RRSP's Cdn & UK Tax Treatment
Nov 12th 2014, 4:17 pm
#46
Forum Regular
Joined: Jul 2014
Location: montreal
Posts: 123
Re: RRSP's Cdn & UK Tax Treatment
I sympathize with you-sometimes it is difficult to get information about taxes on RRIF payments made in the U.K.
Try looking at the following:
http://<b>www.cra-arc.gc.ca/tx/rgstr...g-eng.html</b>
and the Income Tax Conventions Interpretations Act.
which state that a periodic pension payment made in the U.K. from an RRIF will not be taxed in Canada. Subject to the tax treaty and ITCIA. However, other RRIF payments may be taxed in Canada.
Similarly, CPP and OAS payments made to a U.K. resident (non resident of Canada for tax purposes) will not be taxed in Canada.
For RRSP payments made in the U.K. a good starting point is:
https://www.google.ca/#q=uk+tax+on+canadian+rrsp
Under article 17 of the U.K/Canada Tax Treaty, various paragraphs, 90% of your RRIF periodic pension will be subject to U.K. tax at the U.K. taxation band into which you fall. It does not mean that you will pay 90% tax on your RRIF periodic pension. Stitcher's post of 23 Oct 2014 gives an example.
The U.K. taxes income as follows:
If your taxable income's over £31,865 above your Personal Allowance, you pay: 20% basic rate tax on the first £31,865. 40% higher rate tax on taxable income between £31,865 and £150,000. 45% additional rate tax on taxable income over £150,000. U.K. personal allowance is £10,000.00
I am no expert, so as always it is best to get advice. Other than professionals, some of the best advice I got was on Brit Expats from those back home who have direct experience of paying tax in the U.K.
Good luck.
Try looking at the following:
http://<b>www.cra-arc.gc.ca/tx/rgstr...g-eng.html</b>
and the Income Tax Conventions Interpretations Act.
which state that a periodic pension payment made in the U.K. from an RRIF will not be taxed in Canada. Subject to the tax treaty and ITCIA. However, other RRIF payments may be taxed in Canada.
Similarly, CPP and OAS payments made to a U.K. resident (non resident of Canada for tax purposes) will not be taxed in Canada.
For RRSP payments made in the U.K. a good starting point is:
https://www.google.ca/#q=uk+tax+on+canadian+rrsp
Under article 17 of the U.K/Canada Tax Treaty, various paragraphs, 90% of your RRIF periodic pension will be subject to U.K. tax at the U.K. taxation band into which you fall. It does not mean that you will pay 90% tax on your RRIF periodic pension. Stitcher's post of 23 Oct 2014 gives an example.
The U.K. taxes income as follows:
If your taxable income's over £31,865 above your Personal Allowance, you pay: 20% basic rate tax on the first £31,865. 40% higher rate tax on taxable income between £31,865 and £150,000. 45% additional rate tax on taxable income over £150,000. U.K. personal allowance is £10,000.00
I am no expert, so as always it is best to get advice. Other than professionals, some of the best advice I got was on Brit Expats from those back home who have direct experience of paying tax in the U.K.
Good luck.
Nov 15th 2014, 2:59 pm
#47
Just Joined
Joined: Oct 2014
Posts: 6
Re: RRSP's Cdn & UK Tax Treatment
Hi Maddie,
If you withdraw your RRSP's before leaving Quebec, you will suffer withholding tax and provincial tax - a total of circa 31%. My understanding, and my own experience, is that once converted to a RRIF, AND YOU ARE NON RESIDENT LIVING IN THE UK, you can simply take the statutory withdrawal amount as per CRA rules, or up to 10% of the RRIF balance at January 1st each year. Because of the Canada/UK tax treaty the RRIF withdrawals are not taxed in Canada, however 90% of the amount withdrawn is taxed in the UK at your marginal tax rate - the UK allows the first 10% to be tax free. Unless you need the funds then the RRIF route is your best option. Bear in mind that if you withdraw the RRSP's in Canada you will have to file a tax return in Canada to include the RRSP withdrawal as taxable income, with the tax withheld on the RRSP being a credit to your overall tax due. The UK now has a personal allowance of £10,000 before any tax is incurred so bear that in mind as well.
