Wealthy expats who moved to Dubai to escape the UK’s rising taxes are being warned about the fiscal implications of returning amid the Iran war.
Location such as Dubai have attracted wealthy households in recent years amid frozen thresholds and tax allowances in the UK, which have caused fiscal drag.
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Accountancy firm Price Bailey has warned people who recently moved to Dubai may inadvertently fall foul of the UK’s five‑year temporary non‑residency rule.
Nikita Cooper, director at Price Bailey, said: “The immediate focus is usually on income, which is taxed as it’s earned, but the far bigger issue is capital gains tax (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.”
The tax risks of returning to the UK
The big risk for those returning to the UK from Dubai after a short period is CGT.
Under HMRC’s temporary non-residences 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 affects 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 said 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.
Cooper added: “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.”
This means people who may have sold UK businesses or second non-UK homes while tax‑resident in Dubai could now face paying CGT at 24%. For many, that could amount to tens or even hundreds of thousands of pounds.”
Price Bailey said 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.
How expats can minimise their tax bill when returning to the UK
The bad news for returning expats is that there isn’t much they can do about reducing their tax bill if they only recently left the UK.
HMRC can disregard up to 60 days spent in the UK due to “exceptional circumstances,” but accountants have warned that this relief is unlikely to apply for those coming back from Dubai because individuals can travel to alternative destinations.
When it comes to the UK statutory residence test, Amal Shah, tax partner at accountancy and advisory firm Gerald Edelman, said the biggest risk for individuals is slipping up on their day count.
Shah said: “If you breach the limits you can very easily end up being treated as UK‑resident for the whole tax year, even if that wasn’t your intention.
“Once you fall back into UK residence, you also need to be mindful of the Temporary Non‑Residence (TNR) rules. These rules are deliberately tough.
“If you return to the UK within the relevant timeframe, any income or gains you realised while you were non‑resident, can be pulled back into charge.
“That can cover a wide range of things, from asset disposals to certain distributions or pension withdrawals, so the impact can be significant.
“A common misconception is around exceptional circumstances. HMRC takes an extremely narrow view of what counts. Simply leaving another country because of a situation there and returning to the UK won’t normally qualify.
“In HMRC’s eyes, exceptional circumstances only really apply when you are already in the UK, and something genuinely outside your control prevents you from leaving. That’s a very high bar, and HMRC sticks to it.”
This does provide a tax planning opportunity for the future though such as splitting ownership of assets with a partner to make use of your allowances and timing when you sell.
