The expat haven (where you can also escape Reeves’s inheritance tax raid)
Rob White
5 min read
dubai
Warm and sunny with a 0pc chance of tax.
It sounds too good to be true, but that’s normal day-to-day life for hundreds of thousands of Britons living in the United Arab Emirates (UAE).
Around 10,000 people make the move every year. There’s no income tax and fewer than 25 days of annual rainfall, offering an appealing trade-off for moving thousands of miles away from your loved ones.
Given the benefits, it’s perhaps no surprise more than 250,000 have already abandoned the UK for Abu Dhabi, according to expat experts Henley and Partners. British people aren’t the only ones making the move. In fact, only around one in ten of the country’s residents were actually born there.
However, now there’s another reason for upping sticks that most have not considered – die in Dubai and you can avoid inheritance tax.
Around 28,000 of UK estates, or around 4pc, currently pay the hated “death tax” each year. This could rise to 391,000 by the end of the decade following Rachel Reeves’s £40bn tax-grabbing Budget.
According to tax experts Forbes Dawson, however, there is a solution for those seeking innovative ways to reduce their family’s tax bill.
Their example scenario works like this. Bill dies in November 2027 at the age of 76. He has £4m in pension funds, along with £2m in other assets including his house. His wife had already died and he can pass on £1m tax-free to a child.
His daughter Jill is a high earner, so she pays 45pc income tax and will pay that on any inheritance. She opts to take his pension all in one go after his death.
As it’s now within his estate for inheritance tax purposes, she will effectively pay 72.45pc tax on it. In this situation the total amount she’d receive from Bill’s estate is £2.7m.
However, faced with the idea of his daughter losing so much to the state, Bill decides to act and on April 6 2026, he moves to the UAE (after getting financial advice).
After establishing residence in Dubai, he asks HMRC for an “NT” tax code as a non-UK resident, exempting him from domestic tax. He then starts drawing £200,000 a month from his pension tax-free, thanks to a treaty between the two countries.
From this he makes regular gifts out of this income to Jill. He’s allowed to make these tax-free as long as it’s from excess income and doesn’t affect his quality of life, so assuming he needs £100,000 a year for expenses, he can give Jill £2.3m annually this way.
If Bill were to die in Dubai within 10 years, his worldwide assets would still be subject to inheritance tax.
However, the gifts to Jill are exempt even though he died within seven years of making them. As he dies in November 2027, there would be no pension to consider since he’s already given it away, so the inheritance tax Jill pays is vastly reduced.
In total, she would now receive around £5.6m from her late father in total – some £2.9m more than if he’d died at home in the UK.
Britain and Dubai have a treaty that allows UK expats to draw their pensions tax-free - Nikada/E+
Andrew Marr, of Forbes Dawson, said: “The trick is to work out a country with a tax treaty which allows pensions to be received without deduction of UK tax, but which also does not tax that income themselves.
“It is also important that Bill goes to Dubai ‘to die’. If he were to return within six years then the income tax charge from all his pension withdrawals would be assessable to tax on his return.
“If there are no rule changes here, then it would be reasonable to predict that many adventurous and altruistic pensioners will set off for far-flung lands.”
However, while the move may make sense financially, experts warn there are more things to consider than just the monetary payoff.
Stuart Ritchie, of tax specialists Ritchie Phillips, said: “It’s an option if you’re prepared to do the full six years out of the UK and give up your connections and activities, as well as your support network.
“I have a client who moved to Cyprus, he was a captain of industry in the UK. He’s happy because he’s created new connections with a support network for himself and his wife.
“But if you’re going somewhere where you’ve got no friends, no family and you’re effectively an alien resident, then I don’t think that can be underestimated in terms of lifestyle and having a meaningful purpose in your life.”
Yet if relocating is something you’d consider, the good news is that the UAE is not the only place where this move could work. Bahrain, British Virgin Islands, Cayman Islands, Hong Kong, Kuwait, Qatar and Saudi Arabia would all be suitable. All that’s needed is a tax-free arrangement, although Dubai is among the most popular.
Peter Ferrignoo, of Henley and Partners, said: “People are moving abroad for a whole variety of reasons, but when tax is one of the most important, then they end up in the UAE, or more specifically Dubai, as a preferred location.”
There truly are now three things in life that are certain: death, taxes and moving to Dubai gets you the best of both.
