A Short Guide to the Tax Implications of Moving to Dubai

Introduction

With the UK economy in such bad shape and politicians of all hues unable to halt the decline in living standards and the breakdown in societal cohesion, many hard-working and ambitious members of society are looking to get out.

They are no longer willing to fund through higher taxation the welfare bills needed to support the unproductive members of society. A former Chancellor, Denis Healey, was once asked what his job as Chancellor of Great Britain entailed and he replied that it was the orderly management of decline. Nothing has fundamentally changed.

So, are you considering getting out of Dodge*? These days I am often asked about this and so have prepared this brief guide to the tax issues you need to consider when leaving the UK and moving to Dubai. This is only a brief summary mind and you should always take detailed bespoke tax advice before deciding whether to stay or go and not rely on this blog.

Can you legally move to Dubai and not pay tax in the UK?

Yes, you can. If you cease to be tax resident in the UK and take up tax residence in Dubai you will no longer be generally liable to UK income tax although you will be liable for any income sourced in the UK, unless it is protected from UK tax by the UAE/UK Double Tax treaty. For example, private pensions paid from the UK to you in Dubai will be free of UK tax (once you have filled in the appropriate forms and HMRC have informed your pension provider) but UK rents will still be taxable

*Dodge City, a frontier cattle town in Kansas in the late 1800’s infested with gunfighters, gambling, brothels and saloons.

Do I need to inform HMRC that I’m leaving the UK?

Yes, you do. You can inform HMRC that you are leaving the UK by either completing and submitting Form P85 online or via the residence section of your tax return using the supplementary pages in Form SA 109. You may then be regarded as non-UK tax resident the day after you leave if “split year treatment” applies to you. Split year treatment is not always applicable so it is important to check whether you qualify.

What are the tax rules for British Nationals returning to the UK after living in Dubai?

You are likely to be regarded as UK tax resident if:

• you spend 183 or more days in the UK in the tax year (6 April to the following 5 April);
• your only home is in the UK for a continuous 91 days or more and you visited or stayed there for at least 30 days of the tax year
• you work full-time in the UK for any period of 365 days and at least one day of that period is in the tax year

You may also be UK tax resident if you spend time in the UK and you have additional ties to the UK, like work or family.

Watch out for the “temporary non-residence” rule if you return to the UK within five years. Under this rule, you will be liable to UK tax on capital gains (and certain types of income not including employment income) that arose while you were abroad. Ouch. The moral of this story is if you get out of Dodge then be prepared to stay out for at least five years.

What happens to my UK pension, and how is it taxed abroad?

Pensions are one of the most important factors influencing a move abroad. Under a typical double tax treaty such as the UAE/UK treaty, the payment of pensions from the UK to a tax resident of a treaty country can be paid free of any UK tax. Note however that this does not apply to pensions for government service.

The holy grail then is to become tax resident in a treaty country that either does not tax pension payments from the UK or taxes them at a low rate. Portugal used to be such a country but has since stopped the tax exemption due to pressure from other EU states alarmed at the tax leakage caused by prosperous pensioners taking up Portuguese tax residence. Dubai remains an option because it does not levy income tax on pension income from abroad. Beware of the UK temporary residence trap though and do not return to the UK within five years or you may find the payments are liable to UK tax.

In order for your pension payments to be paid to you free of any UK withholding tax you will need to complete the relevant form to obtain HMRC’s permission for your pension provider to pay your pension gross i.e., without deduction of UK income tax.

What are the inheritance tax implications of moving to Dubai if I die within 10 years?

UK Inheritance Tax will apply to your worldwide assets even if you are tax resident in Dubai, unless you have been UK tax resident for less than 10 years out of the last 20 years. If you have been non-UK tax resident for at least the 10 years out of the last 20 years then Inheritance Tax is paid on your UK situated assets, such as property or bank accounts in the UK. In this regard it is helpful to note that crypto assets are regarded as located where the owner of the crypto is tax resident. Also to be noted is that assets transferred more than seven years before your death will escape IHT.

Of course, if you have no UK situated assets and have a foreign will and do not die in the UK, then HMRC will rely on your executors informing them of your passing so that they can levy Inheritance Tax.

Can I move my company to Dubai and be a UK resident?

Yes, you can however the UK’s tax rules will generally make this ineffective for tax purposes by taxing the owner of the company in the UK on the profits of the company, but with a credit for any tax paid in Dubai.

What is a Dubai VAT free zone?

All products and services are free of the normal 5% VAT in Dubai if their import and onward supply is within the free zone and outside the UAE.

Conclusion

Dubai has become a very popular destination for expatriate Brits and for those who can adapt to the local environment and lifestyle, it offers potentially life-changing tax savings whether that be on crypto gains, pension payments or from Inheritance Tax.

From my experience with clients based in Dubai you should note that the authorities are dead against shady people and crooks moving to Dubai and/or operating out of there and as a result, regulatory standards tend to be much higher than in the UK. For example, it is much harder to open and operate a bank account there and to trade crypto than in the UK. There is an extradition treaty between the UAE and the UK and the authorities in both countries are of late making increased use of it particularly with UK gold smuggling and organised crime.

If you want to get you and your family out of Dodge, then my advice is to research a move to Dubai thoroughly, go over there for an extended stay if you can to see if you will be able to adapt, talk to ex-pat Brits who have made the move and then if you do decide to move, do it properly and comply with all the tax and regulatory rules.

Contact me if you require detailed advice about this but do please note that I do not offer advice for free.