Interest on lump sum
 

Many people end up with a lump sum from their house sale just before emmigrating. What do you do with it?

If the time it is going to be sitting around before you move it coincides well with the fiscal tax year, consider this.

Suppose you have £100k and you (or your spouse) will have little if any income in the UK in the new fiscal year except the interest earned on this money. By putting it into one of the e-banking accounts you can still get up to 5% on it but you will have tax withheld from that bringing it down to say 3.75%. HOWEVER, if you deposit it in a new account and fill out the form to give to your bank declaring that you will earn below the tax free allowance for that year, you can keep most/all of the interest. If your money sits for 3 months in that account, you will gain £312. Money for nothing.

Your money will also be earning a lot more than sitting in a normal bank account to begin with. So even if you can't use this tax avoidance strategy, you will be better of sitting it in an e-bank account. Even after tax, 3.75% vs. say 1.5% in a normal savings account would be £187 for every month it sits. And that assumes your bank account pays 1.5% after tax. Most don't!

So plan what you are going to do when that lump sum comes in. :D

P.S. The math used here is quick and simple. In other words not exactly accurate but the principle is correct. So don't get your knickers in a twist if you think the math is off. Whether you gain £290 or 312 is irrelevant.

Re: Interest on lump sum
 

Egg has a "click here to change your tax status" button. I used it and they haven't deducted a penny of interest from me since.

Re: Interest on lump sum
 

my understanding is that you have to be a uk resident to hold a uk savings account...i discussed the matter with several banks inc egg before we came out here this april

Re: Interest on lump sum
 

Not all, not if you have them before you leave the UK. We have a handful of high interest accounts in the UK.

You can then fill in a form to declare you are non-resident and then the interest is paid tax-free.

Re: Interest on lump sum
 

You can have a UK account if you were a UK resident when you opened the account. You just provide them with a change of address once you have one in Canada and they will even send your statements to you if you want.

You can get the interest tax free but only up to the tax free income limit which is something like £4700 per year. If you earn more interest than that in the account it cannot remain a tax free account.

Unfortunately you can only legally do this WHILE you are resident in the UK. Thus my suggestion to do it with the capital before you move it to Canada. If you continue to hold an account in the UK after you move to Canada, you cannot legally continue to use a tax free account. If you do not inform the bank of your change of address, they will continue to pay the interest into the account tax free but it is illegal. The issue is between you and Inland Revenue, the bank doesn't care. You have indicated you are a UK resident who will earn less than £4700. IF the Inland Revenue have some reason to suspect that you are not living in the country they will most definitley swoop on you from a great height and take all they can get their hands on. ie. tax owed and no doubt a sizeable fine. Since your money is sitting in a UK bank, they can get at it. They can also have your account frozen and lock your money in until the issue is resolved.

I did not suggest that anyone attempt to diddle Inland Revenue. What I suggested was legal. Once you leave the UK it no longer is.

There is a difference between what I have suggested and declaring yourself non-resident to Inland Revenue.

Re: Interest on lump sum
 

There is no law that insists that you be UK resident to have a UK bank account. However many banks in the UK will not open new accounts with non-residents.

The banks in the Channel Islands and Isle of Man are part of the British banking system and are more used to dealing with those resident overseas.


And you still remain liable to tax in Canada, if Canadian tax resident.




At the end of the day your UK tax liability is what it is. If they deduct tax you can always reclaim it from the Inland Revenue (British citizens overseas keep the UK personal allowance).


However Canadian tax residents are taxed on worldwide income. Whether brought into Canada or not.


Jeremy

Re: Interest on lump sum
 

What I suggested is while you are still resident in the UK and subject to UK tax. No Canadian tax payable.





Again true but not relevant to what I suggested.

What I suggested is a strategy to make more off your lump sum and not have to pay UK tax on the interest (up to £4700) while IN the UK.

Attempting to not pay tax once you are IN Canada is another topic altogether. Revenue Canada does require you to report your worldwide income for tax purposes. Whether you do or not is up to you. It just depends on whether you think Revenue Canada is likely to suspect that you are hiding income and has some way of finding out.