Expats returning from Dubai risk unexpected Capital Gains Tax bills

• Returning expats risk triggering the UK’s five year temporary non residency rule

• Britons planning to move to Dubai may also face CGT exposure if their departure is delayed 

British expats returning to the UK from Dubai and the Middle East, as well as those planning to move there but delaying their departure due to regional instability, could face unexpected Capital Gains Tax (CGT) liabilities, according to chartered accountants Price Bailey.

Price Bailey warns that many may inadvertently fall foul of the UK’s five year temporary non residency rule, which is an anti avoidance measure designed to stop individuals leaving the UK briefly to dispose of assets tax free in low tax jurisdictions such as the United Arab Emirates before returning soon after.

Under these rules, if an individual becomes UK resident again within five full tax years, capital gains realised while abroad are effectively “brought back” into the UK tax net and taxed in the year of return in certain circumstances

Price Bailey adds that the same CGT trap is affecting individuals in the UK who were preparing to emigrate to Dubai and are in the advanced stages of selling businesses or second non-UK  homes, but who are now hesitant to leave due to safety concerns.

Price Bailey notes that returning to the UK increases an individual’s “day count” under the Statutory Residence Test (SRT). If this results in UK residency being triggered before five full tax years have elapsed, the temporary non residence rules can apply. Although HMRC can disregard up to 60 days spent in the UK due to “exceptional circumstances,” at the moment travel within the Middle East as per the Foreign, Development & Commonwealth Office (FDCO) states to avoid all but essential travel, as opposed to “avoid all travel”.  Meaning at the moment it is unlikely to meet HMRC’s high threshold for qualifying exceptional days, although the position is evolving and each case, however, will turn on its facts.

Nikita Cooper, Director in the tax team at Price Bailey, comments:

“The immediate focus is usually on income, which is taxed as it’s earned, but the far bigger issue is CGT, which is often overlooked. Someone returning to the UK from Dubai for a short period may face some income tax, but that is manageable, unlike a large one off CGT bill.”

“What catches people out is that if they return within five years, gains on assets held before departure and sold while in Dubai are effectively ‘revived’ and taxed in the year of return. It’s the retrospective nature of the rules that tends to surprise people.”

She adds:

“People may have sold UK businesses or second non-UK homes while tax resident in Dubai and could now face paying CGT at 24 percent. For many, that could amount to tens or even hundreds of thousands of pounds.”

Price Bailey says it is aware of clients who were planning to emigrate to Dubai but have now paused the sale of businesses and second homes while they reassess their options.

Nikita Cooper says: “Beyond the tax advantages, Dubai’s proximity to Europe is a major draw. There isn’t an obvious like for like alternative.” 

ENDS