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The white-sand beaches, tax-free salaries and vibrant culture of the UAE make it a very popular destination for expats. Many people arrive with the intention of working in the UAE for 3-5 years to build a substantial pot of money, and then either return to their home country or move on to another overseas destination. Research shows us that people often do stay for the intended period of time, however, unfortunately, many people fail to save a significant sum of money, and often leave in the worse financial state than when they arrived. This blog will pinpoint five ways in which you can avoid being part of that trend.
1. Living beyond your means
The UAE is full of ways in which you can splurge your monthly pay-cheque. From the high-end brunches setting you back an amount often in excess of 500 AED per-person to the beautiful apartments which gaze over the Palm or Marina. The UAE is home to high salaries, but it is also home to a very expensive way of life, if you chose it. The keyword in the previous sentence being ‘chose’. Remember, you are under no obligation to spend £100, €120 or$136 on your Friday lunch, not to mention the haircut, new outfit, after brunch package and taxi you will also likely spend money on. If you are serious about coming to the UAE to save money, is it really wise to do this every week?
For most people, there are numerous ways in which you can cut down your monthly expenditure, if your objective was to move to the UAE and save money, you must live within your means and consistently save before you spend.
2. Ignoring tax obligations due to your new-found residency
It is important to be aware that by simply moving to the UAE, you are not automatically absolving yourself of tax obligations in other countries. The most obvious examples of this are US, Eritrean and soon to be South African citizens, as their citizenship means they must pay a tax on worldwide earnings.
There are also other ways in which you can be caught out. It is a common misconception that if you are a resident of the UAE, you will not have to pay tax in other countries. For example, to not be categorically considered non-UK tax resident you must not spend more than 90 days in the UK, you must be in full-time overseas employment outside of the UK and work no more than 30 days inside the UK. If you fail to meet any of these three, you are at risk of becoming a UK tax resident. If you are unsure of your tax residency status, speak with a specialist.
3. Failure to take out life insurance
Families often move to the UAE on one visa, which is sponsored on the employment of the breadwinner. It is not uncommon for only one parent to be in employment, with the other parent looking after the children. If this is the case for your family and you do not have life insurance and critical illness cover, you are potentially jeopardising your family’s financial security. Insurance premiums may not be cheap in this region, but the cost of a loss of income has the potential to be far higher. It is important to not only consider insuring the life of a breadwinner, but also the other parent, as if the children are being looked after by the non-working parent, then the death of that parent could create a requirement for a full-time carer, which may be unaffordable.
Many families spend a considerable amount of time in the UAE building financial security, for it to be stripped from them if the worst were to happen. If your life is uninsured and people depend on you financially, act now.
4. Not taking out a Will (non-Muslims)
If you are a non-Muslim living in the UAE away without a Shariah-Compliant Will in place your assets may be distributed as per Shariah Law. Having a Will in your home country may not be legally valid within the UAE, because of this, the distribution of your assets and guardianship of your children may be decided by the local courts. In some cases this has led to bereaved expat widows to suffer from frozen joint-bank-accounts and loss of guardianship of their children. To ensure your family is looked after in line with your wishes should you pass away whilst working the UAE click this link.
5. Inadequate inheritance planning (UK Domicile)
For those with a UK domicile, Inheritance Tax is not something you can emigrate away from. Unlike Income Tax, those with a UK domicile will have to pay Inheritance Tax on their worldwide estate upon their death if their estate is over a certain size.
Individuals are entitled to a nil rate band amount of £325,000 – which is tax-free when passed on to a beneficiary. Individuals are also entitled to £150,000 tax-free for the primary residence per person. This nil rate band is transferable to a spouse or civil partner upon death resulting in a total of 325,000 X 2 = 650,000 + (150,000X2=300,000) = £900,000 for the total tax free estate which can be passed on.
An Inheritance tax of 40% is taxed against the estate for anything within an estate over this threshold. Unfortunately, many people who live and work overseas lose a significant proportion of their estate upon their death. To find out ways which you can mitigate this tax click this link.
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