Is Dubai the new Spain for British expatriates?

|By Nicole Blackmore| Is Dubai the new Spain? Britons are abandoning their place in the Spanish sun for countries with better work opportunities and more stable house prices – and the Middle East is one of several areas attracting growing numbers of emigrants.

While Dubai may not be a popular retirement option given the high cost of living, young professionals are moving there in droves.

NatWest’s latest International Personal Banking Quality of Life Report shows Dubai is now number three in the table of nations offering the best quality of life for British expats, behind Australia and Canada. It has risen from the 10th spot in 2010.

By contrast Spain fell from seventh to ninth place over the same period, and in 2013 almost 90,000 British expats left Spain, mostly to return home.

Despite disillusionment, more than 150,000 people are still emigrating each year, with cheaper travel encouraging them farther abroad.

But what are the financial considerations in the more popular destinations?

Dubai

The main draw for expats in Dubai is the zero rate of income tax. Dubai’s growing construction, tourism and financial services sectors, as well as its established oil industry, are attracting workers.

While earnings are tax-free the cost of living is high, making it less appealing to retirees who want to keep their outgoings in check.

It could be a good place to buy property, however. House prices suffered during the financial crisis, but are now rising sharply. Prices rose 24pc in 2013, according to HSBC Global Research, which claimed Dubai was still relatively inexpensive on an international basis. It expects prices will rise by 10pc to 15pc this year.

If you buy property while living abroad, you may have to pay capital gains tax on it in the UK when you sell it. Iain McCluskey, a director at PwC, said this applied if the property did not qualify as your main residence and you had spent less than five full tax years outside the UK.

• Tax: No income tax.

• Housing: Average two-bedroom villa in Jumeirah Village Triangle costs £548,000.

• Health care: Average medical insurance cover for a young professional starts at about £725 a year.

• Getting in: You will need a work permit, residence visa and an Emirates ID card. Your employer should apply for the visas for you.

Australia

Australia is still the most popular country for British people looking to emigrate. About 40,000 Britons move there each year, according to the Office for National Statistics.

Up to 1.2 million British expats live in Australia, according to estimates. The country’s warm, sunny climate and high quality of life make it a popular place to retire, but the cost of living can be high.

As with all overseas destinations, pension arrangements can be complex. The UK has a double taxation treaty with Australia, as it does with most other countries, so you only pay tax in the country in which you live.

Where your pension will be taxed and how much you will pay will depend on the type of scheme you have.

Public-sector pensions are always taxed in the UK, no matter where you live, but private-sector pensions are usually taxed in the country of residence, according to Mr McCluskey. This is the case in Australia. The rate will depend on your overall income and will be determined by local rules.

If you’re thinking of moving overseas, it’s important to check not just the rate of tax you’ll pay but also what the tax-free allowance is. In the UK, it is currently £10,000 and, in Australia, it is roughly the same at £9,996 ($18,200). It is a lot lower in some countries, meaning you will pay tax on a greater proportion of your earnings.

If you qualify for the state pension, your payments will be frozen when you leave the UK. This means your income will not rise in line with increases for pensioners living in Britain. This also applies to expats living in Canada.

• Tax: 0pc to 45pc.

• Housing: Average property in Sydney costs £361,000, while in Melbourne it is £222,000.

• Health care: Private cover is highly recommended. A 65-year-old couple can expect to pay about £1,500 a year for medical cover.

• Getting in: The Australian investor retirement visa allows self-funded retirees to spend up to four years in Australia. Applicants must be over 55 years old and have at least £275,000 to invest.

United States

America is the second-most popular country for British expats, with about 830,000 living there. It attracted 10,000 British people in 2012, according to the ONS.

New York and Los Angeles are popular with young professionals, while Florida attracts the retirement set. It can be difficult to get a green card, which entitles you to live and work in the US. If you do secure one, however, the cost of living is typically lower than in the UK.

Health care can be expensive, however. Health insurance is a must since even simple treatments can cost thousands of pounds.

Mr McCluskey said some UK pension schemes allow you to contribute while working in the US, although the tax relief would be slightly lower than if you were based here. This varies from country to country, so check whether it is tax-efficient to pay into a UK scheme when working abroad.

As with Australia, once you retire a public-sector pension will be taxed in the UK and a private pension will be taxed in the US. However, in America (and most of Europe) your state pension will increase in line with any increases in the UK.

The downside is that most people living in the US will not be able to take a 25pc tax-free lump sum from their pension.

• Tax: 10pc to 39.6pc.

• Housing: Average properties have been selling for £90,000 in Florida.

• Health care: Private insurance is a necessity. A 50-year-old can expect to pay more than £3,000 a year for cover.

• Getting in: Green cards are notoriously difficult to obtain, unless you have a US relative or your employer sponsors you.