Midfielder Palmer had spent the last 18 months at Huddersfield Town, helping guide the club to Premier League promotion.
He struggled to feature this season however, with hamstring injury keeping him out of David Wagner's side.
The 21-year-old revealed the news on Instagram, saying: "Unfortunately my time at Huddersfield has come to an end.
"I would like to thank everyone involved at the club but most importantly the fans for their constant support throughout my time.
"The memories which I created here will stick with me forever! I wish the club all the best in the future. Looking forward to the next chapter in my career."
Ugbo returns from Barnsley, where he joined on a season-long loan in the summer.
The 19-year-old made 18 appearances and scored once.
He said: "Our squad is not big. For this reason I think it's impossible to send on loan one player or to sell one player, if we don't take another player."