The tax risks for UK expats returning from Dubai
Wealthy Brits may have rushed to Dubai and other low tax jurisdictions to escape higher taxes in the UK but they could be hit with a tax bill if they return too soon
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.
Article continues belowTry 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
Another risk is the UK’s Statutory Residence Test (SRT), which determines whether someone is classed as a UK tax resident. This may be an issue if flights are unable to return to Dubai or other parts of the United Arab Emirates.
Anyone who spends 183 days or more in the UK during a tax year automatically becomes a UK tax resident. But there are key caveats.
Below the 183-day threshold, residency depends on both the number of days spent in the UK and an individual’s ”ties” to the country.
Wealth manager Evelyn Partners has warned that someone who has previously lived in the UK, tax residency can potentially be triggered with as few as 90 to 120 days in the country if they maintain multiple ties, which is common.
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.
However, HMRC is reportedly examining whether tax concessions could be introduced for Britons forced to return due to instability in the Middle East.
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.
A key uncertainty is official travel advice.
David Little, financial planning partner at Evelyn Partners said the exceptional circumstances rule has historically been applied when the Foreign, Commonwealth and Development Office advises citizens to “avoid all travel”.
He said: "The UAE currently sits at the lower warning level of “all but essential travel”. Crucially, these are not equivalent.
"This distinction leaves significant ambiguity over whether evacuations or safety-related returns from the UAE would qualify for relief under the exceptional circumstances provision."
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.”
Little adds that expats returning to the UK may qualify for split-year treatment. Normally, a person is either resident or non-resident for a full tax year.
But if someone leaves or returns partway through the year, the tax year can be divided into a “UK resident portion” and an “overseas portion”, potentially keeping foreign income outside the UK tax net.
Split-year treatment is not automatic though and must be claimed through self assessment.
Little added: "Until HMRC issues any clarification, expats considering temporary returns should carefully monitor their UK days and ties, plan travel around thresholds, and file appropriate forms to claim split-year treatment where relevant. As always, seek professional advice.
"Small changes in travel behaviour can be the difference between remaining outside the UK tax net and falling fully within it, a situation often reduced to a ‘health versus wealth’ dilemma, with no easy outcome."
