Transcription
Hey everybody, it's Ricardo Gowski, the founder of Tax One, where we help individuals and businesses pay as little tax as legally possible. And today we have a huge topic, and that is the UK's exit tax. Because just recently, Rachel Reeves actually mentioned that she's actively considering an exit and or mention tax, which is targeting wealthy individuals in the UK. And you know, it's quite funny because just one month ago, literally one month ago, I uploaded a video called the UK will implement an exit tax and individuals commented things like, "All guesswork and all nonsense." I answered, "Some people like to protect themselves from worst-case scenarios before it's too late." And this very individual replied again, "Yes, but your YouTube title says the UK will implement an exit tax." Dishonest and clickbait. Do you have any proof whatsoever that they will? No, back then I didn't. But I used common sense. And this is exactly what I also commented on this post on Instagram. And that is this individual was asking, "Where is your source?" I answered, "Common sense." And this person replied, "It's not common to me. The only reason the US has an exit tax is that it collects tax from all US citizens." Blah blah blah. And then I replied again, "However, it actually doesn't matter. This is facts now."
And that leads to the next point, which is what is actually the status quo? Because we do have some comments sometimes on our channel that say that the UK already has an exit tax in place, and this is factually wrong. Because the UK has a temporary non-residencies rule, which is fundamentally different to the upcoming exit tax that they now proposed, which I'm going to explain in a minute. The temporary non-residencies rule, or short TNR, means that every British taxpayer that leaves the country and relocates to another low-tax jurisdiction, specifically, is still liable for certain taxes on certain income and gains for up to 5 years after leaving the country. And this applies, but is not limited to, capital gains from assets that you owned before leaving the UK. Also dividends, rental income, and some other income types that we are happy to explain in an individual consultation call.
Now, next, inheritance tax for up to 3 years. If you're considered deemed domiciled, so partially domiciled, you can say, where even if you change your tax residency from the UK to another country, the UK still sees you as partially deemed domiciled. And in the case of you passing away in 3 years after leaving the country, you are still liable for British inheritance tax, which can go up to 40%, by the way. Insane. And this period is called the tax shadow period, where the HMRC is still actively tracing you, asking you questions, and you still have to report and declare your assets and income to the British tax authorities to make sure that you comply with these rules that already exist. Also, there are already exit charges for migration of companies that is also already in place, and that is the status quo.
But this is not a classical exit tax, which I'm going to explain now. Because the classical exit tax proposal from Rachel Reeves that she recently mentioned is that there will be a new exit tax which will impose a 20% taxation on the asset valuation, which also includes unrealized gains. And this is the critical point. Exactly. The fact that they may also impose taxation on your unrealized gains is what makes this whole proposal so unattractive for most entrepreneurs, investors, and wealthy individuals. And most people, unfortunately, don't even know what this actually means because this means that you have an immediate tax liability regardless of your liquidity. This is basically comparable with a capital gains tax, but without actually selling anything. So you're basically getting taxed as if you're cashing out your assets, your business, your investments, but you're not selling something. So you have to pay the taxes from your own pockets. And in many cases, this is actually impossible due to the illiquidity of the assets because you can't just simply sell a house like that. I mean, you probably live inside. And due to cash flow purposes, let's take a growth-driven business as an example. You run your operations. You have your profit and loss calculations, and you run ads or you do general marketing, which costs you a certain amount of money every month. Now you have to pay the exit tax out of your bank accounts that is actually already allocated to your operations, to your fixed costs, salary, staff, marketing expenses, social charges, and whatever there is that you're paying in your business. And so if you do not have any cash piles left somewhere in a savings account, for example, then you are indirectly forced to sell your assets or stay in the UK. And this is what actually happens to so many German clients of ours that they contact us and they try to get the consultation regarding exit taxes, and they can't physically move because they can't pay the exit tax. And so they are indirectly forced to stay in Germany, leave their business there, and continue paying high taxes.
And this is exactly the point. I mean, why would governments just let all the wealth leave while they know that they are actually getting paid if it stays in the country? I mean, that's literally the business of a government to make as much tax money from the citizens and residents as possible. And now, coming back to the comparison between the UK and Germany, because I think it is beautiful. We actually have the Brexit, where the UK left the EU many years ago, and since then, it is actually much easier to implement an exit tax compared to European countries. Because in the EU, every US citizen has the right to live and work from any other European member country, and that is the free movement of residence or free movement and residence, where every citizen technically is allowed to leave. But in practice, this looks different. Because here we have the example of Germany, and in Germany, we have the "Wegzugsteuer." This is basically the German term for the exit tax. And prior to 2022, here we have the "Freistellung." The exit tax was not payable immediately. So you could just postpone it indefinitely into the future. But the smart German tax authorities obviously realized that, and so they made it even more strict. And now, if you want to leave Germany as an entrepreneur with any kind of wealth, you have to immediately pay the exit tax. And their kind of fundamental reasoning behind that is the so-called "Verflechtung," where it basically says that "Verflechtung" means entanglement, attachment, something like that, where they basically say that, well, if you start doing something in Germany, we are kind of entangled, "verflechtet" with whatever you build. So we are entitled to our fair share of tax. And the funny thing is that the trigger for this exit tax in Germany is if you own at least 1% of a company. But now, the exact exit tax actually depends on a formula and a multiplier. So they look at the annual turnover and then they multiply it with X, and they basically do an evaluation of your net worth of the valuation of your business, and based on that, they are then charging you a flat tax of approximately 15%. And as a German myself, working with many, many German clients, I think this is a very good explanation of how it could look like, even though it is not fully clear yet in the UK.
