x Abu Dhabi, UAEThursday 27 July 2017

On Your Side: Worker should be paid for unused holidays

Plus questions about gifts and inheritance taxes, end-of-service payments and more answered by The National's consumer advocate.

I have recently resigned from my company after working there for a little over three years. I am not sure if the company has calculated my final payment properly. I know that my end-of-service gratuity is reduced by my resigning, but what does the law say about holiday pay? My employer is saying that it is my fault if I haven't taken any days of holiday so far this year and that they will be "lost", meaning I won't be paid for the days that I have accrued but not taken. Am I entitled to this holiday pay? CD, Abu Dhabi

UAE Labour Law states that an employee with this amount of service is entitled to 30 days' annual leave and it is assumed that this builds up pro-rata during the year. This also means that if an employee leaves service, they are entitled to days of annual leave in the same way and if days have not been taken, then they should be paid in lieu. These days are not forfeited as this employer has suggested. In fact, an employee who is leaving is entitled to be paid for any untaken days of annual leave for the preceding two years. Article 79 of the UAE Labour Law states that "an employee is entitled to receive cash in lieu on annual leave days not availed by him". Your employer needs to be advised of the correct procedure.

 

I read your answer to a recent question on UK Inheritance Tax (IHT) with great interest. I have another question for you on the same topic. My wife is Spanish and quite a few years younger than me. Would that make any difference to the fact that we could transfer my half of our assets to her tax free in the event of my death? JB, Abu Dhabi

The writer of the letter is British and the fact that his wife is considered a foreign national and is not domiciled in Britain makes a difference to the usual IHT rules. All transfers between spouses or civil partners are exempt from IHT, but only if they are both domiciled in the UK, even if they are not living together. A problem arises if the spouse who is receiving the "gift" (any assets left by the deceased spouse on death) is not UK domiciled (or "deemed" domiciled), in which case the exemption only applies to the first £55,000 (Dh327,840) of assets transferred (on a cumulative basis). The balance of the deceased's estate may still be covered by the nil-rate band, although this is becoming less common because allowances have not changed for a few years. This is the amount that can be gifted before any tax liability. In the current tax year, this stands at £325,000. Assets to the value of the nil-rate band could also pass without IHT, but the balance would be subject to IHT, at a current tax rate of 40 per cent. There may also be taxes to pay in Spain or elsewhere, dependent on residence at time of death. Because JB is somewhat older than his wife, he is statistically likely to predecease her. He may, therefore, like to take into consideration that under current UK legislation, any gifts made to individuals will be exempt from IHT as long as the donor lives for seven years after making the gift. These sorts of gifts are known as "Potentially Exempt Transfers", or PETs. It could be beneficial to use this in tax planning, but I recommend that professional advice be taken.

 

I'm thinking of assisting in the payment of nursery fees for my grandson in the UK. The necessary funds will be transferred from my UAE bank account directly to the nursery. Would there would be any tax liability on the recipient/beneficiary, in this case, my daughter? MJ, Dubai

In short, there should be no tax liability for your daughter. You can remit income earned overseas free of UK tax provided you are deemed a UK non-resident for tax purposes. Gifts to individuals can have a liability if they exceed £3,000 per tax year, but not if the donor survives this by seven years or more. One way of gifting money without any tax liability, which is often overlooked, is that individuals may make unlimited gifts out of what is called "surplus income". This means that if a payment can be made, no matter how regular from earnings, instead of capital, then Her Majesty's Revenue & Customs has no claim on it.

 

I have read a number of letters and answers about people resigning from their jobs and their gratuity being reduced as a result. I have taken into account the amount I would receive on leaving the UAE, but am now worried that this will be less than I originally thought because I had not realised that people are penalised for changing jobs. I have no immediate plans to leave, but expect to do so in the next couple of years. I would appreciate some clarification as to what I could receive so I can plan accurately. KM, Dubai

The end-of-service gratuity is only reduced for employees who have worked for an individual employer for a period of five years or less. KM has been with his company for about 4.5 years on an unlimited contract, so by the time he leaves, he will be entitled to the full amount. This is based on his final salary, plus commission if this is a regular feature of his salary per his employment contract. It is calculated at 21 days' salary for each of the first three years and 30 days for each additional year, calculated pro-rata for partial years. However, there is a condition that the total payment must not exceed two years of salary.

Keren Bobker is an independent financial adviser with Holborn Assets in Dubai. Write to her at keren@holbornassets.com with queries for this column or for advice on any other financial planning matter.

onyourside@thenational.ae