Tax experts are warning British people who fled Dubai following war in the Middle East that they could still face higher tax bills, despite an attempt by the United Arab Emirates to soothe concerns.
The FT reported this week that authorities in the UAE, which levies no personal taxes, had privately signalled they would allow people who have left the country to spend more time abroad without losing their tax residence. However, several tax experts said the countries that UAE exiles had chosen to relocate to were unlikely to be equally accommodating.
Returning Britons are also unlikely to qualify for HM Revenue & Customs’ emergency tax rules, the advisers added.
“Unfortunately, tax ‘leniency’ in a low‑ or nil‑tax jurisdiction does not change how other states determine taxing rights,” said Fernando Del Canto, a Spanish lawyer and barrister based in London.
“Countries are sovereign and they don’t want their tax base to be eroded; they don’t want their tax [rights] to fly to the emirates.”
He suspected the Spanish and UK tax authorities would challenge people who had fled the UAE if they stayed in their countries long enough to become tax residents.
Charlie Sosna, head of private wealth and tax at law firm Mishcon de Reya, said that while the UAE’s private assurances offered “some comfort on paper”, it did not “eliminate the underlying tax risk”. Returning Britons could face unexpected liabilities for both income tax and capital gains tax, if they become UK tax resident. Nikita Cooper, director in the tax team at Price Bailey, an accountancy firm, said: “People may have sold UK businesses or second non-UK homes while tax resident in Dubai and could now face paying UK capital gains tax at 24 per cent. For many, that could amount to tens or even hundreds of thousands of pounds.”
Advisers report many affected British people are seeking to prevent triggering tax residency in the UK by spending time in third countries. However, Del Canto said, depending on how long the war continued, people could face the same tax residency problem in these temporary residences.
Each country has its own tax residency rules, with an individual’s residence first defined using these domestic laws. Spending more than 183 days in a year in a country typically results in becoming tax resident in most nations.
Many countries have also entered double tax treaties — agreements between two countries aimed at preventing double taxation of income or capital.
But experts cautioned that the treaties do not prevent individuals from becoming tax resident in more than one country; they simply allocate which country gets the right to tax in that eventuality.
“In the case of the UK and UAE treaty, it is narrowly drafted . . . A taxpayer might have a residence in the UAE and the UK and could still find themselves paying UK tax on their worldwide income,” said Nimesh Shah, chief executive of tax adviser Blick Rothenberg.
In the UK, individuals become tax resident based on the number of days they spend in the country and how many ties they have to the UK under rules known as the Statutory Residence Test (SRT).
Shah said that a tax certificate from the UAE saying an individual was considered tax resident there, even though they were currently based outside the country, would probably be of “of very limited benefit for them, from a UK perspective”.
Advisers also warned Britons returning from the UAE to not rely on an “exceptional circumstances” rule of the SRT. This allows individuals who find themselves stranded in the UK for unavoidable reasons an extra 60 days in the UK before they become tax resident.
“HMRC hardly did it during Covid,” said Del Canto. “I don’t think they’re going to be very lenient.”
When asked directly by the FT if the exceptional circumstance rule applies to those returning from Dubai, HMRC said only that individuals stranded in the UK from countries where the Westminster government has recommended against all travel can rely on the exceptional circumstances applying.
The Foreign Office (FCDO) currently advises against all travel to Iran, Israel, Iraq and parts of Lebanon. As of this week, it advises only against “all but essential” travel to UAE.
According to the FCDO, 70,000 British nationals had returned to the UK since the start of the war, as of March 13.
Martin Muhleder, tax partner at immigration advisers Vialto Parners, warned he “wouldn’t expect the exceptional circumstances to apply” to anyone coming to the UK from countries not on the FCDO’s do not travel list, unless there were significant other factors that made their circumstances “exceptional”.
HMRC said: “The existing rules already take into account exceptional circumstances, such as people being affected by war, while following the basic principle that those living in the UK should pay tax in the UK.”