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Dubai property income: getting burned by your place in the sun?

Stuart Stobie • July 1, 2024
Mosaic Chambers Group

"First impressions count", they say.


Yet how often are we confronted with an apparent truth which is less sinister when we bother to dig a little deeper.


I'm not necessarily talking about so-called 'fake news'.


Take The Times, for instance. It's the UK's oldest national newspaper and has been rightly applauded over the last couple of centuries for the quality and indeed the bravery of its journalism.


Flicking through its pages recently, though, my attention was drawn to a story about taxpayers apparently dodging their obligations to HMRC.


It described how "thousands of British citizens could be avoiding tax on their property investments in Dubai by failing to tell HM Revenue & Customs about their earnings" https://www.thetimes.co.uk/article/48324c1a-7c5a-44ae-b478-2334d76e0376?shareToken=16b5539eb0242b9e990a6df596929e72.


The article drew from leaked data and claimed that HMRC records showing that only 1,900 UK taxpayers disclosed rent receipts from property in Dubai during the 2021-22 financial were somewhat inaccurate.


Instead, the source material suggested that 17,000 Britons owned 22,000 properties in the emirate, 13,000 of which had been rented out at least once.


On the face of it, the picture presented by the article was one of a large group of individuals trying to pull a flanker.


However, I think that the truth may actually be more confused and less questionable than The Times set out in good journalistic faith.


For one, it was that reference to "British citizens" which first had my senses tingling.


When it comes to UK tax, citizenship doesn't mean anything at all (incidentally, there are two places where citizenship based taxation applies - the US and Eritrea!). When it comes to the UK, the primary hook is residence and, secondly, for the time being, one’s domicile status.


Put simply, if you're UK resident, then you pay Income Tax on worldwide income, including rent earned from overseas' property, regardless of where those properties are.


If you're you're non-resident, then you only pay tax on UK income.


Should you be resident in the UK and qualify for non-dom status and have elected for the remittance basis to apply, then you're only taxed on foreign income and gains that are brought to, or otherwise enjoyed in, the UK.

So, as one can see, there are legitimate reasons why ‘a UK citizen’ might not have to pay tax on a Dubai property.


It would be reasonable to imagine that the very idea of vast numbers of taxpayers ducking their obligations would keep HMRC exercised, especially given the £451 million which it spent on "avoidance and evasion work", according to its last published annual report https://assets.publishing.service.gov.uk/media/64e34f1c3309b700121c9baa/HMRC_annual_report_and_accounts_2022_to_2023.pdf.


That misbehaviour might involve foreign assets shouldn't be too much of stretch, given the lattice work of agreements between international tax authorities which have been put in place and were summarised in the 'No Safe Havens' project launched in 2019 by the Revenue https://www.gov.uk/government/publications/no-safe-havens-2019/no-safe-havens-2019-introduction.


Nevertheless, all that investment and legislative infrastructure could, I reckon, be at least part of the problem.


In proudly rolling out 'No Safe Havens', HMRC talked of "huge changes" to its effort to ensure offshore tax compliance, with "over 100 new measures" introduced in the preceding decade.


Regular readers will recognise my frequent observations about the lengthy and rather opaque nature of the UK's tax code.


It was something even noted in the last few weeks by Charlotte Barbour, the new President of the Chartered Institute of Taxation (CIoT).


In her inaugural speech to the Institute's Annual General Meeting, she described how there were "pressing issues" which, if not addressed, would "leave the tax system less efficient, harder to comply with and less effective in both raising revenue and supporting taxpayers" https://www.politics.co.uk/opinion-former/press-release/2024/05/31/election-is-opportunity-for-tax-education-says-new-institute-president.


Among them, said Mrs Barbour, was the need for "meaningful simplification".


A quick glance through HMRC's own published data gives her comments some credence.


The Revenue regularly issues numbers on what is known as 'the tax gap': the difference between the amount of tax expected and received. In the financial year ending this April, the gap measured £39.8 billion https://www.gov.uk/government/statistics/measuring-tax-gaps/1-tax-gaps-summary.


Digging beneath the headline numbers, though, we find that 4 per cent is because of avoidance and 14 per cent is due to evasion, while three times as much as is the result of a combination of the "failure to take reasonable care" (30 per cent) and error (15 per cent).


It's possible to see how some individuals unfamiliar with a constantly changing tax code might simply not grasp that they have a tax liability at all.


The risks of making a genuine mistake when it comes to offshore non-compliance, however, are severe. 


Inaccuracy, failing to notify HMRC of relevant facts or purposefully withholding information can merit a penalty which is at least as much as the actual tax due https://www.gov.uk/government/publications/compliance-checks-penalties-for-income-tax-and-capital-gains-tax-for-offshore-matters-ccfs17/compliance-checks-penalties-for-offshore-non-compliance-ccfs17.


It is a sanction likely to sting even more than the searing summer temperatures in the Middle East.


Even more than being bracketed with those ne'er-do-wells deliberately intending to limit their tax exposure on the pages of The Times, a large bill because of inadvertent oversight is enough to cause people to question whether their place in the sun is really worth it.