If you withdraw your RRSP's before leaving Quebec, you will suffer withholding tax and provincial tax - a total of circa 31%. My understanding, and my own experience, is that once converted to a RRIF, AND YOU ARE NON RESIDENT LIVING IN THE UK, you can simply take the statutory withdrawal amount as per CRA rules, or up to 10% of the RRIF balance at January 1st each year. Because of the Canada/UK tax treaty the RRIF withdrawals are not taxed in Canada, however 90% of the amount withdrawn is taxed in the UK at your marginal tax rate - the UK allows the first 10% to be tax free. Unless you need the funds then the RRIF route is your best option. Bear in mind that if you withdraw the RRSP's in Canada you will have to file a tax return in Canada to include the RRSP withdrawal as taxable income, with the tax withheld on the RRSP being a credit to your overall tax due. The UK now has a personal allowance of £10,000 before any tax is incurred so bear that in mind as well.
Nov 16th 2014, 3:43 pm
#48
BE Newbie
Joined: Jan 2013
Location: Hadleigh, Essex
Posts: 48
Re: RRSP's Cdn & UK Tax Treatment
Hi everyone I also have this problem, at present my RRSP is stuck in Canada, I have tried, without much success, to gain answers on the best way of getting my funds back to the UK but it would appear that I would lose 25% of the value of my RRSP if I did so even if I were to transfer into a Personal Pension.
It seems unfair that there is no penalty when you transfer your UK pension via QROPS to Canada but can't do the same to return it if you have to come back. When I moved my funds originally I never envisaged returning to the UK but my marriage broke down and I was left with no option but to return.
Any advice would be so appreciated.
Back2Blighty
It seems unfair that there is no penalty when you transfer your UK pension via QROPS to Canada but can't do the same to return it if you have to come back. When I moved my funds originally I never envisaged returning to the UK but my marriage broke down and I was left with no option but to return.
Any advice would be so appreciated.
Back2Blighty
Nov 17th 2014, 6:00 am
#49
Just Joined
Joined: Oct 2014
Posts: 6
Re: RRSP's Cdn & UK Tax Treatment
It does appear that there is no way to transfer RRSP's to the UK, even as a reversal of a previous transaction.
The only consolation is that you are not taxed in the UK when you bring the funds back, unless the amount that you bring takes you into the top rate threshold. Of course you could put the money brought back into a SIPP in the UK and get tax relief on the contributions.
Prior to moving the pension funds to Canada you would have had tax relief on the contributions at your marginal rate, at the time if the contributions - lets assume 20%. On a simplistic basis, £1000 transferred to Canada would have cost you £800 after basic rate tax relief. That same £1,000 subsequently withdrawn from your Canadian RRSP would give you £750. Of course, any growth in the fund or exchange rate movement are other factors. Placing the £750 into a new UK pension, after basic rate tax relief, would give you a fund value of £937.50. So an overall loss of £62.50.
A lot depends upon the value of your pension fund, how it is invested and where you see the best opportunity for returns. Exchange rate is also a factor as is your tax position in the UK. If you are not working in the UK then draw funds out in Canada and file a Canadian tax return to get a tax refund - I believe that a person can still do this, but the amount will be taxable in the UK subject to other taxable income. The level of Canadian withholding tax depends on the amount withdrawn and if you were in Quebec subject to Provincial tax as well. Hope this was useful. E & O E.
The only consolation is that you are not taxed in the UK when you bring the funds back, unless the amount that you bring takes you into the top rate threshold. Of course you could put the money brought back into a SIPP in the UK and get tax relief on the contributions.
Prior to moving the pension funds to Canada you would have had tax relief on the contributions at your marginal rate, at the time if the contributions - lets assume 20%. On a simplistic basis, £1000 transferred to Canada would have cost you £800 after basic rate tax relief. That same £1,000 subsequently withdrawn from your Canadian RRSP would give you £750. Of course, any growth in the fund or exchange rate movement are other factors. Placing the £750 into a new UK pension, after basic rate tax relief, would give you a fund value of £937.50. So an overall loss of £62.50.
A lot depends upon the value of your pension fund, how it is invested and where you see the best opportunity for returns. Exchange rate is also a factor as is your tax position in the UK. If you are not working in the UK then draw funds out in Canada and file a Canadian tax return to get a tax refund - I believe that a person can still do this, but the amount will be taxable in the UK subject to other taxable income. The level of Canadian withholding tax depends on the amount withdrawn and if you were in Quebec subject to Provincial tax as well. Hope this was useful. E & O E.
Dec 17th 2014, 6:37 pm
#50
Just Joined
Joined: Dec 2014
Posts: 1
Re: RRSP's Cdn & UK Tax Treatment
Long time BE visitor but long since lost my BE login...Interesting thread, it is surprising how little information there is on the web regarding transfers back to the UK.
My scenario is similar but involves a LIRA. I'm mid 40's with a 5 figure Canadian pension pot currently in an employer scheme.
