The short answer: territorial tax only works after a clean UK exit
Panama does not tax foreign-source income. A UK leaver living in Panama City on investment income from a UK or US portfolio, or on earnings genuinely sourced outside Panama, can face no Panamanian income tax on that money at all. That is the draw, and unlike some zero-tax jurisdictions it comes with a real treaty relationship with the UK and full participation in international information exchange.
But the deciding factor for your UK bill is not your visa or your apartment in Casco Viejo. It is the UK Statutory Residence Test (RDR3, GOV.UK), a strict day-counting and ties-based mechanism that decides, year by year, whether the UK can still tax your worldwide income. Three things have to line up: you break UK residence under the SRT, you claim split-year treatment where you leave mid-year, and you deal properly with the income and gains that stay UK-taxable regardless of where you live. Get those right and the territorial outcome is real; miss one and the UK keeps taxing income you assumed was outside every net.
Breaking UK residence: the Statutory Residence Test
The SRT is applied in order: first the automatic overseas tests (which make you non-resident), then the automatic UK tests (which make you resident), then the sufficient ties test if neither is conclusive. For someone moving to Panama, the automatic overseas tests are the target.
- First automatic overseas test: you were UK resident in one or more of the previous three tax years and spend fewer than 16 days in the UK in the current year.
- Second automatic overseas test: you were not UK resident in any of the previous three tax years and spend fewer than 46 UK days.
- Third automatic overseas test (the usual route for movers): you work full-time abroad across the tax year, broadly an average of at least 35 hours a week with no significant breaks, spend fewer than 91 days in the UK and work here on no more than 30 of those days.
If you cannot meet an automatic overseas test, the sufficient ties test combines your UK day count with the ties you keep (family, accommodation, work, a 90-day prior-presence tie and, for recent leavers, a country tie). The more ties you retain, the fewer UK days you are allowed. Model your position with our SRT calculator at /tools/srt-calculator before you book flights, because a few days either side of a threshold can flip the answer.
Split year, the P85 and your final tax return
Most people do not emigrate neatly on 6 April. Where the conditions are met, split-year treatment divides the tax year into a UK part (taxed on worldwide income) and an overseas part (taxed only on UK-source income), so income arising in Panama after the split date is outside UK income tax for that year. The common gateways for leavers are starting full-time work overseas and ceasing to have a UK home, each with its own conditions on timing and UK day limits.
The admin is the same as for any departure. File a P85 (GOV.UK) if you are employed or have a pension, and a final Self Assessment return for your year of departure. Split-year treatment is claimed on the SA109 residence pages, not by the P85, and the SA109 cannot be filed through HMRC's own free online service, so you will generally need commercial software or an agent. Keep records of travel dates, work patterns and your Panamanian accommodation: residence questions are evidenced after the fact.
What the UK keeps taxing after you go
Becoming non-resident does not switch off UK tax on UK-source income, and Panama's territorial system is the mirror image: it ignores exactly the income the UK keeps. The table below shows how the two systems treat the main items.
| Income or gain | UK position after you leave | Panama position |
|---|---|---|
| UK rental profits on a kept property | UK-taxable; [Non-Resident Landlord Scheme](/guides/non-resident-landlord-tax) withholding unless HMRC approves gross payment | Not taxed (foreign source) |
| Gains on UK property | NRCGT: report and pay within [60 days](/guides/cgt-60-day-reporting-non-residents) of completion; 18% or 24% after the £3,000 annual exempt amount | Not taxed (foreign source) |
| UK government service pensions | Generally remain UK-taxable wherever you live | Not taxed (foreign source) |
| Other UK pensions, dividends and interest | Position depends on the treaty and the disregarded-income rules; take advice | Not taxed (foreign source) |
| Salary for work physically done in Panama | Outside UK tax once residence is properly broken | Panamanian source: 0% to USD 11,000, 15% to USD 50,000, 25% above |
| Worldwide estate on death | IHT tail of up to 10 years for long-term UK residents | No equivalent charge on the UK estate |
Three further UK rules deserve their own line. First, the temporary non-residence trap: if you were UK resident in at least four of the seven tax years before leaving and return within five years, gains and certain income realised while abroad can be taxed in your year of return. Second, the residence-based IHT rules that took effect on 6 April 2025: if you were UK resident for at least 10 of the previous 20 tax years you are a long-term resident, and your worldwide estate stays within UK inheritance tax for a tail of up to 10 years after you leave, tapering with how long you were here. Third, voluntary National Insurance: most leavers should apply on form CF83 to keep paying Class 2 or Class 3 contributions, because a full UK State Pension is cheap to protect and expensive to rebuild.
