3 Things Every British/UK Expat Should Do with Their Finances in Dubai
Relocating from the UK to the UAE can be a fantastic life choice, as many expats prefer the vastly different lifestyle, not to mention the benefits of zero income tax to enjoy. However, it can be hard to realise what you need to do with your finances upon moving to a new country – becoming an expatriate from the UK brings with it a host of changes to your financial planning agenda. The following three points are just a few of the things that should be considered on moving to the UAE.
1) Reduce your Tax-Bill
It may be appealing to forget about the UK completely, while subscribing to the low-tax environment in the Emirates. Yet, if you’re not careful, it can be fairly easy to violate the HMRC tax laws. To no longer pay income tax on your wages overseas, you must perform a ‘Statutory Residency Test’ (introduced in 2013), in which there are 4 parts involved:
* Time spent in the UK
* Automatic Overseas Test
* Automatic UK Test
* Sufficient Ties Test
You must also satisfy the Automatic Overseas Test – meaning that if you were a resident in the last 3 years, you must have spent less than 16 days in the UK in the current tax year. If you work full time outside the UK however, you may spend under 96 days and still be classed as a non-resident. If this test is inconclusive, the automatic UK Test and Sufficient Ties tests are then to be used to classify you as a resident or not. These tests are fairly ambiguous and may be confusing; you do not want to receive an HMRC penalty for not submitting a Self Assessment Tax Return, so speaking to a qualified advisor may be the most prudent approach here.
Once your wages are sorted out, there are other taxes that you may be liable to pay other taxes, even if you’re a non-UK resident. For example, if you are a non-resident for less than 5 years, any capital gains that you have realised while abroad will be taxed on return. Moreover, rent and dividends originating from UK assets will be taxed as income, at the income tax rates. Of course, you may keep in mind that the personal allowance is still currently £11,500, and this shall still apply.
2) Draft your Will
Many expats may not realise this, but a will written in a foreign country will not apply in case of a death while in the UAE. In fact, your estate will likely be distributed according to the principles of Sharia law, which will be unfavourable to many UK expats. For example, if the husband dies in a family, the wife will receive 1/8th of the outstanding wealth, the parents receive 1/6th each, and the sons/daughters shall receive any remainder in the ratio of 2:1 respectively. If the wife dies however, the husband receives a quarter of her wealth. Applying for your own will to decide on how your estate is distributed can be done, however.
How can this be achieved? Under Dubai Law No. 15 of 2017, the DIFC Wills and Probate Registry (DIFC WPR) had its authority reaffirmed to provide wills to non-Muslims that are registered under internationally-recognised common-law principles. DIFC Wills use the inheritance laws of the home country of the expat in question, meaning reliability and certainty can be provided by the service. Whilst the cost for this is not insignificant (AED
10,000 for a single will, AED 15,000 for a mirror will and AED 550 to update an existing policy), this is often a very worthwhile investment for residents who hold significant assets, such as property in the UAE.
Drafting a Dubai will is imperative for sorting out Guardianship as well; Sharia principles dictate that if a husband dies, while the custody of a child under the age of 21 may fall to the wife, guardianship can only fall to a male. This means that either a father- or brother-in-law may have greater rights over a child than a mother, as guardianship refers to the authority to make financial, educational or travel related decisions. Again, a will can state where your wish guardianship to fall to.
According to a 2017 DIFC WPR survey, around 60% of respondents don’t see Dubai as their permanent home. However, 64% of expats stay in Dubai much longer than they initially planned. Additionally, only 10% of expats had a UAE registered Will, highlighting the need for financial planning in the region, to protect your family and assets.
Another aspect of financial health that many expats do not consider, is life insurance policy. According to a Gulf News survey, 58% of respondents in the UAE do not have a life insurance policy. With the statistic mentioned above of how 64% of expats stay longer than expected, obtaining life insurance is a must for any prudent individual, while the benefit of knowing your family is protected in the worst-case scenario is immeasurable.
Of course, there are many other important aspects of financial planning that are crucial; creating a good budget, optimising savings, minimising inheritance tax, etc. As with all financial planning, it may add significant value to your estate to search for a financial advisor