The start of new UK tax year (6th April) will see the treaty become effective for pension payments
UAE residents aged over 55 can now withdraw their full pension pot tax free in some circumstances
People warned of the long-term implications of stripping down their pension
The treaty is considered symbolic of the UK's increasingly close ties with the UAE
Dubai - A new double tax agreement (DTA) between the UK and UAE, which goes live this week, has a surprising benefit that allows UAE residents to access their UK pension free of UK income tax, according to an expert at Old Mutual Wealth.
Having studied the detail of the treaty, David Denton, Head of International Technical Sales at Old Mutual Wealth, not only believes it represents a significant milestone in the relationship between both countries, but also offers up the interesting tax benefit to anyone who holds a UK pension. This could be British and other nationalities of expats who have a UK pension, but could equally apply to GCC investors who have saved into a UK pension scheme.
However, David also warns the new ruling may encourage people to strip out their pension savings, something which could have other implications.
He said: “For UK expats, stripping money out of a pension tax free needs to be balanced against future Inheritance Tax exposure and the need to ensure funds last throughout retirement – anyone considering accessing their cash under this new treaty should seek professional advice.”
The new DTA was negotiated and signed in 2016, and came into force on 25 December 2016, becoming effective for UK personal tax purposes from 6 April 2017. The UK has approximately 140 DTAs and the UAE has over half that number.
David continued: “As one of just a few countries, in international terms, previously not having a DTA with the UK, it is a treaty of some significance and symbolism for the UAE. DTAs like this are intended to enhance economic and trade relations, improve labour movement, and protect companies and individuals from direct or indirect double taxation.”
Determining tax residency for the UK revolves around the Statutory Residence Test 2013, whilst an individual is deemed resident in the UAE if they are domiciled there, it is their habitual abode or centre of vital interests. For those that meet this definition of UK non-resident and UAE resident, and are interested in the impact upon their UK pensions, Article 17 specifies that ‘pensions and other similar remuneration paid to a resident of a Contracting State shall be taxable only in that State’.
David added: “This appears to have the surprising effect that, subject to the normal 55 age requirement, those in a UK scheme offering flexi access drawdown courtesy of the ‘freedom and choice’ legislation in 2015, could access their pension fully and without tax. However, people need to take care to ensure they are not caught by the UK temporary non-residency rules.”
© Press Release 2017
