My VIP Tax Team question of the week: UK tax implications of moving to Dubai

My clients are a married couple that are moving to Dubai indefinitely in October this year. They plan to be there for at least 5 years.  Together they own a UK company providing consultancy services to their customers which they will do remotely from Dubai.  They take a small salary and significant dividends from the company and will rent out their UK home. What are the tax implications?

Various issues are involved, and the following comments are a brief overview only.

The first point to consider is the residence status of the individuals.  In the year of departure, with an October departure date, they will be UK resident. However, if the qualifying criteria is met, split year treatment will be applied.  This excludes their non UK income from the SA tax return for the non-UK part of the year.  A review of the Statutory Residence Test (SRT) under Sch. 45 FA 2013 is required. The Croner-i Direct Tax Reporter guidance is at 199-200 and HMRC’s guidance is at RDRM121000.

In testing the residence status for the years after departure, you should check that the SRT automatic overseas tests in Part 1 Sch.45 are met.  If any of the automatic tests are met, the individual is non-resident – see  RDRM11110.  It is only where an automatic test is not met do we consider the UK ties test as explained on DTR 199-050 and RDRM11500.  The exception to this is where the individual has been in the UK for 183 days or more and is therefore UK resident.

If your clients are resident in the United Arab Emirates (UAE) their non-UK income will not be taxed in the UK.  The UAE has taxing rights on salary relating to duties exercised in Dubai and dividends in accordance with the double taxation agreement (DTA), although please see Article 10 (2) for exceptions where taxing rights remain with the UK:  UAE DTA  As you know however one of the attractions of a move to Dubai is there is no personal income  tax.

UK tax will continue to be due on UK sourced income such as rent, investment income, certain pensions, and employment income (where the duties are carried out in the UK).  Note that fees for office holders and board members of UK resident companies remain taxable in the UK – see article 15 of the DTA. In addition, liability to Class 1 NIC will continue if the clients remain “ordinarily resident”. See the Croner-i Direct Tax Reporter at 1035-140 and NIM33560.

UK rental income received by a landlord living outside the UK should be paid after basic rate tax has been deducted either by the letting agent or where no letting agent is acting, by the tenant.  A landlord may apply to HMRC to have the rent paid without deduction of tax.  An application is made using the form NRL1. Where the property is jointly owned, each owner must make an application.

Dividends from the UK company will be disregarded income within s813 ITA 2007 and so for full tax years of non-residence (not split years), the income tax calculation rules of s811 ITA 2007 will apply. For further information, see the Croner-i Direct Tax Reporter at 148-650 and HMRC’s Helpsheet HS300.

Capital gains and certain income, including close company dividends received when non-UK resident can be taxed when an individual returns to the UK following a period of temporary non residence as defined in Part 4 Sch. 45. See the Croner-I Direct Tax Reporter at  199-320 and RDRM12600.

Companies incorporated in the UK are UK resident under s14 CTA 2009 and so taxable on their worldwide profits.  If the company is deemed to be resident in Dubai under their domestic legislation, then the company will be dual resident.  This will require consideration of Article 4 of the UK/UAE DTA which requires a mutual agreement procedure for which see the Croner-i Direct Tax Reporter at 174-100 and INTM153270.

If under the DTA, the company ceased to be UK resident, then the company migration rules of s109B TMA 1970 apply. See the Croner-i Direct Tax Reporter at 194-600 and  HMRC’s guidance at  CTM34100.

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VIP Tax Advisor

Ewan Edwards is an experienced tax advisor working as part of the ‘My VIP Tax Team’ telephone advice lines.

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