Budget Expectations and Outcomes
Budget statements are always preceded by a slew of rumours and conjecture. The 2025 UK Autumn budget was no exception.
Despite the hike inCapital Gains Tax in the 2024 version, some forecast additional rises for 2025.As the old saying goes, ‘rumours die out faster than they are born’, and this one was no exception.
CGT rates remained unchanged; however, there are important strategic considerations for those planning or in the process of relocating from the UK to a European country.
Capital Gains Tax in Europe
Most developed countries include CGT in their tax regulations, and rates can be punitive.Spain, for example, charges CGT at rates of 19% to 28%, depending on the sizeof the gain.
It’s important to be aware that by leaving one country and settling in another, personal finances need to be adapted to maximise new opportunities and avoid potential banana skins. CGT can, in fact, be an optional tax with the proper financialrestructuring.
ISAs and Main Residences: Hidden Tax Traps
Main residences are in a similar position. When full tax residence is attained in the new country, the habitual residence becomes the property where you spend most of your time from that point onwards. So, your UK house becomes an investment property and is taxed accordingly on sale or on any rental income received.
CGT will also apply to non-ISA investment portfolios. In some cases, it’s possible to transfer ownership to a new tax-efficient portfolio, which would avoid both UK and future CGT.
The first part of the solution is therefore to sell ISAs whilst UK tax resident. It may not be aseasy with a main residence, as you need to find a buyer, and sentimental considerations may apply. From a purely financial perspective, however, it usually makes sense to sell, then repurchase in your new country of residence.This property is then considered your main residence, and no CGT will be payable at this point.
Planning a Move Abroad: Practical Considerations
When planning for a big move abroad, everyone needs a checklist. Spain, for example, offers a Non-Lucrative Visa programme for 3rd country nationals. Essentially, if you can prove you won’t be a burden on the state, and all bureaucratic requirements are fulfilled, residence will be granted, and you can look forward to 320 days of sunshine, along with all the other benefits of living in Spain.
Similar schemes are available in France and Portugal. In my view, it’s essential to engage are location agent or lawyer to ensure everything runs smoothly and within a reasonable timeframe.
This makes Compliant Bonds an extremely effective way to provide retirement income while investing in a secure, strictly regulated environment. Compliant Investment Bonds are usually based in Ireland and Luxembourg, which offer high levels of investor protection.
Transferring Existing Investments
So, ISAs can be reinvested in tax-efficient products and retain their exemption from CGT and Investment Income tax. But, what about non-ISA investments?
If they can be transferred from an existing portfolio ‘in specie’, there is no need to cash them in and pay CGT, as ownership will change from one custodian to another.Certain conditions apply in the receiving Compliant Bond, but if you hold UCITS funds in the case of Spain, or almost any fund in France or Portugal, it should be acceptable to the tax authorities. It may be best to ask your tax adviser for an opinion if there is any doubt.
Timing and Tax Residency
Finally, a word on timing. The UK tax year runs from April 6th to the 5th of the following year. Most EU countries use the calendar year, so it’s important to be aware of where you are taxed at any given moment. Essentially, if you move to an EU country, thenspend 183 days or more in that calendar year, you will be considered tax resident for that year. So, selling ISAs and/or property before this becomes an issue will avoid unnecessary tax payments.
As an example, if you were to move in June, you would need to sell your ISAs before you move. Other financial assets should also be checked to see if
Two great examples forUK emigrants are Individual Savings Accounts (ISAs) and main residences. Both are free from CGT in the UK, but both can become taxable in other countries if the correct planning isn’t implemented.
ISAs are an excellent way to save as they are free of CGT and other taxation whilst someone is resident in the UK. In most cases, withdrawals can be made entirely free of tax, in part because they are funded by taxed income. Personal Pensions, on the other hand, are free from taxation in the build-up phase, but taxable when used to provide income. This also makes sense, as contributions are made from pre-tax income.
The issue with ISAs is that, despite being tax free in the UK, they aren’t in the most popular European retirement destinations. This means any withdrawals will be assessed for CGT if the plan holder has become fully tax resident in:
- France
- Spain
- Portugal
Essentially, the gainfrom fund sales will be subject to CGT. For cash ISAs, any interest earned during the year will be taxed under Investment or Savings Income tax.Essentially, earned income that funds ISAs are taxed twice unless action is taken.
Property and Capital Gains Considerations
It’s also important to find a tax adviser and/or accountant to establish your new tax position. Tax advisers specialising in expat financial affairs can help make the most of new allowances and minimise overall tax.
Using Compliant Investment Bonds
Another item for your‘to-do’ list is to speak with a professional investment and financial adviser.The good news is that CGT can be avoided if investments are structured correctly.France, Spain, and Portugal’s tax systems enable investors to create portfolios that are exempt from CGT and Investment Income Tax.
The generic terms are
- Assurance Vie in France
- Spanish Compliant Investment Bonds in Spain
- Compliant Portuguese Investment Bonds
All provide a shelter from CGT and Investment Income Tax. This means that previously taxable assets are no longer subject to tax.
Policy conditions vary according to the rules of the country in which the individual lives. Portuguese and French withdrawals become most tax-efficient after 8 years, whereas in Spain, tax benefits start immediately. Tax will be applicable when withdrawals are made, however, at much lower rates than general income.
it’s worth paying UK CGT before your move. Rates have risen following the 2024 budget, but it may still be better to sell before becoming tax resident in your new country of residence. Your tax and financial advisers can help with this.
Conclusion: Taking Control of Capital Gains Tax When Moving Abroad
Relocating from the UK to Europe presents both opportunities and risks, particularly when it comes to Capital Gains Tax. With careful planning, appropriate timing, and the correct investment structures, it is often possible to minimise—or even eliminate—unnecessary tax exposure.
Axis Financial Consultants specialise in helping individuals navigate cross-border tax and investment planning with confidence. If you are considering a move abroad, orare already in the process of relocating, getting expert advice early can makea significant financial difference. Contact Axis Financial Consultants to ensure your assets are structured efficiently and your move is financially secure.
.avif)
