chumley

just now sorting out tax and severing everything form the uk at last

got a question thoough and hope someone can advise please?

we arrived in canada april 21st last year and I was going to state residency for tax purposes from that date even though we didnt land until april this year.

Just a thought in may of last year we got some inheritance mr chumleys not mine and we paid an obscene amount of UK inheritance tax on it

now is canada going to want any tax from this if we become canadian resident for tax purposes from april of last year?? ie before we got the inheritance wadge?

I wont be dishonest where tax is concerned as we could quite legitamately say only I was resident for tax purposes in canada from april 2008 as mr chumley went back to the uk last year anyway while I remained in canada

any pointers hugely appreciated
thanks in advance

JonboyE

No problems. There is no inheritance tax in Canada. Instead, there is a deemed disposition of the deceased assets just before their death, and this is taxed on their final tax return. The beneficiaries get the remaining estate tax free. If the deceased was not tax resident in Canada then the Canadian taxing authorities have no interest.

Weather you are tax resident in Canada before or after the death is irrelevant in this case - no tax payable in Canada.

scrubbedexpat091

I got an inheritance last year from my aunt in the US, and Canada Revenue had no interest in it.


You do not have to include certain amounts in your income, including the following:

most gifts and inheritances;

There is a fair amount on the list, just pasted the related info.

http://www.cra-arc.gc.ca/tx/ndvdls/t...nttxd-eng.html

Robbie500

This is not as simple as it looks. As you were domiciles in the UK at the time because you had not landed inheritance tax will apply on your UK assets. Take a look at this link;

http://www.hmrc.gov.uk/CTO/customerguide/page20.htm#4

If its a lot of money I would tale professional advice as there have some well known cases where people have been caught for tax in similar situations.

Almost Canadian

Read the OP's post again. Inheritance tax was already paid in the UK, she was asking about Canada.

chumley

thanks all we have paid a huge sum of inheritance tax in the uk this was all deducted before we got the dosh
so tax where due has all been paid

my question was around canada also wanting a cut but lovely canada does not tax inheritance
plus we were not domiciled in the uk at the time anyway i definitly wasnt mr chumley might be deemed as its not clear cut ( he went back tot the uk for 3 weeks)but for arguement sake we are going for both domiclied in canada from april of last year anyway

you dont have to PR to be deemed domiclied in canada for tax purposes we have lived here and our home has been here for a full year before PR

JonboyE

Domicile is a peculiarity of British tax law and has no application in Canada.

In Canada you are either a tax resident (factual or deemed) or a tax non-resident (again, factual or deemed). Regardless of your status, inheritances and gifts are received tax free in Canada.

Back to the UK. You are domiciled in the country where you have your permanent home AND where you intend to die. A Brit who moves to Canada for 30 years, but intends to return to the UK to retire will be domiciled in Britain. If the same Brit intends to live in Canada for the rest of their life then they are domiciled in Canada (as far as British law is concerned).

Similarly, a foreigner coming to live in Britain will become a tax resident if they stay longer than the prescribed number of days but, unless they intend to live in Britain until they die, they do not become domiciled in Britain. This is crucially important for tax purposes because a person who is resident and domiciled in the UK pays tax on their worldwide income, but someone who is resident but not domiciled only pays UK tax on the part of their income they remit to the UK.

Q. Why do so many super-wealthy people from around the world chose to live in London?

A. Because they can park their wealth in a tax-free haven somewhere, then come to enjoy all the benefits of living in a first world city whilst paying virtually no tax to the UK.

And the relevance to inheritance tax is ......?

Someone who is domiciled in the UK at the time of death is assessed for inheritance tax on their world-wide assets. Someone who is not domiciled in the UK at the time of death is only assessed for inheritance tax on their assets situated in the UK.

So, when the grim reaper comes a-calling, a smart person could liquidate their UK assets and move them overseas, then go and live out their last few days somewhere nice and warm, secure in the knowledge that HMRC could not get their greasy paws on any of their wealth.

To get around this, the UK introduced the notion of deemed domicile. HMRC says that even if you are not domiciled in the UK when you died (or when you made potentially exempt transfers) we will tax you as if you were.