And now we are looking at a specific example of how the exit tax would look like for a British family. So we have this British family right here with asset one, which is a house worth 500,000. Then asset two, a business worth 500,000. We're making it as simple as possible just to illustrate how it would look like. But what matters is that the total net worth of the family is $1 million, pounds, euros, whatever you want. And this is then liable to a 20% exit tax, which means the tax due immediately if this family decides to relocate is 200,000. Obviously, we are waiting for more official information from the government of which assets will be included in the exit tax, which will not be, which will be exempt, will there be a multiplier, etc., etc.
But now, all this leads to the question, why is the UK government doing that in the first place? And the answer is pretty clear. Here we have a visualization of the millionaire wealth migration, and we see that the UK is losing the most wealth. In 2025, it is close to $100 billion. And at the same time, the national net debt of the UK lies at 2.7,30 billion pounds, which is, by the way, 2.7 trillion. They just try to make it look a little bit more pleasant to look at. Let's say I actually try to find some very good statistics on the national net debt, but they literally try to use relative percentages and all that instead of just saying that we are broke. And then also, we have the tax gap, which basically means that this is the theoretical tax liabilities, which means that this is taxes that they didn't collect even though they should. And this, to me, is so interesting because everyone is looking at how much tax money is being collected, but no one really looks at where the money then is actually going to. The only thing we hear the government talk about is that they need more taxes, more NHS contributions, more social charges, increased capital gains taxes, increase VAT. And I'm just here asking myself, all right, but where is all this money going to? Because I'm actually not against paying taxes at all. If I would, then I would just relocate to a Caribbean island and just live in the Bahamas completely tax-free, no worries at all. But I don't want that. I actually want to be a part of a growing economy of a country that I believe in, where I see a future potential. However, in so many jurisdictions, I just don't see the ROI of paying my taxes, especially if it's a high-tax country like the UK, but also like Germany, my home country. And I'm sure that there are so many Brits that would agree with me that they would stay in their country if streets were clean and safe, without daily knife crimes, without terrorist attacks in London. I mean, it's crazy what's going on there. I wouldn't even feel safe to go out on London streets with an expensive watch. That's not really life quality in my eyes. But let's leave that aside. I'm sure everyone has heard about that or even saw some videos on social media where there are just criminal activities going on on London streets. But it's also about the young people that graduate and want to find a job without being in huge debt. It's also about the pension funds if they are covered and retirees that worked their entire lives can just enjoy their retirement stress-free. And if we want to extend even further, we can also talk about welfare and armed forces, but this is a topic for another video. I'm just saying that all of that doesn't really look good in the UK. So why even bother staying in the UK, paying ridiculous amounts of taxes in the first place? Those are things that a high taxpayer wants to see. And so obviously, a lot of British individuals are now thinking about leaving the UK. And I think the implementation of the exit tax is the tipping point of where the wealth exodus will now increase even more before it is implemented. I'm sure that many more British individuals are about to leave the country because they will be afraid of being trapped in the country.
And let me tell you something very interesting because I'm actually Polish by ethnicity. I was born and raised in Germany. Yes, but only because my family actually left the Eastern Bloc after the Wall. And the Wall is about the Berlin Wall that existed to separate the East from the West. And what's interesting about the Berlin Wall, and what many people don't realize, is that the Berlin Wall didn't exist to keep people out. No, it existed to keep people in. And it was literally a physical wall, a symbol of control. And so many people risked their life to leave the country and just find freedom in the West because in the East, there was communism. But why am I talking about this? Because now, 30 years later, we have walls again. But this time, they are invisible. This time, they are made of exit taxes, digital ID, chat control, and so many other mass surveillance mechanisms that the governments are trying to implement in the West. And these invisible walls are not built to defend the borders. They are built to keep the wealthy in and make them pay for the chaos around them. So that was a little run. Sorry about that. But I think it beautifully explains what this exit tax is actually about because it is about, let's do everything we can to make them want to leave, and then we charge them for doing so. I think the Labour Party is currently not aware that this has long-term consequences such as startups will leave the country. There will be fewer foreigners that choose the UK to incorporate companies or relocate to. And I think it is interesting that it is the perfect timing just before the budget, which is going to be on November 26, which I'm very curious about and will definitely update you on this channel regarding all the actual tax changes in the UK. I would say the worst part is that if you stay in the UK and you do not leave now, you will face the issue that it cannot be undone, and you will be one of the Germans that is now stuck in Germany and can't leave because the exit tax makes it literally impossible. And it doesn't stop with Germany, and also not with the UK. It will probably come to many more EU OECD countries.
