Income tax query

Old Jun 8th 2019, 6:38 pm
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Default Income tax query

Hoping someone can offer some advice on income tax - I'm seeking an experienced accountant in the meantime - and can report back, or get queries answered if helpful.

Our situation:
  • We are moving to Dubai in Sept/Oct this year
  • In the current UK tax year, wife/I have been directors of a limited company that was opened mid last year, with income only taken in during this month (June)
  • The income level is low and sits within our individual personal allowance
  • We are most likely winding the company up as we wont trade with it any longer once moved
  • We wont be able to drain all company funds via salaries, so will take the remainder (after last salary payments) as dividends
  • We own a home in the UK (on mortgage - consent to let) and intend to rent it out by Sept/Oct
  • Income in Dubai would be received (assume into a UAE bank account) from Oct/Nov this year
I have spoken to the accountant I use and have been advised that:
  • I would pass as a non-resident via the tests stated in their online SRT guidance note (I cant post the URL on this forum yet sorry - a forum rule) - theres a decision tree that makes a clear job on determining your residency status. I'd pass as non-resident on the first automatic test 'not been in the UK for 183 days' (if we leave before Oct), or the 3rd automatic overseas test 'full time work' (as the job is a permanent role with an indefinite term of employment)
  • As we have been shareholders in the UK in this current tax year, plus receive income in the UK via rent, we'll have to do a Self Assessment (SA) which is fully expected
  • Due to filing a SA, I'd have to declare my UAE income as overseas income
  • Due to little tax being demanded from the UK limited company income - and 'tax free' overseas income being earned in part of the tax year (I think this is termed as partial tax year), my accountant believes HMRC will demand income tax to be paid on this overseas income, regardless of whether the resident test above rules me as a non-resident, or that theres a double tax treaty between UK and UAE
  • Also that in order to avoid tax in the next tax year, I should not rent my house out to avoid any UK sourced income - essentially break ties where possible and remain in UAE and receive only UAE sourced income
And this is where my query starts - does anyone have experience to verify the above, or to correct it? Our situation and intentions must be identical to thousands of expats, but the advice seems confusing to me (will of course accept if it is factual and what must be done) and extreme with regards to avoiding rental income.

Any help massively appreciated. For clarity, I'll update the thread on speaking to an international/expat accountant - or verify any related questions that others have if deemed helpful.

Many thanks in advance
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Old Jun 8th 2019, 7:26 pm
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Default Re: Income tax query

Inform the HMRC - Fill in HMRC P85 - or submit Self Assessment if self employed. To be non-resident for tax purposes you need to be overseas for the full tax year (April to April) If you move in Sept/Oct this year then you need to stay overseas in employment until 6th April 2020. By concession the HMRC will then treat you as non resident from when you move to Dubai in Sept/Oct (Split Year). You need to pay tax on all UK income including rental income. Your personal allowance applies to your UK income. (You need to satisfy the SRT rules - work overseas for a full tax year and not spend more than 91 days in the UK)
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Old Jun 8th 2019, 7:28 pm
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Default Re: Income tax query

Originally Posted by james14 View Post
Hoping someone can offer some advice on income tax - I'm seeking an experienced accountant in the meantime - and can report back, or get queries answered if helpful.

Our situation:
  • We are moving to Dubai in Sept/Oct this year
  • In the current UK tax year, wife/I have been directors of a limited company that was opened mid last year, with income only taken in during this month (June)
  • The income level is low and sits within our individual personal allowance
  • We are most likely winding the company up as we wont trade with it any longer once moved
  • We wont be able to drain all company funds via salaries, so will take the remainder (after last salary payments) as dividends
  • We own a home in the UK (on mortgage - consent to let) and intend to rent it out by Sept/Oct
  • Income in Dubai would be received (assume into a UAE bank account) from Oct/Nov this year
I have spoken to the accountant I use and have been advised that:
  • I would pass as a non-resident via the tests stated in their online SRT guidance note (I cant post the URL on this forum yet sorry - a forum rule) - theres a decision tree that makes a clear job on determining your residency status. I'd pass as non-resident on the first automatic test 'not been in the UK for 183 days' (if we leave before Oct), or the 3rd automatic overseas test 'full time work' (as the job is a permanent role with an indefinite term of employment)
  • As we have been shareholders in the UK in this current tax year, plus receive income in the UK via rent, we'll have to do a Self Assessment (SA) which is fully expected
  • Due to filing a SA, I'd have to declare my UAE income as overseas income
  • Due to little tax being demanded from the UK limited company income - and 'tax free' overseas income being earned in part of the tax year (I think this is termed as partial tax year), my accountant believes HMRC will demand income tax to be paid on this overseas income, regardless of whether the resident test above rules me as a non-resident, or that theres a double tax treaty between UK and UAE
  • Also that in order to avoid tax in the next tax year, I should not rent my house out to avoid any UK sourced income - essentially break ties where possible and remain in UAE and receive only UAE sourced income
And this is where my query starts - does anyone have experience to verify the above, or to correct it? Our situation and intentions must be identical to thousands of expats, but the advice seems confusing to me (will of course accept if it is factual and what must be done) and extreme with regards to avoiding rental income.

