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Sam
Sam, Accountant
Category: Tax
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Im a UK citizen living in Canada last 3 years.

Resolved Question:

Hello, im a UK citizen living in Canada for the last 3 years. i am planning on staying in Canada long-term. Approximately 2 years ago i 'incorporated' here in Canada which i am legally entitled to do and is fairly standard practice amongst doctors trying to limit and defer their tax dues. Any income not drawn down as a salary only incurs a corporation tax rate of 12.5%. The remainder can then be placed in various investment vehicles in preparation for retirement.
I am now looking to purchase a house here in Vancouver, unfortunately prices are very high and i am considering using some of my UK home equity to help. It is permissible here in BC to have my corporation 'buy' my properties in the UK (i own two properties and around 300,000 GBP in equity) without title transfer. This would mean my corporation owed me 300,000 GBP and allow me to take this amount from the corporation paying corporation tax only rather than income tax.
My question or rather my Canadian accountant's question relates to reporting to HMRC in the UK. Prior to proceeding with the transfer of my Uk properties to the corporation he would like to know if there are any significant UK tax implications or changes to reporting that would need to undertaken?
For completeness sake i should point out that prior to leaving the UK i used to complete self-assessment tax returns. Since leaving i no longer complete these. My only UK income is from the properties and totals just under approx 20k gross/ 7k net. My UK income has been declared in Canada which taxes international income rather than domestic only. i have completed non-resident landlord declarations for both properties and do not pay any UK tax on the income at present.
i look forward to any guidance you can give me.
kind regards
A
Submitted: 1 year ago.
Category: Tax
Expert:  Sam replied 1 year ago.
Hi
Thanks for your question - I am Sam and I am one of the UK tax experts.
You would have a consideration of all properties that you transfer, and if they had mortgages on them also a consideration for stamp duty and regardless of the transfer you would still have a tax arising on the UK income generated in the UK following recent changes to legislation
See link here https://www.gov.uk/government/publications/technical-briefing-on-foreign-domiciled-personsinheritance-tax-residential-property-changes/technical-briefing-on-foreign-domiciled-personsinheritance-tax-residential-property-changes
I fear his is a very costly and non tax efficient way to proceed from the UK tax position.
Let me know if I can expand any furtehr on my response
Thanks
Sam
Customer: replied 1 year ago.
Hi Sam, thanks for your response.Ive read the guidance on the link. A couple of thoughts regarding this, firstly by Dec 2016 i will have spent more than 5 years of the last twenty outside the uk so will i believe qualify for non-dom status under the new guidelines. The total values of the properties is significantly less than 1 million GBP combined and so i think i would still be spared IHT(presumably though they would be subject to CGT should i dispose of them earlier?). The tax on the income from the properties (net income after expenses) is not a significant consideration for me as the figures we are talking about are relatively lowCan you please outline more specifically what the considerations on transferring the properties to the corporation would be, given that the title is not transferred. I have mortgages on both properties.many thanksA
Expert:  Sam replied 1 year ago.
Hi
Thanks for your question
If the properties still have mortgages on them and you do not plan on transferring the title deeds then how can you possibly transfer the ownership to the corporation? Please could you expand how this can be possible
I can then respond re the non dom position (you advised that you only left the UK 3 years ago - was it then 4 years ago)
Thanks
Sam
Customer: replied 1 year ago.
Hi SamPrior to coming to canada i was in Australia for one year. I left the UK in Dec 2011 and have not lived there since, so it will be 4 years out of the UK next month.according to my Canadian accountant; 'CRA accepts what is called a “bare trust agreement”. This is a legal document stating the transfer of ownership has occurred but legal title has not changed. This is done to avoid the property transfer tax in BC.'would there be tax payable in the uk in relation to this bare trust agreement given that there is not transfer of title deed?thanksA
Expert:  Sam replied 1 year ago.
Hi Thanks for the clarification of your additional year out of the UK, which did not see you returning to the UK between leaving Australia and moving to CanadaThen you will remain liable to UK tax on the income that arises and still have a capital gain position when either a sale of a transfer of the title deed arises.But in the UK the sue of any trust is on the proviso that the property is fully owned (so loan/mortgage free)So whilst due to your soon to be 5 years out of the UK, capital gains would be seen as not arising in the UK (as current legislation stands) the income that arises from these properties remains liable to UK tax so self assessment would still be required (but a claim for personal allowances if you are an EU - which includes British would still arise) as would your Uk investments So nothing changes re your obligations to HMRC whilst the assets still generate income in the UK Thanks Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13713
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Customer: replied 1 year ago.
Hi SamJust so i am totally clear on the position.From a UK perspective once i have been out of the UK for 5 consecutive years (Dec 2016, or tax years April 2017) with no return, as things currently stand i will not be liable for CGT if i dispose of either of the propertiesIrrespective of my status it seems i am liable for tax in the UK on any income from my UK properties. Do the UK and Canada have an agreement that you are aware off to prevent a 'double whammy' situation of paying tax in both locations? I paid tax on my UK income from property in Canada last yearIn the UK you state the trust arrangement can only be undertaken if the property is fully owned. No such restriction applies in Canada. If the UK doesn't recognise my Canadian bare trust arrangement im not sure it matters here. Im not sure it changes anything from a taxation perspective in the UKthanks for clarifyingA
Expert:  Sam replied 1 year ago.
Hi Thanks for your response You are correct re the capital gain position and also the rental income position and your UK liability to tax.Yes there is double taxation agreement between the UK and Canada - which means any UK tax you suffer you can ask Canada to offset against their taxation of that income but you are making reference to it being a bare trust - which has no meaning from the UK point of view as its not a trur trust that sees you actually transferring the ownership of the properties into trust. And you should rectify your completion of self assessment tax returns and declaration of the rental income with HMRC as a matter of priority regardless of how low that income is. Thanks Sam

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