Australian Exit Tax: Pay Now or Defer?

We had a client reach out recently. He’d moved from Sydney to London a couple of years ago, had a portfolio of Australian shares and some foreign investments, and was trying to figure out what to do about something called the “deemed exit tax.”

His questions were completely reasonable: “If I pay the exit tax now, what happens when I actually sell? Do I get taxed again in the UK? And what about this new FIG regime – does that change anything?”

We get some version of these questions almost every week. And honestly, the answers aren’t always straightforward – they depend on which elections you make, when you sell, and whether you’re eligible for certain UK tax reliefs. Get it right and you could save thousands. Get it wrong and you might end up paying tax in both countries with no way to offset one against the other.

So let’s break it down.

What is Australia’s exit tax?

When you stop being an Australian tax resident, the ATO treats you as if you’ve sold most of your investments at market value on the day you leave. This is called CGT event I1 – a “deemed disposal.” It’s not an actual sale, but the ATO wants to tax any gains that built up while you were living in Australia before you head off.

It catches things like portfolio shares (Australian or foreign), managed funds, crypto, and overseas investment property – basically anything that isn’t classified as “taxable Australian property” (TAP). Your Australian house or apartment? That’s TAP, so it’s excluded from the exit tax. We’ll come back to property later because it has its own set of rules.

Here’s the important bit: you don’t have to pay the exit tax. Australian law gives you a choice – you can elect to “disregard” the deemed disposal. If you make that election, Australia doesn’t tax you on departure. Instead, those assets are treated as TAP until you either sell them or move back to Australia.

One thing to know about this choice: it’s all-in. You can’t cherry-pick which assets to defer.

Three scenarios every Aussie expat needs to understand

This is where it gets practical. The tax outcome depends entirely on which path you take. Let’s walk through each one.

Scenario 1: You pay the exit tax, then sell in the UK

You leave Australia, pay CGT on the deemed disposal, and later sell the actual investments while you’re a UK tax resident.

The good news is that your Australian tax obligations on those investments are settled at departure. When you sell later, there’s no further Australian CGT. The not-so-good news? HMRC doesn’t care that you’ve already paid Australian tax. The UK can tax you on the gain calculated under UK rules in sterling, which can bring in growth that occurred before you arrived in the UK. And critically, the Australian exit tax you already paid is generally not creditable against your UK CGT bill, because Australia taxed a “deemed” disposal while the UK is taxing the actual sale – they’re not the “same gain” for treaty purposes.

However, if you’re eligible for the UK’s new FIG regime (more on that below), foreign gains can be sheltered from UK tax entirely. In that case, the only CGT you’d pay is the Australian exit tax itself. That’s a strong outcome.

Scenario 2: You don’t pay the exit tax, then sell in the UK

You elect to disregard the exit tax. You don’t pay anything to the ATO on departure. Then you sell the investments while living in the UK.

Now, because you deferred, those assets are still treated as TAP under Australian law. That means Australia still wants their slice of CGT when you eventually sell. In principle (but keep reading more below), any Australia CGT you pay would be creditable against the UK liability under the double tax agreement.

But, here’s where it gets interesting: if you sell under the FIG regime and there’s no UK CGT to pay, then there’s nothing to credit against the Australian tax. You’d be paying full Australian CGT with no offset. That’s not necessarily a disaster – you’re still only paying tax in one country – but it catches people off guard because they hear “FIG regime = no UK tax on foreign gains” and assume they’re completely in the clear. They’re not automatically. Australia may still be in the picture (unless Article 13(5) applies), and by the time they realise, they’ve already sold.

So what is Article 13(5)? It’s a powerful card in the deck of the Australia / UK Double Tax Agreement – its what we sometimes call the “golden clause.” (and who doesn’t like the sound of a golden clause…) It says that if you’ve elected to defer taxation under domestic law (which is what we are talking about here), and you’re now resident in the UK, then gains from the later actual sale are taxable only in the country you’re living in – the UK. If this applies, Australia drops out of the picture entirely on those assets. That’s a significant result and one that can make deferral the better option for many UK-based expats. But it depends on your treaty residence status, the type of assets, and getting the technical details right. There is a world where you move to the UK, sell your entire Australian share portfolio, and pay no CGT to anyone.

Important: this treaty “UK-only” outcome is mainly relevant to shares and portfolio investments. It generally does not override Australia’s taxing rights on Australian real property, where Australia usually remains entitled to charge CGT.

Scenario 3: You pay the exit tax, hold the investments, then return to Australia

You pay the exit tax on departure, keep everything, don’t sell while in the UK, and eventually move back to Australia.

In this case, the exit tax is treated as a deemed disposal on departure and a deemed acquisition when you return. Your cost base resets to the market value at the time you left. So any future Australian CGT only applies to gains that accrue after you become an Australian tax resident again – not from your original purchase date. The exit tax effectively draws a line in the sand, and to be fair to the ATO, this seems like a reasonable approach.

Putting numbers on it

Let’s make this concrete. Imagine you’re an Australian expat who ceased Australian tax residency on 1 July 2025 and became UK resident. You hold AUD 200,000 worth of Australian listed shares (non-TAP) that you originally bought for AUD 150,000. You sell them on 1 February 2026 for AUD 200,000 while living in the UK. We’ll assume you’re a higher-rate UK taxpayer (24% CGT) and use a simplified exchange rate of 1 AUD = 0.50 GBP at the time of sale.