Lakshmi Mittal and the Great British Non-Dom Tax Drama

April 2, 2025
As soon as billionaires start moving out, something strange is afoot. Lakshmi Mittal, the super-rich steel magnate behind ArcelorMittal--the world's largest steel company--is reported to be considering leaving Britain due to a potential end of non-domiciled (non-dom) tax status benefits in Britain. Who Is Lakshmi Mittal Anyway? Mittal stands out as being something special among his fellow billionaires; for years, he's lived comfortably in Britain while taking advantage of non-dom tax arrangements that enable individuals (like himself) to avoid UK taxes on foreign income as long as it was spent within British borders. But these cosy days are over! What Has Changed? Starting April 2025, the UK will transition away from its non-dom system and toward something much less generous. Key changes will include: End of Non-Dom Era: The remittance basis of taxation will be replaced by a new four-year exemption applicable to foreign income and gains from 6 April 2025. Global Assets Affected by UK Inheritance Tax: Transition to residence-based system for inheritance tax means that after being resident 10 out of 20 years, worldwide assets will be liable for IHT. Remittance Basis—Gone: Previously, non doms only paid tax on foreign earnings if remitted to the UK. Though there are transitionary rules to ease the impact, basically now, wherever you earn income, the UK taxman wants a share. Simply put, the party is officially over now folk like Mittal are wondering whether staying put makes any sense. Where Might the Wealthy Go? When your fortune is at stake, you don't make decisions at random; that is why HNWIs such as Mittal are keenly scrutinising places that might allow them to keep more of their cash safely: UAE: No income tax, inheritance tax or wealth tax applies in this region. Portugal: Thanks to its Non-Habitual Residency scheme, sunny Portugal has become an appealing location for individuals who seek tax benefits without compromising on lifestyle. Switzerland and Monaco: Monaco has long been considered a tax haven because of its favorable personal and corporate tax rules. The country does not tax individuals on their income, and corporations within the country have favourable tax treatment. Italy: allows for long-term residence and access to Schengen countries. Under certain circumstances, a flat rate of tax of 7% on all foreign-sourced income is available to new residents of Italy. Why Should the UK Worry? Britain's Reputation at Risk Packing their bags publicly doesn't exactly send out the message that Britain is ready for business; Mittal leaving could prompt other wealthy individuals to consider whether this country remains attractive. Money Matters Every time a billionaire leaves the UK economy, their absence leads to reduced investments, lower donations to charity and less lavish spending - not just with regards to taxes but also economically. Politics The government could run into trouble if new policies are seen to push away wealthy donors with money - not exactly an ideal recipe for voter appeal! What should HNW people be Doing Now? Verify Your Status: Evaluate whether your current tax status remains advantageous under these new circumstances. Clarifying Your Tax Exposure Globally: Fully understand the tax repercussions associated with maintaining or cutting ties to the UK. Consider Alternatives: Assess potential jurisdictions such as the UAE or certain European nations that offer clearer tax regimes without inheritance or wealth taxes. Final Thoughts Mittal's potential exit encapsulates more than simply his tax bill; it spotlights a wider anxiety amongst wealthy individuals Decisions like these require careful thought, proactive planning, and expert advice. Are You Worried About Tax Reform in the UK? Mosaic Chambers Group can provide independent, practical advice tailored to your circumstances.

UK Non-Dom Tax Rules: The End is Nigh, But What Next?

By Andy Wood • April 1, 2025
For over two centuries, the UK’s non-domiciled tax regime and its remittance basis has been a cornerstone of tax planning for wealthy expats and international families. It was introduced, along with income tax, by Willian Pitt the Younger at the very end of the 18th century. It was part of the fiscal firepower necessary to battle Napoleon Bonaparte. And, like income tax, it had pretty much been a constant feature of the UK’s system ever since. But in March 2024, the then Chancellor, Jeremy Hunt, rang the death knell for the remittance basis, with Labour’s Rachel Reeves – who would succeed Hunt a few months later - declaring she would have abolished it anyway. The end is therefore very much nigh for the UK’s non-dom tax regime. More specifically, the end is 6 April 2025. However, out with the old and in with the new’ goes the saying. As such, the ‘what comes next’ will reshape the tax landscape for non-doms, expats, and international investors with a UK footprint (or those considering creating one). What is Domicile (and Non-Domicile)? Domicile is not a straightforward concept like tax residence. The latter is largely about physical presence (or otherwise) in a particular. Instead, as well as physical presence, it also requires an understanding of your future intentions. Is a place somewhere that you intend to live permanently or indefinitely. There are two main types of domicile that I will discuss here: • Domicile of origin: This is inherited at birth, usually from your father (if you think that is misogynistic then I don’t make the rules, OK?). You do not lose your domicile of origin. However, think of it as the foundations of a building. You can a domicile of choice on top it. • Domicile of choice: You build a new domicile of choice by achieving two things. Firstly, by physically residing in place and, secondly, by forming the intention to stay in that same place permanently or indefinitely. Both must be present.
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