Moving from Dubai to the UK

If you're planning to move from Dubai to the UK, there are several important factors to consider, particularly regarding your tax obligations. Here are some essential pointers that can help you navigate this transition effectively.

A significant development for expatriates is the double tax treaty between the UAE and the UK, which took effect on December 25, 2016, and applies to all transactions occurring after January 1, 2017. This agreement aims to prevent double taxation and provides a framework to determine which country has the right to tax various types of income.

One of the main focuses should be on leveraging Dubai's low tax environment to minimise future liabilities once you establish residency in the UK. If you are non-UK domiciled, it's essential to create a "clean capital" bank and keep it separate from any incoming income. This approach will help you optimise your tax situation in the UK.

As you prepare for your move, two key taxes to pay close attention to are income tax and capital gains tax:

• Income Tax: Whenever possible, consider taking any income before you become a UK tax resident. This income will remain tax-free in Dubai and will be classified as clean capital once you move to the UK.

• Capital Gains Tax: Similar to income tax, look to realise any capital gains before you establish UK tax residency. Note that as a UK tax resident, you will be liable for tax on gains accrued over the entire duration of asset ownership, not just from the date you became a UK tax resident.

If you are leaving employment in Dubai, you may be entitled to a severance payment based on your years of service. It’s important to note that if this payment is delayed and received after you have left Dubai, it will not be taxable in the UK. This is because it was earned during a period of non-residence.

For individuals who are non-UK domiciled, protecting your clean capital is vital. Ensure that the account containing this capital is "ring-fenced," which means it should not have additional funds added to it. If mixed with other income or investments, the funds may become classified as "mixed funds." When remitting money to the UK, the rules typically favour UK tax authorities, as they treat income as being remitted before clean capital.

If you're considering relocating to the UK in the future, it's wise to start planning by exploring tax-efficient investment options. One notable choice is a portfolio bond.

The income and gains within the bond grow tax-deferred, and you can withdraw 5% of the original investment each year tax-free. Additionally, this 5% accumulation feature allows you to take out more in subsequent years.

Additionally, when you do withdraw income from the bond, the taxable amount is reduced based on the length of time the bond was held before you became a UK tax resident. For example, if you held the bond for ten years and were a resident in Dubai for five of those years, only 50% of the income from the bond would be subject to UK taxation.

It’s important to note that this tax treatment applies from the date the bond is established. If you add more capital to the bond later, the tax calculations will still be based on the initial date of the bond, not the date of the additional contributions. 

Moving from Dubai to the UK requires careful planning, especially regarding tax implications. By understanding the double tax treaty, examining your income and capital gains tax liabilities, and taking advantage of tax-efficient investment strategies, you can ensure a smoother transition and mitigate future tax burdens. Always consider consulting a tax advisor with expertise in international relocations to tailor the best strategy for your specific situation.