Panama's territorial system, verified
Panama's income tax is built on a territorial concept: citizens and residents are taxed on income earned from Panamanian sources, and foreign-source income sits outside the Panamanian net, whether or not you bring the money into the country. Interest on savings accounts and time deposits with banks established in Panama is also exempt by statute.
Panamanian-source income is taxed at progressive rates: 0% on the first USD 11,000, 15% from USD 11,000 to USD 50,000, and 25% above USD 50,000 (the balboa is pegged one-to-one to the US dollar). For tax purposes Panama treats you as resident when you are physically present and generating income there for more than 183 days in the year. A consultant doing client work while sitting in Panama should take local advice on whether that work is Panamanian-source, because physically performed services are the classic case where territorial systems still tax you.
The honest boundary: Horizon advises on the UK side of the move and coordinates with a Panamanian adviser for local filings and immigration. The Panama-specific figures above are verified against current professional summaries, but your own Panamanian filings belong with local counsel.
The residence routes as they stand in 2026
Panama's immigration routes have shifted several times this decade, so check the current decree before relying on any figure. As at mid-2026 the three routes UK movers actually use are these.
- Pensionado visa: for retirees with a verifiable lifetime pension of at least USD 1,000 a month (reduced to USD 750 if you buy Panamanian property worth USD 100,000 or more). It brings a well-known package of retiree discounts and remains the simplest route for pension-led movers.
- Friendly Nations Visa: open to citizens of a list of around 50 countries including the UK. Since the 2021 reforms it grants two-year provisional residence first, converting to permanent residence, and you must show economic ties: a Panamanian employment contract, property with a registered value of at least USD 200,000, or a USD 200,000 fixed-term deposit for at least three years.
- Qualified Investor visa: permanent residence through investment, currently from USD 300,000 in real estate (a reduced threshold extended by decree to October 2026, after which it is due to revert to USD 500,000), USD 500,000 in securities through a licensed Panamanian broker, or a USD 750,000 bank deposit, each maintained for at least five years.
None of these visas decides your UK tax position. A Panamanian residence permit is evidence of where your life has moved, and useful for the SRT ties analysis, but UK residence is always settled by the SRT itself.
The treaty and the transparency reality
Unusually for a low-tax jurisdiction, Panama has a full double taxation convention with the UK. It was signed in 2013, entered into force on 12 December 2013 and has had effect in the UK since 6 April 2014 for income tax and capital gains tax (GOV.UK), as modified by the Multilateral Instrument from 2022. Because Panama does not tax foreign-source income, the treaty matters mainly for the UK-source income you keep and for its residence tie-breaker if both countries ever claim you.
On transparency, be under no illusion. Panama signed the CRS Multilateral Competent Authority Agreement in January 2018 and made its first automatic exchange of financial account information in September 2018. Panamanian banks collect tax residence details on account holders and report UK-linked accounts, and HMRC receives that data and runs it against taxpayer records, which is where its nudge letters come from. A move to Panama in 2026 works because the territorial system is lawful and your UK exit is clean and documented, not because anything is hidden. Anyone with historic undeclared offshore income should disclose it before moving.
Who the move genuinely suits
Panama suits people whose income is genuinely foreign-source once they are there: retirees drawing UK and international pensions, investors living on non-Panamanian portfolio income, location-independent business owners whose customers and operations sit outside Panama, and anyone wanting a dollarised, well-connected base in the Americas with a real treaty relationship with the UK.
It suits people less well if their work will be physically performed in Panama for local customers (Panamanian-source, taxed at up to 25%), if they expect to return to the UK within five years, or if their real aim is UK IHT protection on a short timeline. And like Dubai or any other low-tax destination, it does nothing for UK property income and gains. Model the whole move, both sides, with our relocation tool at /tools/relocation before you commit to a date.