And what I'm going to give you now is the ultimate exit checklist if you want to leave the UK and relocate to a low-tax jurisdiction. Number one is, you plan your exit. You review and declare everything to the HMRC and you pay what you owe. Then you tell the HMRC that you leave. There are specific forms for that that you have to fill out and send to them. And definitely make sure to keep an eye on the tax calendar year because in the UK, it is different to most other countries where it starts in spring compared to January 1, like here in Cyprus, for example. Then, as discussed earlier, definitely keep in mind the 5-year rule of the temporary non-residencies rule.
Then, number two, I definitely recommend you to set up an offshore company as early as possible, ideally in the country that you will relocate to. That could be Cyprus or the UAE, for example, where you then reduce your UK income. So you basically shift your operations to the new entity and you start issuing invoices from your new company. And because you have the intention to relocate to this country, this is 100% legal, and we are more than happy to explain you everything in an individual consultation call.
Now, number four is to secure your tax residency. Let's make that more pretty. Your tax residency and your permanent residency card, then you will receive the Cyprus PR with many other benefits. We have a separate video about the Cyprus PR. But the beautiful thing is that with the Cyprus PR, or also called Golden Visa, you can also become a Cyprus tax resident under the 60-day rule. So with just 2 months that you spend per year in the country, Cyprus, you can legally become a tax resident here. If you're interested in that, our partner company ofplot.1 also assists you with all real estate services. So feel free to reach out to us on tax1 for all relocation, legal, corporate services, and offplan will assist you with your real estate investment.
But when deciding for your tax residency, make sure to double-check double tax treaties because Monaco, for example, which is a popular destination for many high net worth individuals, actually doesn't have a double tax treaty with the UK. The same goes for Germany and the UAE, for example, meaning British individuals living in Monaco don't have any legal protection from double taxation. The same goes for Germans living in the UAE. And this can lead to issues just as this one right here, which is a letter that one of our high net worth individual clients received that lives in Monaco and left the UK. And here his private bank states that as per common report standard rules, they have to report to the HMRC that they do not consider him a Monaco tax resident, even though he is physically living in Monaco. The reason for that is his property portfolio that he still has in the UK, which is worth hundreds of millions of pounds, and he doesn't really want to and cannot easily get rid of it. And so even though he lives in Monaco for 2025, he's still considered a UK tax resident and has to pay his taxes there.
And that beautifully leads to the next point, which is build substance. Make sure to actually open up a company, open up local bank accounts, buy properties, make your kids go to school in your new home country so that you have actual substance in your new home country. Make it your life center, and at the same time, cut all ties with the UK. Sell your properties, cars, close your bank accounts, give up all directorships that you have in local companies, cancel all employments, cancel all utility bills, water, electricity, even your phone bill. If you still have a UK number, give it up. It has to be as radical as closing your gym memberships because you don't want the HMRC asking you why you still have a gym membership if you're not living in the UK. And then you will end up failing the residence test because of a gym membership. And also, obviously, a big factor is family ties. So, definitely make sure that if you relocate, take your family, especially kids and spouse, with you. It's a big step. Yes, I agree. But it will be definitely worth it. We have hundreds of families that we helped relocate to Cyprus over the last 6 years, and none of them regrets their decision of relocating to a beautiful Mediterranean island where everyone speaks English and there is basically zero crime. If you're interested in Cyprus, you're more than welcome to watch other videos of ours. I think I have the biggest portfolio of Cyprus videos on YouTube. So just type in Cyprus taxes, moving to Cyprus, Cyprus lifestyle, whatever there is, and you will see my face and you will enjoy my videos.
And now back to the topic. The last step is kind of optional, and that is wealth protection. And for that, we can set up a holding structure for your business's assets, investments. We can talk about a trust where you have so many benefits such as decoupling your assets from you as a natural person and settling them into a trust with a trustee and beneficiaries, which could be your kids, for example. Another benefit of the Cyprus International Trust specifically is that it can bypass probate and inheritance laws and taxes and rules, which is, for example, the UK inheritance tax. In general, if you reach out to us on tax one, we can also discuss international tax structures. We will help you pay as little tax as legally possible. We can discuss your relocation to a new country. And if you don't want, then that is also totally fine. I wish you all the best. And if you subscribe to the channel, I will see you in the next.