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Income tax on uk property built while living in canada

Income tax on uk property built while living in canada

Old Jul 25th 2017, 3:17 am
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Default Income tax on uk property built while living in canada

Hey everyone. I have a tax problem that is really confusing me. My wife and I moved to BC in June 2007. At that time we were unaware if we had to fill out official "we are leaving" paperwork so we didn't and just went about getting our new lives set up in BC. I left my uk bank account open to continue with ongoing payments to an endowment policy I had being paying into for 12 years from my first ever house purchase. Between 2007 and 2011 we paid our canadian income taxes and didn't declare any uk income or fill out any uk tax paperwork a we no longer resided there. Between 2011 and 2015 an opportunity arose for me to build a house on a small section of land in the UK that was gifted to me from my dad. Over 4 years I sent home as much money as I could (about £85,000) and made numerous trips to uk to carry out work myself as I am a carpenter to trade. By early 2015 the house was complete and we were the proud owners of a home in canada (joint mortgage with wife) and a home in uk (owned by myself). I planned on renting the house out and having as an investment should we ever return to live in uk. At this time I was advised by a uk accountant that since the annual income I made on the UK property was small (under 10,000) I did not have to declare it. So, that being said, for 2015 and 2016 I submitted my tax return in canada as usual with no mention of uk property or income. Recently I have really started looking into the rules for tax on uk income and I have learned that all income on uk property should be declared on canadian tax return, and not only that, investments outside of Canada with greater than $100,000 need to be declared using a special form. Today I went to my accountant and explained my situation. I fully expected them to say I should submit a voluntary disclosure for tax years 2015 and 2016 so as to avoid any penalties on unreported income? But instead I was told they would just re file my returns for these years and include my uk income minus any deductions and pay the amount owed. I have various questions relating to this.

1. Is it as simple as that?
2. Will I incur penalties
3. Can I declare the property now more than 2 years after completion
4. How can I come up with an exact value for the property when it was built over 4 years and with a lot of my own hard work and favors from friends and family
5. Should I also be declaring the property and income to the HRMC

It should be noted that I just want to do everything above board and get my taxes up to date, and also try and minimize any issues should I ever either sell the house or return to uk to live in it. It just seems very complex so any help or experiences would be much appreciated thanks
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Old Jul 25th 2017, 4:10 pm
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Default Re: Income tax on uk property built while living in canada

There will likely be penalties and interest if tax is owed.

T1135 Penalty | WBLI Chartered Accountants

Failure to file Form T1135 on time may result in penalties that accumulate at the rate of $25 for each day you are late, up to a maximum of $2,500. If CRA determines that your failure to report constitutes “gross negligence”, the penalties jump to $500 for each month, up to a maximum of $12,000. However, if you are able to file under the Voluntary Disclosure Program, you may be able to become compliant and avoid these harsh penalties.

Property value would be fair market value, including the land, nothing to do with the cost of construction. See if you can get a real estate agent to write a letter with an estimate of the value in GBP, to convert to CAD use the Bank of Canada FX rate for the day.

I would be filing before CRA find out on their own. Once CRA start an investigation it is too late to self report and make a voluntary disclosure.

You are required to report your worldwide income on your T1 tax return in Canada.
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Old Jul 25th 2017, 4:36 pm
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Default Re: Income tax on uk property built while living in canada

Originally Posted by Kennedyboy View Post
...Today I went to my accountant and explained my situation. I fully expected them to say I should submit a voluntary disclosure for tax years 2015 and 2016 so as to avoid any penalties on unreported income? But instead I was told they would just re file my returns for these years and include my uk income minus any deductions and pay the amount owed. I have various questions relating to this.

1. Is it as simple as that?
2. Will I incur penalties
3. Can I declare the property now more than 2 years after completion
You can just file amended returns for the income but the CRA could assess penalties for repeated failure to report income. They may not if you 'fess up but why give them the opportunity? The penalty for failing to file a T1135 form is $25 a day up to a maximum of $2,500. I do not see any advantage of not doing this by way of a voluntary disclosure.

4. How can I come up with an exact value for the property when it was built over 4 years and with a lot of my own hard work and favors from friends and family
For T1135 purposes it is the cost to you that is relevant. This is going to be c. £85,000 plus the cost of some air tickets.

5. Should I also be declaring the property and income to the HRMC3.
Likely, yes. You should look at the non-resident landlord scheme in the UK. If you are not part of this there is a liability to non-resident withholding tax on the rental income. If you are part of the scheme your net profit will probably be below your personal allowance in which case you only need to file UK tax returns if HMRC ask you to.
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Old Jul 25th 2017, 8:37 pm
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Default Re: Income tax on uk property built while living in canada

Thanks JonboyE

That's what I thought. Apparently my accountant hadn't heard of the voluntary disclosure. I will file my uk income minus deductions and my uk property on form t1335. If I only put value of house down as £85000 then how does that affect me for future capital gains exposure? Let's just say I decide to sell the house and i get the market value price of around £300,000, surely that means I get taxed on a very large capital gains? The actual cost to build the property was way more than what it actually cost me as I was helped by various trades as favors etc, plus the land was a gift and it's worth at least £80000. Surely it would be wise for me to register the property with a value based on an assessment at time of completion? Also, let's say I sell up in canada (home here is main residence so no capital gains) then move back to scotland and live in my house there for a year. Do the Canadian government still have any claim to capital gains tax?
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Old Jul 26th 2017, 8:46 pm
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Default Re: Income tax on uk property built while living in canada

Originally Posted by JonboyE View Post
For T1135 purposes it is the cost to you that is relevant. This is going to be c. £85,000 plus the cost of some air tickets.
I need to correct this. Assuming the land was inherited after the OP moved to Canada "Cost" will include the fair market value of the land when the OP inherited it.
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Old Jul 26th 2017, 10:28 pm
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Default Re: Income tax on uk property built while living in canada

Originally Posted by Kennedyboy View Post
Apparently my accountant hadn't heard of the voluntary disclosure.
That would concern me if it were my accountant.
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Old Jul 27th 2017, 12:38 pm
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Default Re: Income tax on uk property built while living in canada

Originally Posted by Aviator View Post
That would concern me if it were my accountant.
Well, yes, that struck me as odd as well. Finding that my accountant didn't know about a fairly common and basic principle in the taxation system, would rather prompt me to find a new and better accountant!
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Old Jul 29th 2017, 2:47 am
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Default Re: Income tax on uk property built while living in canada

Yes, it is odd but welcome to small town BC.
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Old Jul 29th 2017, 4:27 am
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Default Re: Income tax on uk property built while living in canada

Originally Posted by Kennedyboy View Post
Yes, it is odd but welcome to small town BC.
Professional training and qualifications are the same, regardless of town size. I am guessing it is unlikely the accountant qualified in the same small town.
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