UK Pensions for Dubai Residents: What are the Tax Rules and Options?

Pension tax implications individuals looking to relocate to Dubai need to consider.

If you are thinking of a move or a retirement in the sun, then you may want to know about how pensions work for tax while you are in the UAE.

Pension Contributions

If you were an active member of a pension scheme in the UK before you became non-resident, you can continue to contribute up to £2,880 per year for the first five years of non-residence and benefit from UK tax relief*.

But if you continue to have UK taxable earnings (which can be rare as a non-resident) then you may even be able to contribute more.

It is important to talk with your pension provider as soon as you know your plans, as they may have their own rules about accepting contributions from overseas members.

Even if you are not eligible to make contributions, your pension pot still belongs to you and can still sit invested while you are abroad.

Pension Income

If your pension is paid by a UK pension scheme, or is UK state pension, then it is considered “UK source”. Any taxing rights of the UK and UAE will therefore be determined by the Double Tax Treaty.

This states that pensions are taxable where you are resident for tax (except government service pensions). As a UAE tax resident then, most pension income will only be taxable in the UAE, which at the time of writing has no income tax on pensions. You may need to apply for Treaty Relief in order to receive your pension gross.

Please note that the UAE introduced further requirements in 2022 to help support this relief application. You will need to meet their residence criteria before a tax residence certificate can be issued.

If your pension is a governmental service pension (e.g. Civil Service Pension, Teachers’ Pension amongst others), it will be taxable only in the UK while you are resident in the UAE (unless you are a UAE national who provided UK governmental services from the UAE). You should therefore receive it net of tax and may need to report it on a UK tax return.

Pension Lump sums

You can still take your 25% tax-free lump sum benefit, even while non-UK resident.

Risk area

One area to watch out for is the temporary non-residence rules. Some types of income and gains, for example a flexi-access drawdown or certain lump sums, though perhaps non-UK taxable while non-resident can be newly taxable if you return to UK residence within five years of having become non-resident.

Pension Transfers

It may be possible to transfer a UK pension pot between providers or to an offshore pension provider, but removing it from the UK can lead to a charge of 25%. Please take care in any such decision and seek further advice.

Although happy to discuss tax implications of the above, we cannot advise on whether to fund, withdraw or transfer pensions, as this is regulated advice. As such, we recommend solid professional advice before undertaking major decisions.

Our specialists can advise you on contribution amounts, working out your 5-year windows for contributions and temporary non-residence, or applying for Treaty Relief please.

*correct at time of publication.

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