I finish with my Canadian employer this week and move back to the UK. It seems that I should be moving my company pension pot into a LIRA before I go, wait two years, then request non-resident unlocking and pay the Canadian Government the 25% and be done with it. Then move the cash back to the UK just as I'm currently doing with my savings.
On the basis that I will be repaying an equivalent extra amount into a UK pension then I figure the UK tax savings roughly offset the Canadian tax costs (as outlined by the previous post). So apart from a 2 year wait it all balances out.
The question I'm left with though is if the UK government will also tax me when I unlock the LIRA? Reading DT4617 it seems that I may be liable to UK tax if my LIRA 'disposes of any funds' (by which I'm assuming that means stocks/shares etc not cash), if that's the case I'm tempted to simply let the money sit in the LIRA as cash for two years to avoid the additional hassle of a UK tax obligation.
Does anyone have any specific experience/advice on how DT4617 works in this case?
My scenario is similar but involves a LIRA. I'm mid 40's with a 5 figure Canadian pension pot currently in an employer scheme.
I finish with my Canadian employer this week and move back to the UK. It seems that I should be moving my company pension pot into a LIRA before I go, wait two years, then request non-resident unlocking and pay the Canadian Government the 25% and be done with it. Then move the cash back to the UK just as I'm currently doing with my savings.
On the basis that I will be repaying an equivalent extra amount into a UK pension then I figure the UK tax savings roughly offset the Canadian tax costs (as outlined by the previous post). So apart from a 2 year wait it all balances out.
The question I'm left with though is if the UK government will also tax me when I unlock the LIRA? Reading DT4617 it seems that I may be liable to UK tax if my LIRA 'disposes of any funds' (by which I'm assuming that means stocks/shares etc not cash), if that's the case I'm tempted to simply let the money sit in the LIRA as cash for two years to avoid the additional hassle of a UK tax obligation.
Does anyone have any specific experience/advice on how DT4617 works in this case?
Jan 23rd 2015, 4:25 pm
#51
Forum Regular
Joined: Jul 2005
Posts: 63
Re: RRSP's Cdn & UK Tax Treatment
Hi
Similar question around RRSPs left in Canada. My wife left Canada 6 years ago and is now resident in UK, married to me a UK citizen. She has RRSPs totalling around $70,000 with TD Canada Trust. She is 51, does not work in UK. My reading of this is that she could close these and move the funds to UK and incur 25% withholding tax or she could leave them, they move to RRIFs and provided she only withdraws a limited amount each year, could do that without any Canadian tax. We are trying to figure out what is best use of those funds, leave where they are and take in retirement, or take them out with the tax hit but invest in something in the UK. Is there anything else to think about in this decision? And any recommendations? Thanks!
Similar question around RRSPs left in Canada. My wife left Canada 6 years ago and is now resident in UK, married to me a UK citizen. She has RRSPs totalling around $70,000 with TD Canada Trust. She is 51, does not work in UK. My reading of this is that she could close these and move the funds to UK and incur 25% withholding tax or she could leave them, they move to RRIFs and provided she only withdraws a limited amount each year, could do that without any Canadian tax. We are trying to figure out what is best use of those funds, leave where they are and take in retirement, or take them out with the tax hit but invest in something in the UK. Is there anything else to think about in this decision? And any recommendations? Thanks!
Jan 23rd 2015, 6:55 pm
#52
Just Joined
Joined: Aug 2011
Location: sunny Deal
Posts: 15
Re: RRSP's Cdn & UK Tax Treatment
We had the same amount in my wife's RRSP with TD. When we left Canada it was converted to a RIFF. When she turned 60 last year we got a note from TD saying they were beginning the payout. Unfortunately TD cannot direct deposit to a UK bank so we took it as a bank draft. UK bank charged 12 quid to deposit a foreign cheque. It's the cost of doing business.
25% of $70,000 is $17,500. That's a lot of coin to lose. Also consider the current exchange rate, the Loonie isn't great right now.
We decided for our circumstance to take the minimum payout annually therefore no Canadian tax. As my wife doesn't work she pays no tax on the money here, mind you it's not a big payout but it's nice to eventually get the whole pot tax free.
For the amount of money you could possibly lose I would spend a bit to talk to a tax expert.
25% of $70,000 is $17,500. That's a lot of coin to lose. Also consider the current exchange rate, the Loonie isn't great right now.
We decided for our circumstance to take the minimum payout annually therefore no Canadian tax. As my wife doesn't work she pays no tax on the money here, mind you it's not a big payout but it's nice to eventually get the whole pot tax free.
For the amount of money you could possibly lose I would spend a bit to talk to a tax expert.
