How To Do It: It pays to take tax advice from experts

There are many Gulf-based expatriates who fancy themselves as tax experts even though they have never studied the subject. The simple advice is to give such 'gurus' a wide berth and allow them to bore some other fellow human being. Not only that, they could well cost you much of your wealth.

The simple message is to get professional tax advice from a taxation expert. Such advice will indeed cost money but will ultimately save money.

Do not forget that tax laws are continually in a state of flux so ensure that any advice is current and correct.

Bad tax advice will normally be worse than no tax advice but under both scenarios it will cost money.

Depending on the country of origin, there is a very good chance that the local taxman will be knocking on your door very soon after you return home.

The main tax in most places is income tax that is levied on many sources of income including earnings, interest, dividends and trading profits and never forget these can apply even if you are non-resident.

Not satisfied with their haul from this tax, other taxes have been introduced such as capital gains tax, inheritance tax, stamp duty and VAT to name but four of the main revenue earners for many governments.

In Australia, they also have a fringe benefits tax that causes even further headaches for the taxpayer and provides more money for the government coffers.

The following example will illustrate what could happen to any national, currently working and residing in the Gulf, who decides to invest in the burgeoning UK residential market.

There are parallels that can be drawn with many other countries.

It must be stressed that the example is only being used for illustrative purposes to indicate the potential pitfalls when tax is ignored and what tax liability can arise for the naïve investor.

Suppose a property has been bought for £400,000 of which say the Australian investor, Bruce, has put in £120,000 and taken out a £280,000 loan for the balance. Because he had been told that it would be better for him to have a company buy the property, he puts the total amount into that company which then subsequently bought the investment residence.

Bruce kept the house for one year during which time he received £32,000 rental income from another Australian expatriate who was learning to play rugby in England. Having seen the market jump 20 per cent in that year Bruce decided to sell his house for £480,000.

The Blair government is very happy because Bruce would have paid three per cent Stamp Duty amounting to £12,000 whilst the new buyer will pay again a further £14,400. This could have been reduced quite considerably if Bruce had taken the right tax advice.

The investment made a profit of £80,000 (the difference between the buying and selling price) resulting in a tax liability. Ignoring what would be minimal indexation relief, the UK company set up by Bruce would incur a 30 per cent tax bill amounting to £24,000.

But what he was not to know was that if he had set up an offshore company, there is no capital gains tax on non-UK resident persons or companies. On acquiring the property, the company would have been hit with a 17.5 per cent VAT bill of £70,000 on the purchase price.

The VAT man does not wait for payment so the beleaguered Australian would have to find this money fairly quickly.

It has to be noted that he could reclaim this money if he became VAT-registered but until that happened he would have had to wait for any refund.

You might have thought that the taxman should be content with the proceeds to date but no - he will claim another 30 per cent corporation tax on the rental income costing Bruce a further £9,600.

This could have been reduced if the company had been an offshore vehicle, reducing the tax liability to 22 per cent.

Furthermore if the company - rather than Bruce himself - had borrowed the money then any interest incurred could have been offset against the rent received. Taking this route would have had the luckless antipodean's income tax down to £880.

The shock of paying a lot more tax than he should have done - as well as seeing his fellow Australian Peter Foster upsetting the Blairs - was too much for Bruce and he died. He left all his earthly wealth to his son Rolf.

Indeed the UK taxman will still have the last laugh by an inheritance tax of around 30 per cent on the assets previously owned by Bruce in the UK.

Little did he know that if the property had been owned through an offshore company, there would have been no inheritance tax payable of a further £140,000.

If tax is to be avoided altogether, stay well clear of any country that has a tax regime. If you are residing and working in the Gulf and you have assets in any country with a tax regime or you are returning to live in such a country, it will always pay to take advice now rather than wait.

The writer is managing director of Al Ghaith & Co, public accountants, and financial writer.