: long-term residence and the tail
From 6 April 2025 the domicile and deemed domicile rules for inheritance tax were replaced by long-term UK residence (HMRC guidance). Under IHTM47020 and IHTA 1984 s.6A, a person is a long-term UK resident if they have been UK resident for at least 10 of the last 20 tax years. For a long-term resident, inheritance tax reaches overseas assets on a transfer or on death, not only UK assets.
Long-term residence does not end on the day the client leaves. IHTM47020's table sets the tail:
| Tax years of UK residence | Tax years in scope after leaving |
|---|---|
| 10 to 13 | 3 |
| 14 | 4 |
| Each further year | one more |
| 20 | 10 |
HMRC's guidance also sets out transitional rules for people who did not have UK domicile or deemed domicile status on 30 October 2024, and for trusts; check them for any client who was not UK domiciled then.
Pensions are moving too. HMRC's policy paper says most unused pension funds and pension death benefits will form part of the estate for deaths on or after 6 April 2027, with death in service benefits excluded, and that legislation was to be introduced in Finance Bill 2025-26.
A worked example (illustrative)
A client has been UK resident in every tax year from 2008-09 to 2025-26, 18 tax years, and plans to move to Portugal in August 2026. Their general investment account carries a net unrealised gain of £60,000; they also hold an ISA and a SIPP.
- Temporary non-residence. Resident in all 7 tax years before departure, so the 4-of-7 test is met. If they sell the general account in 2027 and return in 2030, within five years, the £60,000 gain is treated as arising in the tax year of return. At today's 2026-27 figures, used only for illustration (HMRC), and with no other gains: (60,000 − 3,000) × 24% = £13,680, before any credit for Portuguese tax. If they stay away for more than five years, the rule does not apply.
- Inheritance tax. 18 years of residence is more than 10 of the last 20, so the client is a long-term resident. From the table, 18 years gives a tail of 8 tax years (3 at 13 years, plus one for each of the five further years). Worldwide assets, the Portuguese account included, stay within UK inheritance tax for that period.
- Pensions. If the client dies on or after 6 April 2027 while still within the tail, most of the SIPP's unused funds would form part of the estate under the policy paper.
Questions to raise before the move
- Is the residence history documented, year by year, under the statutory residence test?
- Might the client return within five years, and which holdings would be sold while abroad?
- How does the destination tax gains and estates, and what credit does it give?
- Is a will or an estate plan in place for the tail years, including pensions from April 2027?
What Borderfolio shows
- A finding when a move is planned. "Leaving the UK: gains on return and inheritance tax" appears for a UK-resident client with a planned destination on the profile.
- Gain held. The net unrealised gain in general accounts at today's prices, on the UK identification rules (same day, 30 days, Section 104), each purchase at its own date's exchange rate; ISAs and pensions left out. If any holding's cost is unknown, no total is given.
- The return window. The date five years after the planned departure; with fewer than four years of residence, the finding says the rule would likely not apply.
- The tail. Years of residence from the profile's "resident since" date to departure, and the inheritance tax tail from IHTM47020's table, or a statement that the client is not a long-term resident.
- Pensions. The April 2027 change is stated as an assumption. See also relocation planning.
Not modelled: the statutory residence test and split years (years are counted in whole years from the profile dates, which can differ by one from HMRC's count of tax years); income on return, such as offshore income gains or close-company dividends; the inheritance tax transitional rules, nil-rate bands, reliefs and treaties; the destination's own taxes.
Sources: HMRC CG26540, HMRC HS278 (2026), TCGA 1992 s.10A, HMRC IHTM47020, HMRC, Inheritance Tax if you're a long-term UK resident, HMRC policy paper on unused pension funds, HMRC, CGT rates and allowances.
Frequently asked questions
Does selling investments after leaving the UK avoid UK Capital Gains Tax?
Not if the client is temporarily non-resident: with sole UK residence in at least 4 of the 7 tax years before the year of departure and a period abroad of five years or less, gains on assets held before leaving that arise while away are treated as arising in the tax year of return (HMRC CG26540, HS278).
What is a long-term UK resident for inheritance tax?
From 6 April 2025, someone who has been UK resident for at least 10 of the last 20 tax years (HMRC IHTM47020, IHTA 1984 s.6A). Their overseas assets are within inheritance tax, not only their UK assets.
How long does inheritance tax follow a long-term resident after leaving?
For 3 to 10 tax years. With 13 or fewer years of residence the minimum of 3 tax years applies, rising by one for each further year of residence up to 10 tax years at 20 years (IHTM47020).
Do pensions count for inheritance tax?
HMRC's policy paper says most unused pension funds and pension death benefits come within the estate for deaths on or after 6 April 2027; death in service benefits are excluded.