A taxing year for expats

(LIZ RAMOS) A huge bonus for British expats living in Dubai is they don’t have to pay tax on their earnings. While some voluntarily pay national insurance contributions in order to still be eligible for a state pension when they turn 65, the rules concerning income tax are not straightforward for the 120,000 Britons living in the UAE. Current legislation says a person cannot spend more than 90 days – excluding arrival and departure days – in the United Kingdom in one year if they wish to avoid paying tax. But these rules are set to change, meaning some people will either have to cut the number of days they spend at home or pay a hefty fine. If you are in the UK for more than 90 days a year, you will be considered resident. However, the British Government has announced plans to change this. Under the new rules, days of arrival and departure will be counted. Alec Emmerson, a partner at UAE-based law firm Clyde and Co, believes the new rules are a way for the UK Government to increase revenue and will mean the days of taking flights at the end of the day to keep the time spent in the country down, may be numbered. “The new rules will mainly affect people making lots of business trips back to the UK. Some people go on a night flight, have two days of meetings then leave on a night flight so those days don’t count. “But there are also people who have families in the UK so go back and forward for the weekend without too many days impinging on their allowance, but it stacks up if you now have to count 36 days instead of 12. I can see it having an impact on expatriates in the UAE.” Emmerson says it is vital these changes are sorted out before April, as the UK authorities are also planning changes to the way “residents” and non-domiciled individuals are taxed, which will also have an impact on people living abroad. Usually, anyone resident in the UK pays tax on their worldwide income and gains in the year that they arise. But the remittance basis is an alternative method, allowing UK residents who are not normally domiciled or “ordinarily resident” there to delay the payment of tax on offshore income and gains until they are brought back – remitted – onshore. Any UK-sourced gains are usually taxed as they arise, but there is no charge at that point on the remittance basis. Anyone who has been resident in the UK in seven of the previous 10 tax years will be offered the option of paying a £30,000 (Dh216,000) a year “fee” to the Government to keep their existing remittance basis for taxation, which for some people will be beneficial. The alternative is paying tax within the UK on all of their income. The Treasury has published a consultation paper, and is aware these changes would affect expats who will eventually go back to the UK, although it expects it to be only a “small” number, as their move abroad is usually a “temporary” status. The consultation paper states: “Generally individuals will, in due course, establish ordinary residence in the UK, and thereby make a normal contribution to the UK tax system. The number affected by this measure is likely to be small. “Only those with unremitted income in excess of £80,000 are likely to pay the charge; others will find it less costly to opt out of the remittance basis.” The reason £80,000 is important is because you would probably be better off having all of your worldwide income and gains taxed as they arise if you earn less than this from outside the UK than paying the £30,000 figure. For example, a 40 per cent taxpayer would need to have £75,000 or more of unremitted foreign income a year to generate a tax charge equivalent to £30,000. But the Treasury also plans to remove the personal allowances available in the UK to those who continue to use the remittance basis for taxation and are non-domiciled in the UK. It states: “Under the current rules remittance basis users enjoy the double benefit of having two elements of their overall income and gains exempt from UK tax. Firstly, their unremitted foreign income and gains is not subject to UK tax. Secondly, they also enjoy the same tax-free personal allowances as other UK taxpayers. “Under the new rules, remittance basis users will lose automatic access to personal tax allowances, blind person’s allowance, reductions for married couples and civil partners, reliefs on payments to trade unions, police organisations, and relief for payments for the benefit of family members. They will similarly lose access to the Annual Exempt Amount (AEA) on gains. “They will instead have a choice between continuing to use the remittance basis or continuing to enjoy their personal allowances. This choice will be made annually.” In short, the personal allowances would need to be added to this under the new regime to calculate when it is more cost effective to pay the charge and lose the allowances rather than opting out of the remittance-based taxation. The Treasury said: “In 2008-09 the usual personal allowance is £5,435 so the minim