Many people leave the UK to build a life overseas, to find opportunities, or to reduce their tax bill. Tax is rarely the only reason, but it is often part of the decision, particularly for those moving to the UAE. If you are making the move, planning before you go can help you avoid expensive surprises.
An important point is getting your UK tax residence position right. Becoming a non-UK tax resident can reduce your exposure to UK tax, but you need to know the date non-residence starts and how much time you can still spend in the UK each year without becoming UK resident again.
Many people assume that leaving the UK automatically makes them non-resident straight away. That is not always true. The rules sit within the UK Statutory Residence Test, which explains how residence is worked out based on time spent in the UK and your connections to the UK.
Once you know the likely date you become non-UK resident, you can focus on the areas that tend to matter most.
First, individual savings accounts (ISAs). If you are non-UK resident, you cannot contribute to UK ISAs, so it can be sensible to use the current tax year’s ISA allowance before leaving. For families, junior ISAs are different. You can usually continue contributing while overseas, as long as the junior ISA was opened while the child was UK resident.
Pensions are another big planning point. While UK resident, you can contribute up to £60,000 ($81,100) a year to a UK pension tax-efficiently, and you may be able to add more using carry forward of unused allowances. Once non-UK resident, you can still contribute to a pension you already have, but tax-efficient contributions are capped at £3,600 a year, including basic rate tax relief, and only for the first five years of non-residency.
Inheritance tax planning is easy to overlook during a move. You can use the annual gifting exemption of £3,000, and if you did not use it last year, you can carry it forward, allowing a £6,000 tax-free gift. There is also the small gifts allowance of £250 per person each year, plus certain wedding gifts. Used consistently, these can reduce the value of your estate over time.
It is also worth reviewing investments before you leave. UK residents have a £3,000 annual capital gains tax exemption, and it is use it or lose it. Selling investments to use the exemption and reinvesting can reset the base cost. If you are married, transferring assets between spouses can help share gains and may allow both spouses to use their £3,000 CGT exemption.
After you move, the UK tax picture changes, but it does not disappear. In general, once you are non-UK resident, you escape UK tax on overseas income, although UK source income can still be taxed.
You also need to understand the temporary non-residence rules. If you return to UK tax residence within five complete tax years, certain capital gains, certain pension withdrawals, and receipts from some other types of investment income that arose while you were overseas can be taxed in the year you return.
UK property needs special care. Gains on UK land and property are taxed no matter how long you have lived overseas. Non-residents are generally taxed only on gains arising since April 2015, as the property can be rebased to its April 2015 value. This can reduce CGT where most growth happened before 2015. However, if you return within the temporary non-residence period, the benefit of that April 2015 rebasing can be lost, increasing the CGT bill.
Finally, do not ignore the year you leave. Bonuses, deferred pay, or the end of employment can make the final UK tax year unusually expensive. In some cases, UK tax-efficient investments such as enterprise investment scheme (EIS) or seed enterprise investment scheme (SEIS) can help, offering income tax relief of between 30 per cent and 50 per cent of the amount invested. These investments can be made while UAE resident and, subject to conditions, relief can be carried back to reduce income tax paid in the final year of UK residence.
Keep inheritance tax in mind, too. IHT can apply to worldwide assets if you are considered a long-term UK resident, which you typically are if you have lived outside the UK for less than 10 tax years.
Peter Webb is head of tax and Christopher Davies is head of financial planning at Metis, a DIFC-based wealth adviser
