How would my UK tax be affected if I work in UAE?

I currently work in the UK, where I am a resident. My employer is suggesting that I work from UAE, under a UAE contract, for a few years — my organisation has an office there. I own a home in UK and may choose to rent it out if I move to UAE. What should I be mindful of to ensure that I am not considered a UK resident for the purposes of personal taxation while I work in the UAE?

Stephanie Mooney, senior associate in the private client team at law firm Kingsley Napley, says your UK exposure to income tax and capital gains tax (CGT) is determined by your residency status. Once you are non-UK resident, you will only be subject to UK income tax on any UK-sourced income and CGT on gains arising from residential property in the UK. Your UAE income will not fall within the scope of UK income tax.

Your residency status is dictated by the statutory residence test (SRT). This is complicated but in summary you should be mindful of the number of days you spend in the UK as well as the number of ties you retain with the UK. The greater the number of ties, the fewer days you can spend in the UK before being considered UK-resident.

If you have family and accommodation ties, you will be UK-resident in a tax year if you spend more than 90 days in the UK. Your UK home, even when rented out, may still be considered a tie, depending on how many days in the year it is vacant and available for your use.

If you do not wish to shed your UK property ties, it may be wise to consider keeping the number of days you spend in the UK to a minimum (for example, meeting with friends and family outside the UK, if possible). 

If you move to UAE and start working there full-time part way through the UK tax year, you may be able to claim split-year treatment on your UK tax return, rather than being treated as resident for the whole tax year. You should take advice on this with a tax expert.

Your UK inheritance tax (IHT) treatment, which will be determined by your domicile status, is also something to think about. If you are currently UK domiciled, it is unlikely that a few years in the UAE will change your general domicile status. As a UK-domiciled individual, your worldwide assets will be within the scope of UK IHT on your death.

You should also watch out for tax traps including the “formerly domiciled resident” rules. Assuming you were born in the UK, with a UK domicile of origin, you will be deemed domiciled for UK tax purposes the moment you take up residency again in the UK (with a small grace period for IHT).

There are also the “temporary non-residence” rules to watch out for. If you return to the UK within five years and are caught by these rules any gains realised during your time in the UAE will be treated as gains realised while you are UK-resident.

How much tax would we pay on farmland ‘overage’ payments?

My wife and I are about to dispose of a small parcel of agricultural land and wish to know what the CGT rates and allowances are. We own the land jointly, there are no structures on the land and it has always been pasture. There will be “overage” with the sale [an arrangement to allow the seller potentially to benefit from a subsequent rise in land value] in the event the new owner obtains planning permission. What tax is paid on overage payments that could be some years in the future?

David Chismon, partner at accountancy firm Saffery Champness, says the starting point will be to calculate the capital gains tax (CGT) that could arise on the sale of the land. Essentially this will be the difference between the sale price and acquisition price.

The acquisition price, known as the CGT base cost, would be the price you paid for the land if you bought it, or it could be the probate value if you inherited the land originally. From the sale price you will be allowed to deduct costs involved in the selling process, for example legal fees and estate agent fees, so the records for these should be retained.

The CGT base cost can be increased by any costs related solely to the acquisition cost. Again, this can include legal fees and similar but also stamp duty land tax if that was paid on purchase.

Since you own the land jointly then the capital gain will be shared equally. If the capital gain is above your annual CGT exemption and that is not used on other capital gains in the year (for 2022-23 the CGT exemption is £12,300), then some tax will be due, unless capital losses are available to reduce the gain further.

The rate of tax, assuming your other income uses up your basic rate income tax band, will be 20 per cent. If any of the capital gain falls within your basic rate income tax band, then it would only be liable to tax at 10 per cent.

In some circumstances, if the land has been used in a trading business context and the business is ceasing then business asset disposal relief could be available, which makes the rate of tax 10 per cent on eligible capital gains up to a lifetime limit of £1mn. The relief has some complex rules so accountancy advice would be required.

In terms of the overage, it may be liable to CGT and could also be liable to income tax, but this will depend on the terms of the overage agreement. If you are potentially going to benefit in a share of the profits arising from any development, then some if not all of the overage could be liable to income tax at a rate of 45 per cent (even if you are not an additional rate taxpayer).

If, however, the overage is limited to an increase in the underlying value due to planning permission then this should be liable to CGT. It will be important to obtain specialist advice to determine the position. Depending on how likely it is that planning permission will be obtained, there may be intrinsic value today and this has to be valued at the time of the sale of the land. When the final overage is paid then the tax paid now will be set against the actual overage receipt.

Finally, as the land does not include any residential property or dwellings then the tax payment date will be January 31 following the end of the tax year in which there is an exchange of unconditional contracts. So, if the contract is exchanged on or before April 5 2023, the CGT will be due on January 31 2024. If the contract date was April 6 2023, the CGT due date would be January 31 2025.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.