Jan 23rd 2015, 8:29 pm
#53
BE Enthusiast
Joined: Mar 2003
Location: Toronto
Posts: 642
Re: RRSP's Cdn & UK Tax Treatment
We had the same amount in my wife's RRSP with TD. When we left Canada it was converted to a RIFF. When she turned 60 last year we got a note from TD saying they were beginning the payout. Unfortunately TD cannot direct deposit to a UK bank so we took it as a bank draft. UK bank charged 12 quid to deposit a foreign cheque. It's the cost of doing business.
25% of $70,000 is $17,500. That's a lot of coin to lose. Also consider the current exchange rate, the Loonie isn't great right now.
We decided for our circumstance to take the minimum payout annually therefore no Canadian tax. As my wife doesn't work she pays no tax on the money here, mind you it's not a big payout but it's nice to eventually get the whole pot tax free.
For the amount of money you could possibly lose I would spend a bit to talk to a tax expert.
25% of $70,000 is $17,500. That's a lot of coin to lose. Also consider the current exchange rate, the Loonie isn't great right now.
We decided for our circumstance to take the minimum payout annually therefore no Canadian tax. As my wife doesn't work she pays no tax on the money here, mind you it's not a big payout but it's nice to eventually get the whole pot tax free.
For the amount of money you could possibly lose I would spend a bit to talk to a tax expert.
Jan 25th 2015, 5:41 am
#54
Forum Regular
Joined: Dec 2011
Posts: 193
Re: RRSP's Cdn & UK Tax Treatment
Question, were those that were advised to move their UK funds to Canada told that this was pretty much a one way move? Expats in Australia often face similar issues and they could well have a justifiable claim against the adviser that did not mention all of this at outset and did not take into account the possibility of return to the UK.
Feb 5th 2015, 2:52 am
#55
Just Joined
Joined: May 2007
Posts: 3
Re: RRSP's Cdn & UK Tax Treatment
I've read this entire thread I don't know how many times, and am utterly confused! I have a five-figure sum in an RRSP and am trying to get ahead of the game ahead of a planned move back to the UK in a few years.
It looks like converting to a RRIF is one option, but this seems to be a long drawn out strategy that would take decades to recover all the money (I'm in my early thirties). Laws possibly changing and currency fluctuations make this all the more complicated. All my contributions have had relief at the higher tax bands, so am thinking about just cutting my losses and withdrawing as a non-resident at 25%, but a few posts in this thread have raised my concern that:
1) I might be subject to Capital Gains Tax in the UK? Or is that just on RRSPs that are left open?
2) Some suggestions that there might be UK income tax due on the amount withdrawn if I was a higher rate tax payer in the UK?
3) The 25% withholding tax in Canada might not be the full total of the amount I owe, just the amount withheld? Would this create a tax debt that might come back and bite me if I moved back to Canada at a later date?
Ideally I'd like to get all this figured out this month because if it is, in fact, as simple as getting ~35-40% tax relief now, then paying 25% and nothing else later, I might as well pile as much as I can into my RRSP before this year's contribution deadline, and in the years until I leave... otherwise, I might want to stop all contributions to reduce the headaches.
It looks like converting to a RRIF is one option, but this seems to be a long drawn out strategy that would take decades to recover all the money (I'm in my early thirties). Laws possibly changing and currency fluctuations make this all the more complicated. All my contributions have had relief at the higher tax bands, so am thinking about just cutting my losses and withdrawing as a non-resident at 25%, but a few posts in this thread have raised my concern that:
1) I might be subject to Capital Gains Tax in the UK? Or is that just on RRSPs that are left open?
2) Some suggestions that there might be UK income tax due on the amount withdrawn if I was a higher rate tax payer in the UK?
3) The 25% withholding tax in Canada might not be the full total of the amount I owe, just the amount withheld? Would this create a tax debt that might come back and bite me if I moved back to Canada at a later date?
Ideally I'd like to get all this figured out this month because if it is, in fact, as simple as getting ~35-40% tax relief now, then paying 25% and nothing else later, I might as well pile as much as I can into my RRSP before this year's contribution deadline, and in the years until I leave... otherwise, I might want to stop all contributions to reduce the headaches.
Last edited by CrazyLegsLarry; Feb 5th 2015 at 2:55 am. Reason: Grammar
Feb 5th 2015, 4:57 am
#56
BE Enthusiast
Joined: Sep 2003
Location: Christina Lake. BC
Posts: 674
Re: RRSP's Cdn & UK Tax Treatment
I've read this entire thread I don't know how many times, and am utterly confused! I have a five-figure sum in an RRSP and am trying to get ahead of the game ahead of a planned move back to the UK in a few years.
