Moving Abroad to Lower Your Tax Bill: What You Need to Know

Dubai: a vibrant city with a huge international community, very little rain, and no personal taxes. When your UK income tax rate can be as high as 45 per cent, it is easy to feel tempted. But whether it’s to the United Arab Emirates or elsewhere, moving abroad to cut your tax is easier said than done.

First and foremost, lifestyle should come first. Putting tax considerations in the driving seat is hardly ever a good idea, given you could be living far from home, in a place with a different language, culture, and climate. Having more money certainly doesn’t hurt, but on its own, it will not automatically make you happy. So think through your decision carefully.

Even if you are keen on the move, be aware that the tax planning side can be quite messy. Do not assume that moving somewhere where taxes are lower will automatically reduce your bill.

Residency Issues
If you do decide to live in another country for most of the year, you may still be treated as a tax resident in the UK and have to pay taxes accordingly. It’s important to be aware of these complications. The statutory residence test plays a crucial role in determining your tax residency status based on the number of nights spent in the UK and your ties to the country.

If you are splitting your time between the UK and another country and end up owing taxes in both, double tax treaties may come into play to prevent you from paying taxes twice. However, income and gains from UK property are taxed in the UK regardless of your tax residency status.

Inheritance Tax
When considering moving abroad to lower your tax bill, it’s essential to also consider the treatment of different assets and taxes, such as inheritance tax (IHT). Currently, IHT applies to your worldwide estate if you are domiciled in the UK when you pass away. Losing your UK domicile can be complex, and the UK only has double taxation treaties for IHT with a handful of nations.

From April 2025, IHT will become dependent on your residency rather than your domicile. After 10 years of leaving the UK, you will no longer be subject to IHT on assets held outside the UK. However, for UK assets, including property, IHT will still apply.

Planning Ahead
Overall, it is possible to move abroad and enjoy more favorable tax treatment than in the UK, but careful planning is crucial. Understanding the interaction between different tax systems, planning in advance, and coming up with a solution that aligns with your long-term lifestyle goals is key to maximizing tax benefits.

In conclusion, while moving abroad for tax purposes may seem appealing, it’s important to consider all aspects of the move, including residency issues, double taxation treaties, and inheritance tax implications. By planning early and carefully, you can make informed decisions that align with your financial goals and lifestyle preferences.