While you may have the residency visa, an apartment and a salary untouched by UK income tax, you may still receive a notice to file a UK Self-Assessment.
Being told you must file a Self-Assessment can come as a surprise for many people who relocate to the UAE, so it is important for expats to fully understand their tax responsibilities when they are overseas.
The exact tax implications of living in Dubai will depend on your current circumstances, but here are some reasons you may not be fully removed from the system.
Do I actually have UAE residency?
Just because you are living in the country doesn’t mean your UK residence has ended.
Whether you are eligible to pay UK Tax is decided by the Statutory Residence Test, which considers days spent in the UK, family ties and available accommodation, among other factors.
If you leave part way through the year, you may be required to pay tax in the UK unless you are eligible for split year treatment.
Split year treatment works by dividing a tax year into a resident portion and a non-resident portion, separating your UAE tax obligations from those payable to HMRC.
An active UK residency or split year treatment can be the reason you are still being required to file a tax return.
You are still earning UK income
Whether you are a resident of the UAE or not, the majority of income earned in the UK while living overseas is taxable by HMRC.
One of the key culprits that lead to misunderstanding is rent. If you let a property in the UK while you live in Dubai, the income earned falls under UK tax rules.
However, many British citizens living abroad may still qualify for the £12,570 personal allowance, which means a chunk of rental income will be shielded from Income Tax.
You must still file a UK Self-Assessment Tax Return for each year you earn rental income, declaring the profit and settling the final tax balance due.
HMRC wasn’t informed you’ve left
Notifying HMRC is a crucial step before moving abroad, as you will be less likely to face added scrutiny down the line.
If you were already in Self-Assessment, HMRC will assume this will continue unless they hear otherwise.
Once they issue you with a notice to file a tax return, you are legally required to do so, or you will need to ask HMRC to withdraw the notice to file.
The penalties for missing a Self-Assessment deadline escalate drastically as time passes, with an immediate £100 penalty triggered even if no tax is owed.
If the return is three months late, you accrue additional £10 daily penalties for up to a maximum of 90 days.
Where the six month threshold is then crossed, you are charged another 5 per cent of the tax due or £300, whichever amounts to the most.
A tax return that is a year late will incur another charge of the greater of 5 per cent or £300.
As failing to submit a Self-Assessment can lead to significant financial penalties, it is worth speaking to a financial specialist for a review of your tax position, before moving overseas.
The temporary non-residence trap
If you were a UK resident for at least four of the seven tax years before relocating abroad, you are treated as a temporarily non-resident.
This means that gains on assets you owned before leaving, including dividends from a company you own, can be taxed upon your return in the UK.
In practice, you may live in Dubai while you are selling shares, cryptocurrencies and business holdings, but these will be retroactively taxed by HMRC the year you come back.
Even if you only plan a brief return to the UK, before resuming your life in Dubai, HMRC will apply these tax rules mechanically and without consideration of your intent.
Speak to our international accounting experts
While life in Dubai can have many tax benefits, the UK side must be effectively managed to ensure your domestic tax obligations have been effectively severed.
Midgley Snelling can help you work through the Statutory Residence Test for each tax year since you’ve left, evaluating where split treatment applies and how many days you are able to spend in the UK.
Our specialists can get to the bottom of why HMRC is still requesting Self Assessments and, when no return is due, we can help have the filing requirement withdrawn to avoid penalties mounting.
Unsure why you are still receiving UK tax returns? Reach out to an expert for a review of your tax position.