It looks like converting to a RRIF is one option, but this seems to be a long drawn out strategy that would take decades to recover all the money (I'm in my early thirties). Laws possibly changing and currency fluctuations make this all the more complicated. All my contributions have had relief at the higher tax bands, so am thinking about just cutting my losses and withdrawing as a non-resident at 25%, but a few posts in this thread have raised my concern that:
1) I might be subject to Capital Gains Tax in the UK? Or is that just on RRSPs that are left open?
2) Some suggestions that there might be UK income tax due on the amount withdrawn if I was a higher rate tax payer in the UK?
3) The 25% withholding tax in Canada might not be the full total of the amount I owe, just the amount withheld? Would this create a tax debt that might come back and bite me if I moved back to Canada at a later date?
Ideally I'd like to get all this figured out this month because if it is, in fact, as simple as getting ~35-40% tax relief now, then paying 25% and nothing else later, I might as well pile as much as I can into my RRSP before this year's contribution deadline, and in the years until I leave... otherwise, I might want to stop all contributions to reduce the headaches.
It looks like converting to a RRIF is one option, but this seems to be a long drawn out strategy that would take decades to recover all the money (I'm in my early thirties). Laws possibly changing and currency fluctuations make this all the more complicated. All my contributions have had relief at the higher tax bands, so am thinking about just cutting my losses and withdrawing as a non-resident at 25%, but a few posts in this thread have raised my concern that:
1) I might be subject to Capital Gains Tax in the UK? Or is that just on RRSPs that are left open?
2) Some suggestions that there might be UK income tax due on the amount withdrawn if I was a higher rate tax payer in the UK?
3) The 25% withholding tax in Canada might not be the full total of the amount I owe, just the amount withheld? Would this create a tax debt that might come back and bite me if I moved back to Canada at a later date?
Ideally I'd like to get all this figured out this month because if it is, in fact, as simple as getting ~35-40% tax relief now, then paying 25% and nothing else later, I might as well pile as much as I can into my RRSP before this year's contribution deadline, and in the years until I leave... otherwise, I might want to stop all contributions to reduce the headaches.
Glad I am not the only confused
by this I am in a similar situation may go back to the UK for a few years, but may still come back to Canada after 25% is a lot to lose if there is a way round this.
Feb 5th 2015, 11:57 pm
#57
Just Joined
Joined: May 2007
Posts: 3
Re: RRSP's Cdn & UK Tax Treatment
If you receive Canadian income that is subject to Part XIII tax:
Canadian payers, including financial institutions, must deduct Part XIII tax when the income is paid or credited to you.
The Part XIII tax deducted is your final tax obligation to Canada on this income (if the correct amount is deducted).
The usual Part XIII tax rate is 25% (unless a tax treaty between Canada and your home country reduces the rate).
Part XIII tax is not refundable. Therefore, do not file a Canadian tax return to report the income unless you elect to file a return because you receive either:
Canadian rental income from real or immovable properties or timber royalties (see T4144, Income Tax Guide for Electing Under Section 216);
certain Canadian pension income (Electing under section 217).
Canadian payers, including financial institutions, must deduct Part XIII tax when the income is paid or credited to you.
The Part XIII tax deducted is your final tax obligation to Canada on this income (if the correct amount is deducted).
The usual Part XIII tax rate is 25% (unless a tax treaty between Canada and your home country reduces the rate).
Part XIII tax is not refundable. Therefore, do not file a Canadian tax return to report the income unless you elect to file a return because you receive either:
Canadian rental income from real or immovable properties or timber royalties (see T4144, Income Tax Guide for Electing Under Section 216);
certain Canadian pension income (Electing under section 217).
OK, so I seem to be zeroing in on an answer the question 3: the above quote seems to clearly state that 25% is all that Canada would want when that money was withdrawn.
To try to figure out the answers to my first two questions related to my UK tax obligations, I then used the calculator to determine the amount of tax payable on a given lump sum from an RRSP. The following incomprehensible note followed the calc:
Where pursuant to the provisions of a tax convention (e.g. convention with U.K.), income from sources in a country (e.g. Canada) is either exempt from tax or taxed at a reduced rate in that country (Canada), and in the other country (U.K.) the same income is not subject to tax by reference to the full amount of income but rather to the amount that is remitted to or received in that other country, then the exemption or reduction of tax to be allowed under the convention in the first-mentioned country (Canada) will also belimited to the amount of the income remitted to or received (or taxed) in the other country (U.K.).