JAJ

A lot of people get very worked up about this (unnecessarily) as there are two highly pertinent points usually forgotten (or omitted):

1. If someone spends many years outside the United Kingdom (and dies in another country, as a citizen of that country), and has moved most of their assets outside the United Kingdom, that is strongly indicative of having acquired a foreign domicile before death.

2. Notwithstanding point #1, if no assets are left in the United Kingdom, the U.K. Inland Revenue is unlikely even to know about an estate probated in a foreign jurisdiction.

3. Notwithstanding points #1 and #2, the ability of the United Kingdom authorities to collect Inheritance Tax on foreign estates varies between zero and highly limited.

Bottom line in all of this is that Inheritance Tax is a real issue on U.K. situate assets but beyond that, it should not usually be a great consideration for those who have permanently moved overseas, super-rich excepted.

JonboyE

I agree entirely with point number one.

I am not so sure about two and three. Just because the taxman doesn't know about an income stream or an asset doesn't make that income/asset non taxable. "Pay the bill in cash Guv and knock the taxman into touch," is not acceptable in the UK, nor should it be acceptable for overseas assets.

I also agree with your last sentence (except the bit about the super-rich). The key word, of course, is permanently.

JAJ

Normally I would agree with you, but Inheritance Tax is not levied on beneficiaries - but instead on a deceased estate. Hard to see how a deceased person can engage in tax evasion. Any why should Canadian executors feel any obligation to get a foreign country involved in taxing a Canadian estate?

In any case, it's semantics ... if someone dies outside the United Kingdom it's normally ex post facto evidence of having become non-domiciled sometime before death and to the extent that executors are even aware of what the Inland Revenue thinks, that should be a baseline stance.

Every case is different but promoting the idea that the United Kingdom Inland Revenue will tax the foreign estates of those who have left the United Kingdom many years earlier, especially if there are no U.K. assets left, is just scaremongering.

If someone is really concerned about this, liquidating assets in the United Kingdom may be a prudent approach, however. Not only does it increase the chance of being deemed to have a foreign domicile, but it reduces the U.K. profile of the estate. It is also prudent to become a Canadian citizen (that's another strong indicator of acquiring a foreign domicile).

JonboyE

I started by trying to explain the difference between residence and domicile for UK tax purposes, as other posters seemed to be confusing the two. The example I used for inheritance tax was someone who chose to leave the UK shortly before they died in the hope of escaping the tax. The deemed domicile rules exist to plug this loophole.

I didn't talk of many years. We have discussed in this forum in the past that the effective time limit for being factually resident and domiciled in another country, but deemed domiciled in the UK for inheritance tax purposes, is three years.

This is not an attempt to promote any ideas, just relaying the rules as they exist. If your experience is that the rules are not applied in practice then that is useful to know.

My initial post was flippant, but then it was intended to be an illustration and not advice. As you know, you don't need to be wealthy for your estate to be subject to inheritance tax. I have always believed that it is an entirely voluntary tax in that it is not difficult to arrange your affairs so that no tax is payable, provided that you plan sufficiently far in advance. If someone reading this was about to make a potentially exempt transfer in their third year in Canada, and could delay it until the forth, this would avoid any deemed domicile issues with HMRC. It is not going to be as relevant to most posters as where to buy bisto granuals, but could be a consideration for one or two. I don't see that raising this as an issue is scaremongering.

JAJ

Using the example of a dual British/Canadian citizen who late in life decides to move from Britain to Canada, liquidates all British assets and makes a will in Canada - I see no realistic way for the Inland Revenue to tax the Canadian estate. They can make whatever rules they like but their ability to enforce their rules stops at the border.

Of course, in this hypothetical case, the estate would fall into the Canadian tax system and realistically - how many people would choose to emigrate in this way late in life unless it happens that their close family and support network is also in another country.


Not so much that. All I am trying to point out is that in the real world, the British authorities cannot tax Canadian estates. I have never heard of a single real life case where they have successfully done this (or even tried) - have you? (in terms of verifiable evidence, not rumour or hearsay).

You need to be in the top 5% of estates, and considering that many people leave no estate at all, I disagree - for many people in Britain and Canada, GBP300000+ represents extreme wealth.

Such a hypothetical person would be better served by paying for professional assistance, not using a free forum.