British expats in Dubai are facing tax bills of up to £5 million if they return to London to escape Donald Trump’s Iran war, say accountants. They are advising wealthy Britons caught up in Gulf states by the conflict how to avoid being hit with “massive” HMRC bills.
Options include taking a holiday in another country until the new tax year starts on April 6 before flying back to the UK. Taking this step could mean some HMRC rules do not impact on them if they reduce the number of days they are in Britain. Some affluent individuals are planning to stay in Dubai and other Gulf states rather than risk a hefty tax bill if they were to return to the UK now.
“Clients are facing unexpected capital gains tax liabilities of between £1 million and £5 million in relation to sales which were done within the last five years while being non tax resident,” Nikita Cooper, tax director at accountants Price Bailey’s Mayfair office, told the London Standard. Individuals, for example, who sold companies for £20 million could be looking at a tax charge of 24% if they suddenly found themselves within the scope of UK tax having returned from the Gulf.
Price Bailey is warning clients that they may inadvertently fall foul of the UK’s five-year temporary non residency rule, which is an anti-avoidance measure designed to stop individuals leaving the UK briefly to dispose of assets tax free in low tax jurisdictions such as Dubai before returning soon after. Under these 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.
The accountants stressed that returning to the UK increases an individual’s “day count” under the Statutory Residence Test. If this results in UK residency being triggered before five full tax years have elapsed, the temporary non‑residence rules can apply. Under the complex system, HMRC can disregard up to 60 days spent in the UK by individuals due to “exceptional circumstances”. But accountants say there are “grey” areas over the impact of the war on the regulations, particularly if individuals could travel to another country, rather than Britain, if they leave Gulf states.
Sandra Jeevan, partner and head of private client and trust at accountants UHY Hacker Young, explained how the impact of a return from the Gulf could affect someone who became UK tax resident with £100,000 of employment income, £200,000 of investment income, and £1 million of capital gains, where their lifetime entitlement to Business Asset Disposal Relief has already been fully utilised. She said: “When those elements are considered together, it is not unrealistic for the aggregate UK tax exposure to exceed £350,000.”