The UK CGT figure here assumes a £25,000 gain in GBP (£100,000 proceeds less £75,000 cost), less the £3,000 annual exempt amount, taxed at 24% (= £5,280).

The row to watch is the “defer exit tax + FIG” outcome, because it’s brilliant only if the treaty works in your favour. If you made the deferral election, you’re UK treaty-resident at the time of sale, and the asset is the right type, Australia should not tax the later disposal, and FIG can mean you pay no CGT in either country. But if the “defer exit tax” option doesn’t apply for any reason, Australia may still tax the sale under its domestic TAP rules. In that case, selling under FIG can be painful, because the UK doesn’t charge CGT and there’s no UK tax to credit, so you can end up paying Australian CGT in full. That’s the real “expat trap”: it’s not deferral itself, it’s assuming the golden clause applies when it doesn’t.

As a rule of thumb: if it’s Australian property, don’t rely on the golden clause. If it’s portfolio investments, check treaty residence and asset category before assuming Australia is out.

The UK’s new FIG regime and why it matters here

From 6 April 2025, the UK replaced the old remittance basis with a new 4-year Foreign Income and Gains (FIG) regime. If you’re within your first four years of UK tax residence (after at least 10 years of living outside the UK), you can claim relief so that eligible foreign income and gains aren’t taxed in the UK.

That sounds brilliant, and it can be. But there are trade-offs. While you’re claiming FIG, you lose your UK income tax personal allowance and your CGT annual exempt amount (£3,000 for 2025/26). So the maths needs to work: the gain you’re sheltering needs to be large enough to justify losing those allowances.

And as we’ve just seen, FIG interacts with the Australian exit tax decision in ways that aren’t immediately obvious. If you’ve deferred the Australian exit tax and you’re relying on UK CGT to credit against the Australian liability, FIG can pull the rug out from under you by reducing the UK CGT to zero.

The treaty’s “golden clause” – Article 13(5)

Let’s just take a quick look at the golden clause. The Australia / UK Double Tax Agreement has a clause that’s unusually generous compared to many other tax treaties. Article 13(5) says, in essence, that if you’ve elected to defer taxation on assets when you left one country (Australia in this case), and you’re now a resident of the other country (the UK), then gains from the later actual sale are usually taxable only in the country where you now live.

For Australian expats in the UK, this can be transformative. It means that if you defer the exit tax and Article 13(5) applies, Australia drops out entirely for those assets. You pay UK CGT only – and if you also qualify for FIG, you might shelter the UK CGT as well. Best of both worlds.

But, and this is important, treaty benefits are not automatic. Article 13(5) depends on you being treaty-resident in the UK at the time of disposal, on the assets not being caught by other treaty provisions (like the “property-rich” rule for shares whose value comes mainly from Australian real estate), and on the broader anti-avoidance framework (in short: if the arrangement looks engineered mainly to secure treaty benefits, you are on shaky ground).

A word on Australian property – the main residence trap

I also wanted to add a quick word about Australian taxation. Australian real estate sits in a different category. It’s classified as taxable Australian property (TAP), so it’s excluded from the exit tax altogether. Australia can tax you when you actually sell, regardless of where you live.

But the real sting is the main residence exemption. If you sell your Australian home after you’ve become a foreign resident, you generally cannot claim the main residence exemption – even if you lived in the property for years. The rule changed after 30 June 2020, and the only escape is the “life events test” (which covers things like terminal illness, divorce, or death of a spouse). For most expats, it simply doesn’t apply.

This means a property that might have been entirely tax-free if sold before departure could face a substantial CGT bill if sold after. It’s one of the biggest “I wish I’d known” moments we see.

On top of that, from 1 January 2025, if you sell Australian property as a foreign resident, a 15% withholding applies at settlement on all property (the old $750,000 threshold has been removed). That’s cash you won’t see until you lodge your Australian tax return and reconcile the actual CGT.

The compliance bits people forget

We’d be doing you a disservice if we didn’t mention the paperwork side. Cross-border CGT isn’t just about the tax calculations – it’s about having the right records.

1. Market valuations at departure: If you trigger (or might trigger) CGT event I1, you need supportable market values for every affected asset on the day you cease residency. Getting this right after the fact is painful.
2. Exchange rate records: The UK calculates CGT in sterling. You need the spot rate at the date you bought the asset and the date you sold it. A modest gain in AUD can become a material gain in GBP if the exchange rate has moved against you. Getting historical FX rates is easy, so just have an awareness of how currency changes can affect the CGT calculation.
3. Record retention: The ATO requires records for at least 5 years from when no further CGT event can happen. For assets you’re holding long-term, that could be a very long time.
4. Withholding on property sales: As mentioned, the 15% FRCGW from January 2025 applies to all Australian property sold by foreign residents. Factor this into your cash flow planning.

So what should you do?

If you’re an Australian expat living in the UK, the exit tax decision is one of the more consequential tax choices you’ll make – and it’s one you can’t easily undo. The right answer depends on your specific circumstances: what you own, when you plan to sell, whether you’re eligible for FIG, whether you might return to Australia, and how the treaty applies to your assets.

Here’s what we’d say: don’t guess. This is exactly the kind of cross-border complexity that we deal with every day. We work with Australian and New Zealand expats in the UK who are navigating these decisions, and we know where the traps are because we’ve helped hundreds of people avoid them.

If any of this sounds familiar, get in touch with us. We’ll help you work through the numbers and make sure you won’t throw the baby out with the bath water.