With nearly 50,000 Brits estimated to have upped sticks and returned to the UK due to the war in the Middle East, complex statutory residence test (SRT) rules, benefits in kind and critical day counts could trigger high tax bills
For returning UK nationals, their tax liability raises immediate concerns, with warnings to check their position on tax residence, particularly as they may have left the Middle East quickly without considering tax implications when they took the decision to leave.
When the war between US/Israel and Iran broke out on 28 February, it clearly caught the several hundred thousand strong British community in the region off guard.
HMRC said it does recognise that ‘people may need to make decisions very quickly which is why there are longstanding rules in place in place’.
The key tax consideration for returnees is the UK statutory residence test (SRT) whereby individuals and businesses are liable to UK tax depending on the number of days they spend in the country over the course of a tax year from 6 April–5 April.
HMRC confirmed that ‘up to 60 days can be excluded from someone’s overall count of days spent in the UK in a tax year, if they are in the UK due to circumstances outside of their control, and meet the conditions for exceptional circumstances’.
This gives returnees some flexibility on the standard 183-day figure under the SRT, but it needs to be adhered to carefully.
An HMRC spokesperson told Business & Accountancy Daily: ‘The existing rules provide the right protection while following the basic principle that individuals living in the UK should pay tax in the UK. Exceptional circumstances, such as being affected by a war, are taken into account.’
HMRC stressed ‘exceptional circumstances do not provide a tax exemption and only affect how UK days are counted for tax residence purposes’.
Whether days spent in the UK can be disregarded due to exceptional circumstances always depends on the facts and circumstances of each individual case. HMRC guidance in RFIG22250 provides further details and an example where exceptional circumstances can apply. It also has an HMRC residence status checker to help establish your residence position.
The swift nature of the outbreak of the war means that many UK nationals who were working in the UAE, Kuwait and Saudi Arabia, and decided to come back to the UK quickly when the conflict broke out, have some serious tax issues to consider.
Robert Salter, a director at Blick Rothenberg, warned: ‘Being in the UK will increase the likelihood that in individual is classed as UK tax resident under the statutory residence test (SRT).
‘Being tax resident means they will be liable to UK taxes, including a 24% tax on their worldwide income and gains, for the period of their UK tax residence. This could include their Middle East salaries.’
So clearly there are tax risks. Being back in the UK increases the likelihood that an individual is classed as UK tax resident under the statutory residence test.
The key number to consider is 183 – if the individual spends at least 183 days in the UK in the tax year then it is impossible to meet any of the automatic overseas tests. The timing of the start of the war means many entered the UK during the 2025-26 tax year, therefore overlapping two tax years.
There are also longer term tax considerations, Salter added. ‘If someone becomes UK tax resident again, even if only for one to two years, and they then return to the Gulf, their estate may be liable to 40% UK inheritance tax (IHT) if it is worth more than £325,000 on death.’
For those returnees who maybe only just moved to the Gulf for work, there are also potential tax risks related to employment income.
Salter explained: ‘Individuals who only moved to the Gulf region a few months ago who have yet to become “non-resident” in the UK, will find the benefits in kind (BiK) which they receive such as free housing or a company car are liable to UK tax.’
Just because individuals might remain non-resident in the UK in accordance with the SRT, they and their employers may not be off the hook for UK taxes.
‘While the rules do allow individuals to have “incidental” UK workdays back in the UK without being liable to UK tax, HMRC do not treat most UK workdays as being incidental,’ he added.
‘This means if someone who has fled the Middle East starts working from a UK home office but continues doing their core role as a “global tele-worker” rather than a traditional location, they would be liable to PAYE and other taxes on those UK workdays even if they do not become UK tax resident.’
Another factor to consider is that UK nationals living in the region for less than five tax years before returning to the UK and recommencing UK tax residence can be caught by the ‘temporary non-residence’ rules.
‘These rules mean that capital gains which materialised when initially non-resident in the UK, perhaps on the sale of a UK business or a significant shareholding, would “fall back” into UK taxation,’ warned Salter.
The statutory residence test is complicated and returnees need to take into account a number of ‘connecting factors’, which are not straightforward. It is always highly advisable to consult with specialist tax advisers and accountants to avoid any unwelcome tax bills or inquiries from HMRC.
For those returnees who have been working in the Gulf for at least 10 tax years, there may be some tax planning opportunities under the foreign income & gains (FIG) rules, which replaced the old non dom rules. Or, course they could look to move to an alternative low tax jurisdiction such as Italy, Portugal or Switzerland.
Under the FIG regime, individuals who have been living outside the UK for at least 10 tax years prior to their return would be able to benefit from these rules, Salter said.
For eligible individuals, this means that non-UK investment income and capital gains should be outside the scope of UK tax for the first four years back in the UK.
Dual tax residency
There are also some double tax treaties which could help those back in the country temporarily, such as the 2016 UAE-UK double taxation convention (DTC), although these are not always clear cut to the lay person, and professional advice should be sought.
Salter explained: ‘Individuals who remain resident in the overseas jurisdiction may become “dual tax resident” while back in the UK.
‘In such cases, where there is a double tax convention (DTC) between the UK and the overseas country concerned, the dual resident rules within the relevant convention may provide the possibility of avoiding UK taxes on foreign income and gains, if it can be argued that the overseas jurisdiction has the core taxing rights in that individual’s specific position.’
The Foreign Office is advising against all but essential travel to the Gulf region at the present time.
Clearly, the tax landscape is extremely complicated and affected individuals should always seek professional advice before taking any decisions about their tax position.
Writes Sara White,
Editor, Business & Accountancy Daily