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Taking out entirety of UK pension while tax resident in Dubai - zero tax?
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ABaron
Posted: 30 April 2024 14:55:41(UTC)
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Came across this on a different forum, but it got me thinking.

Dubai has zero percent income tax. The UK-Dubai tax treaty says that pension income is taxed as in Dubai when a UK citizen is tax resident in Dubai.

So in principle it seems like taking out the entirety of your pension, when tax-resident in Dubai, would give you access to the entire lump without paying any tax - as you would have to if you simply stayed in the UK and either took it out directly or as an annuity. That seems a pretty good deal.

Apart from the hassle of being tax-resident in Dubai, or a place with similar treaty/taxation conditions - why doesn't this work? Seems far better than messing around with QROPs. Also not sure if this has any impact as far as the Lifetime Allowance goes.
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Guest on 01/05/2024(UTC)
D Bergman
Posted: 30 April 2024 15:04:05(UTC)
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In theory this would be OK.

However, if you were to return to the UK to live here within 5 years of moving abroad, HMRC will claw back the tax due as you will be regarded as having only been temporarily resident abroad.

Personally, I'd prefer to live in the UK and pay the tax, rather than in Dubai, but that's just me!
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ABaron on 30/04/2024(UTC), Tim D on 30/04/2024(UTC), Martina on 01/05/2024(UTC), DHardisty on 01/05/2024(UTC)
ABaron
Posted: 30 April 2024 15:21:51(UTC)
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Thanks D Bergman - I tend to agree that living in Dubai is not a particularly attractive idea - but I might put up with it for a year if it made me hundreds of thousands!

Do you have any kind of reference or link for the 5 year rule? I've heard of something similar for capital gains crystallisations, but haven't come across it for pension income before.
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Neminem Laedit
Posted: 30 April 2024 15:26:23(UTC)
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ABaron;304201 wrote:
Came across this on a different forum, but it got me thinking.

Dubai has zero percent income tax. The UK-Dubai tax treaty says that pension income is taxed as in Dubai when a UK citizen is tax resident in Dubai.

So in principle it seems like taking out the entirety of your pension, when tax-resident in Dubai, would give you access to the entire lump without paying any tax - as you would have to if you simply stayed in the UK and either took it out directly or as an annuity. That seems a pretty good deal.

Apart from the hassle of being tax-resident in Dubai, or a place with similar treaty/taxation conditions - why doesn't this work? Seems far better than messing around with QROPs. Also not sure if this has any impact as far as the Lifetime Allowance goes.


It appears yes, BUT...

If you come back too soon, you will be caught by the Statutory Residence Test (SRT).

https://www.myexpatsipp....ion-tax-free-in-the-uae/
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Guest on 30/04/2024(UTC), Tim D on 30/04/2024(UTC), ABaron on 30/04/2024(UTC)
D Bergman
Posted: 30 April 2024 15:29:24(UTC)
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There's a company of leaches - sorry, tax lawyers and accountants - who advise expats on these matters:

https://www.myexpatsipp....on-tax-free-in-the-uae/

Edit:
Neminem, you beat me to it.
(Amazing what we can find through Google).
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ABaron on 30/04/2024(UTC), Neminem Laedit on 01/05/2024(UTC)
Neminem Laedit
Posted: 30 April 2024 15:33:20(UTC)
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ABaron;304204 wrote:
Thanks D Bergman - I tend to agree that living in Dubai is not a particularly attractive idea - but I might put up with it for a year if it made me hundreds of thousands!

Do you have any kind of reference or link for the 5 year rule? I've heard of something similar for capital gains crystallisations, but haven't come across it for pension income before.


The SRT is fiendishly complex. It varies depending on the number of "ties" that HMRC deems you have to the UK and the absolute and rolling number of days you spend here over the 5-year period of "non-residence".

https://www.rossmartin.c...idence-test-srt-toolkit

I ended up making a complex spreadsheet to figure it out.
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Neminem Laedit
Posted: 30 April 2024 15:42:41(UTC)
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Cyprus/Greece/Italy currently offer "golden hellos" to "pensioners" [of any age] for 10 years @ flat-tax rates of 5%/7%/7%, although you are required to buy substantial real estate [Italy and Cyprus permit rentals also].

I think the Cyprus one lasts for 17 years, if you remain non-dom in Cyprus.

Someone drawing £100k a year could save about £21k tax a year.
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ABaron
Posted: 30 April 2024 21:59:01(UTC)
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That's fascinating - thanks. I think I'd heard about Cyprus before. I remember Portugal was 0% under NHR until that was cancelled.

I was honestly asking for a friend on this one, but - isn't this a really attractive option?

Cards on the table - I'm 42 and have about £600k in my SIPP. It could well be around £1m by the time I'm 55 in real terms. Spouse in similar position.

Spending a year out of the country to make this happen in ?Dubai or similar, then 5 years outside the UK in some warm, sunny, safe place.

Let's say if staying in UK anyway - would have used 25% lump sum.

So potential saving is approx £750k x 2 people x income tax not paid (some mixture of 20 and 40% - let's call it 30%) = £450k.

Don't want to let the tax tail wag the dog, but that does seem pretty attractive.

Downside is that removing everything from the pension tax wrapper means the dividends/capital growth subject to tax thereafter.

Any way this helps out with the Lifetime allowance?
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Guest on 01/05/2024(UTC)
Never Twice Fooled
Posted: 01 May 2024 08:49:10(UTC)
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Passing wealth on to children in a SIPP is a big plus.
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New Simon T
Posted: 01 May 2024 09:22:21(UTC)
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Related but not directly responding to the question

I live in Spain, before I moved I took my tax free lump sum in a previous Spanish tax year (so it wasn't classed as income in Spain)

To get a UK NT tax code (so you are not taxed on drawdowns) you have to prove you are tax resident in a other country - your country will issue the documentation AFTER you pay your first years tax
Until then you will be taxed as per UK taxes and your UK tax code

Now here is the rub....

All last year I was tax resident in Spain but still have a UK tax code so my pension drawdowns are taxed at 1272L tax code
I have just finished my Spanish tax return for the same year (Jan-Dec 2023) and have to pay EUR15k on my gross UK drawdowns (and interest and CGT on ISA sales etc) - this is taken from my bank in June

After that payment I can then apply for my Spanish tax certificate which I submit to HMRC via form P85 to get all the UK tax paid back and also set my tax code to NT for future drawdowns

The P85 can take 6-12 months to be processed

As you can guess a cashflow nightmare
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5 users thanked New Simon T for this post.
D Bergman on 01/05/2024(UTC), Tim D on 01/05/2024(UTC), Julianw on 01/05/2024(UTC), Neminem Laedit on 01/05/2024(UTC), DHardisty on 01/05/2024(UTC)
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