I've been resident in Canada for several years (dual UK-Canadian citizen) and not filed a tax return in the UK since leaving. Following a family bereavement, I've received an inheritance which will provide income from the UK, made up of both rental and royalty income.

Previously the income was paid to my relative before tax and they paid the tax in the UK. I realize that I am required to declare and pay tax on my worldwide income when I file on my Canadian return, but will I also need to file a UK tax return?

I'm looking for some guidance here from your wealth of experience as I've yet to find anyone locally who knows anything about international accounting. Thanks!

I have been out of the UK for too long for you to consider this as definitive advice, but from what I remember:

a) you are required to file a UK tax return if you owe tax in the UK. However, you may not.

b) the rental income is taxable in the UK but you still keep your personal allowances. If your profit is less than your personal allowance(s) you don't need to file a UK return unless HMRC asks you to. Join the non-resident landlord's scheme so that your tenants do not have to withhold taxes on your rent.

c) depending on the nature of the royalties they may be tax free in the UK or subject to a 10% withholding tax. If subject to the withholding tax this is the limit of your liability for UK taxes so no need to file a return.

All income is taxable in Canada but you will get credit for any UK taxes paid.

If the inheritance is substantial - several hundred thousand pounds or more - then there are some creative things you can do with non-resident trusts to shelter the inheritance, and the income it produces, from Canadian taxes for a period of time, and to flow the income through to family members.

I am not sure this is correct:
http://www.hmrc.gov.uk/cnr/self_assess.htm

The introductory paragraph of the page you link to:

UK income - general information

If you have income in the UK which has not been exempted under a Double Taxation treaty, this income generally remains liable to UK tax. You may be entitled to Personal Allowances that can be set against your UK income. If your UK income is more than your allowance you are likely to have a tax liability and may need to complete a Self Assessment return.

The two circumstances when you must file a return are:

1) Your rental profit exceeds your personal allowances - i.e. you owe tax to the UK government

2) HMRC ask you to file a return.

If you look at the context of the paragraph you quote it is for people who receive a request to file a self-assessment tax return. Do they have to complete and file it? As in 2) above, yes.

There is a UK Non-resident landlord scheme which you need to apply to, this will enable you to get your rent income tax free.

http://www.hmrc.gov.uk/cnr/nr_landlords.htm

You will have to declare this income on your Canadian tax return as there is an agreement between UK & Canada that generally means you get taxed on worldwide income where you are resident. (e.g. Double Taxation Agreement)

JB

That's strange isn't it - I read that page entirely differently.

To me, the first highlighted para below indicates that if your income, from any source, is higher than your allowance, you may need to complete a self-assessment return. This seems a general introduction including people whose pension, bank interest etc is their income source.

The second highlighted section concerns those who must (needs to)complete a self assessment return such as overseas landlords, company directors, etc - this seems explicit and regardless of the sums concerned..

This latter section says "you will need to complete a self assessement reassessment are a non-resident landlord". The next section afterwards goes back to the "you may need to complete if you are a crown employee..."

Quite a poorly written page from HMRC - still, if people do not have to self-assess if their profit is less that GBP7K, that should save a lot of people a fair chunk of hassle, so well spotted.

This scheme (NRL1) means that the the letting agent or tenant does not have to withhold 20% of the rent each month and pay it directly to HMCE, it does not mean that there isn't a UK tax liability at the end of the year and that, if your profit is above the UK allowances, you have no UK tax to pay.

My understanding is that you may still have UK tax to pay on rental income, but can deduct the tax already paid on your Canadian return (to prevent double taxing).

I agree the wording is not clear. Maybe look at another page on their website: http://www.hmrc.gov.uk/cnr/nr_landlords.htm#4


What is the relationship to Self Assessment?

HMRC will tell an agent/tenant not to deduct tax if the non-resident landlord has successfully applied for approval to receive rents with no tax deducted. But rent paid with no tax deducted remains liable to UK tax. So non-resident landlords must include it in any tax return HMRC sends them.

All non-resident landlords who receive rents with no tax deducted will have a tax district.

Some individuals who are not resident in the UK are not sent an annual tax return automatically, even though they have UK rental income. This is because many non-residents will have sufficient UK personal allowances to cover any liability

Thanks for all the information. When it is difficult to interpret as this seems to be, we could be doing the wrong thing with the best of intentions. I think we are going to need an accountant with international experience.


I've sent you a pm Jon.

My tuppence worth....fill out the Self Assessment forms and declare the lot. Let HMRC decide what is and is not applicable for tax.

I have been renting out a house since moving to Canada in 2008. When it came to doing the first UK return, HMRC dithered forever deciding if they wanted me to complete Self Assessment. They sent me letters saying that I did not have to complete a return, followed by letters saying that I did have to complete a return, and on and on, back and forward.

Eventually I submitted a tax return off my own accord, and was hit with a £100 "late payment charge" for the pleasure of waiting for them to decide if they wanted a return or not. I should point out that the rental property makes a small loss every year, I have no tax liability in the UK.

HMRC appear to have trouble finding their arse with both hands, I would complete the paperwork and avoid being charged.