Any help massively appreciated. For clarity, I'll update the thread on speaking to an international/expat accountant - or verify any related questions that others have if deemed helpful.

Many thanks in advance

i can’t comment on the part year situation as this can be complex and is very much down to individual circumstances. The piece of advice that I would challenge is not renting out your home .... really can’t see why anyone would say that. Yes you will pay tax on the income but so do many other UK expats in Dubai.
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Old Jun 8th 2019, 7:30 pm
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Default Re: Income tax query

PS you need to get a new accountant - the first automatic test is that if you spend +183 days in the UK you are resident in the UK it does no say that if you spend less than 183 you are non resident. It is a test for residency not a test for non residency.
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Old Jun 8th 2019, 8:25 pm
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Default Re: Income tax query

Have a read of HMRC RDR3 and a look at this KMPG flowchart. You are currently UK Resident and liable for UK Income Tax on your worldwide earnings, and it will be the end of the next tax year before you are confirmed UK Non-Resident, but this tax-free status can be backdated to the day you left the UK, subject to a split-year concession. It can be straightforward if you meet one of the Automatic Overseas Tests next tax year. There is also a split-year concession available for the year you repatriate, again subject to conditions. Best get specialist advice.

Tips from me:
Open and contribute to a UK Personal Pension before you leave the UK and you can contribue £2,880 this tax year and each of the following 5 tax years and get a free £720 tax rebate each year.
Apply to HMRC to pay Class 2 NICs to keep your UK State Pension entitlement accruing whilst you are overseas.
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Old Jun 9th 2019, 8:34 pm
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Default Re: Income tax query

Thanks a lot for the replies. I've been reading through the two last shared documents - although haven't managed to go through all of the SRT pdf.

I can appreciate better how this process works - but had a few questions based on what was mentioned above.
- despite sending off the P85, does your residence status only get determined at the end of a tax year, when filing your return (SA in my case)?
- do you have to send a paper form in (SA something), in addition to the online SA? I came across this info, but apologies don't have it hand and would struggle to refind it now.
​​​​​​- if HMRC agrees to a concession and back dates, I assume in practice this means you aren't billed tax, rather than reclaiming tax that was previously paid? May be a naive question, but prefer to be consciously clear on this
- if you have UK property, bought when a resident, but after becoming a non-resident, the property is sold - does this make you liable to pay CGT on the profit?

I should have added in the original posting, we don't necessarily have intention to return to the UK. We were considering keeping the property until certain, before selling up, as moving back off the ladder might be very expensive. But if we stayed out, we'd almost certainly move to another country after, not return.

Much appreciated once again.

Last edited by james14; Jun 9th 2019 at 8:39 pm.
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Old Jun 10th 2019, 9:51 am
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Default Re: Income tax query

You are currently UK Resident and will be for the whole of this tax year. However, the day you leave the UK you become provisionally UK Non-resident and will carry that status until you either pass one of the Automatic Overseas Tests (the fastest route) or are deemed to have permanently left the UK (a longer route). Once you pass the AOT (6th April 2021 at the earliest), your UK Non-residency status is confirmed from the day you left the UK, and a split-year concession is available to you for the year in which you left the UK, subject to conditions (Again, see RDR3). The down side is that you need to carefully monitor your residency status until you can demonstrate that you have passed the AOT, so working full-time overseas, days spend visiting or working in the UK and 'UK Connecting Factors' can all be important depending on your individual circumstances, as per the KPMG flow chart. Hence the suggestion to seek specialist advice. If you screw things up, and repatriate before you are confirmed UK Non-resident, then you remain liable for UK income tax on your worldwide earnings, and people do get caught out.
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Old Jun 10th 2019, 10:02 am
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Default Re: Income tax query

If you are UK Resident and your property is your 'Primary Residence' then you have no Capital Gains liability when you sell. However, once you become UK Non-resident then you have Capital Gains liability on any increase in property value arising after the date of your departure. It's advisable therefore to have your UK property professionally valued before you leave the UK, to avoid any subsequent arguments with HMRC when you do eventually sell.
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Old Jun 11th 2019, 12:08 pm
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Default Re: Income tax query

why not rent out your UK home? If you jointly own it, you can split the income as joint landlords and if it won't take you over the threshold of your personal allowance you won't pay tax on it. Plus there are plenty of expenses (such as letting agent's fees) which you can offset against the tax anyway. Having it sitting empty is, IMO, a wasted investment opportunity - and we intend to retire on our rented income this year so I have some experience in this field.
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