Understanding UAE Tax Law – Key Insights Before You Invest in Property

Introduction To Understanding UAE Tax Law

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. Dubai is frequently spoken of as a potential destination and you can read more about that here. Meanwhile many potential UK leavers are being targeted with slick marketing materials promoting the UAE as a tax efficient haven for investing their money in UAE, mostly Dubai, real estate.

The message in this blog is that if you are a UK resident be very sceptical about claims that your investment will be tax free. While there is minimal property tax in Dubai you will normally remain liable for UK income tax and capital gains tax as well as inheritance tax. The slick marketing materials often omit to mention this and suggest or imply that such investments are totally tax free. Worse, in some cases I have seen the marketing materials are positively misleading in stating that the double tax agreement between the UAE and the UK prevents the UK from taxing income and gains from UAE real estate which is nonsense.

Is Investing In Property In The UAE Tax-free?

No. While it is true that Dubai (strictly speaking, UAE) property taxes are nil for individual property investors holding residential property in their own name (apart from a property transfer fee of 4%), if you remain UK tax resident then you remain liable for UK income tax and capital gains tax in respect of your property income and gains from UAE real estate.

What Are The Tax Liabilities If You Invest In Property In The UAE But Remain A UK Resident?

Basically, UK income tax, capital gains tax and Inheritance Tax. 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.

Does The UAE Have A Double Tax Treaty With The UK ?

Yes, but in relation to rental income and capital gains it does not prevent the UK from taxing rental income and capital gains arising in the UAE.

Is There Capital Gains Tax If I Sell My Property In The UAE?

Yes, while there is no Dubai real estate tax on gains on residential property by individual investors, if you are UK tax resident then your UAE real estate gains will in principle be taxed in the UK at 18% or 24% depending upon the level of your taxable income.

Do You Pay Tax On Rental Income On Property In The UAE?

Yes, while there is no UAE tax on rent from residential property owned by individual investors, if you are UK tax resident then your UAE rental income will in principle be taxed in the UK at the highest rates according to the level of your taxable income.

How Does VAT Apply To Property Transactions In The UAE?

Commercial property is subject to VAT at 5% but generally, VAT is not paid on residential property.

How Do Inheritance And Estate Taxes Work For UAE Property?

There is no inheritance tax in the UAE but as noted above, UK tax residents and former UK tax residents are potentially liable to UK inheritance tax on property situated in the UAE.

Conclusion

The only certain way to invest in Dubai real estate tax free is to lose your UK tax residence and take up tax residence in the UAE. Even then, the “long tail” UK inheritance tax liability will follow you for up to 10 years.

If you are tempted to fall for the slick marketing suggesting that investing in Dubai real estate is tax free and part with your hard earned money, be very careful and seek professional tax advice. Of course, investment in Dubai could still be attractive compared with investing in the stagnant UK property market but run the numbers after taking UK tax into account and not on the basis that your investment will be tax free.