Britons living in the UAE and considering a move back to the UK have many things to plan and prepare for. One of the most important, however, is tax.
After several years of living in the low-tax environment of the Emirates, it would be unwise to jet into the UK without first assessing your tax liability.
Peter Webb, international tax manager at The Fry Group, which has an office in the Dubai International Financial Centre and offers advice on tax, wealth, pension and estate planning, says those considering a move to the UK must understand the implications of holding onto any assets for UK tax purposes.
"They want to consider whether their assets should be disposed of before they become UK resident or after they become UK resident," he says. "They should also make sure their investments are actually efficient for UK tax purposes."
Here Mr Webb, who has been working in international tax since 1997 and joined The Fry Group in 2014, outlines the key considerations for those planning a move to the UK:
Are you liable for UK tax while living in the UAE?
While you are not a UK resident and provided you've been outside of the UK for five continuous years, your liability to UK tax is pretty limited. While you are overseas, you pay tax on any UK income that you may have, so if you let a property that will remain taxable income and you are also still within the scope of UK capital gains tax for the disposal of UK land and property. However, that's where it ends. Any overseas income and gains are not within scope of UK tax. So while you remain non UK resident, that's a real advantage for you particularly if you're living in a really low tax or no tax regime such as the UAE.
The UK tax year runs from April 6 to April 5, so is it best to tie a move home with April?
There are circumstances where that can be helpful, however, split-year treatment can also apply. Your UK residence status is assessed using the statutory residence test. If you test yes for UK residence, but you were non-resident the previous year and have come to live in the UK partway through the year, we then consider whether split-year treatment might be beneficial for you. Split-year treatment allows the year to be split into two parts: a non-resident part where you continue to benefit from that non-UK residence status and then a UK-resident part for the balance of the tax year. So, rather than being fully taxed in the UK on the default basis of April 6 to the following April 5, you can actually become UK resident later in the year.
Do those returning partway through the year avoid income tax until they return?
Care is needed. If you've been out of the UK for over five years, there are three main ways you can become UK resident using split-year treatment: either by starting full-time work in the UK, starting to have a home in the UK or starting to have your only home in the UK.
You will note none of those dates are actually the date you land in the UK — this is the one date that doesn't apply. The danger with split-year treatment with these rules is that you can become UK resident before you've actually set foot in the UK.
Can you give me an example?
Yes, this applies if you have a rental property in the UAE and you're renting it on a 12-month rolling contract and you also have a home in the UK that's always been available to you that you did not let out. If you’re coming back to the UK in October, but your 12-month UAE rental agreement ends in June and rather than renew for 12 months you decide you're going to move into temporary accommodation until you return to the UK in October, then what you've done is cease to have a home overseas. That’s when you start to have your only home in the UK. So you then fall foul of one of the dates for becoming UK resident.
What about expatriates living in the UAE for less than five years?
If you've been outside of the UK for less than five years and were UK resident for four out of the seven years before you left the UK, you are what we call temporarily non UK resident. What this means for a UK domiciled taxpayer is that they will remain liable for UK tax on assets they held before they left the UK.
What tax laws should UAE residents be aware of?
A new rule from April 6, 2018 applies to termination. If you are UK resident at any point in a tax year in which an overseas termination payment is received for employment, it will be taxed in full in the UK, even if it relates entirely to overseas employment income.
The only way to avoid UK tax on that is to prove you are tax resident in a country with an applicable double taxation agreement at the point your contract was terminated. Alternatively, make sure your contract is terminated in a tax year when you are fully non UK resident.
What constitutes a termination payment?
Something that's not contractual, so something like a severance payment, a redundancy payment and possibly an end-of-service gratuity payment. The split-year treatment, for example, does not apply to offshore termination payments. So to make absolutely sure that overseas termination payment isn't subject to UK tax, have your contracts terminated in a year when you remain fully non UK resident for the entire tax year.
If you leave your job midway through a tax year though, you will receive a gratuity. How do you get around that?
You must prove you were tax resident in the UAE at the date your contract was terminated. You can apply for a certificate of tax residence in the UAE via the tax authority in the UAE, which has an online application that allows you to apply for a certificate of residency.
What other documents should leavers have in place before they go?
A copy of your rental agreement in the UAE will help to prove you qualify for split-year treatment on the basis of starting to have your only home in the UK. Also retain a copy of your employment contract and any communications around your gratuity payment, such as correspondence from your employer.
Should property owners sell before they return?
You can take advantage of a rule that allows non-residents to sell a UK property with a valuation as of April 5 2015 rather than the original cost. To get that valuation, approach an estate agent, ideally someone with a qualification from the Royal Institute of Chartered Surveyors. Also make sure you have the completion statements for both the purchase and sale.
How should investments be handled?
What may be tax efficient overseas may well not be tax efficient when you are UK resident. For example, for a lump-sum investment such as an offshore bond, if the bond is standing at a gain and you have been UK non-resident for at least five years then cash the bond in before you become UK resident to avoid a charge to UK tax. However, speak to your financial planner before doing so to double check whether or not there may be investment reasons for keeping the bond that trump the tax decision. For example a punitive early exit penalty may apply for cashing the bond in early.
What about a contractual savings plans?
The term “savings plan” covers a multitude of sins and describes many different types of products from pensions to non-qualifying single premium life insurance policies. Generally, if the savings plan is simply a brokerage account and you have been UK non-resident for at least five years, you would sell assets held in the plan standing at a gain before you become UK resident to avoid a UK tax charge. However, if assets are standing at a loss then dispose of those after you become UK resident as that loss will then be available to set against future capital gains. It is worth taking advice for your specific product as not all savings plans suffer the same tax treatment.
What about investments in stocks or exchange traded funds via an offshore brokerage?
The advice here is more straightforward. If you have been UK non-resident for at least five years, you would sell assets held in the brokerage account standing at a gain before you become UK resident to avoid a UK tax charge. However, if assets are standing at a loss then dispose of those after you become UK resident as that loss will then be available to set against future capital gains.
What happens when you actually return to the UK?
There is no formal form to complete. If you actually start working in the UK, your employer will tell HM Revenue you've returned. As a matter of general principle, whenever you change your address, tell HM Revenue to ensure you don't miss any correspondence.
What if you don't go into full-time employment?
Your return to the UK or any claim for split-year treatment will be made on a self-assessment tax return. That tax return is due for filing on January 31 following the end of the tax year. So for example, April 5 2019 was the end of the 2018-19 tax year and that return does not need to be submitted until January 31 2020.
Are there any tax allowances to take advantage of once you are home?
There are lots of friendly tax allowances usually available on a 'use it or lose it' basis. Individual savings accounts, known as Isas, for example, allow you to save £20,000 (Dh90,566) a year tax-free. There's a capital gains exemption each year of £12,000. There's a tax free dividend allowance of £2,000 and a savings allowance of £1,000 for interest income.
When should a UAE resident consider taking tax advice?
Between 18 months to two years before they move, particularly if they have a UK property they want to sell.