What is the tax situation with moving equity to Canada for house buying and living expenses? Someone mentioned that the Canadian Govt would want to tax it on it's way into the country which seems a bit harsh given that I've already paid UK tax to accumulate what I have done.

Someone tell me I'll just be taxed on Canadian employment and capital gains accrued since I arrived in Canada.

Thanks for any input.

Rupert

As we have a reciprocal tax agreement with Canada you will not have to pay tax on your house sale as you have already paid tax on it in UK.

MMMMMMMMWah!

The tax treaty is a bit of a red herring.

If you sell your house before you emigrate then you have settled with the Inaldn Revenue in the UK (no tax if it was your main residence). You are then just bringing cash into Canada, and this does not have tax levied on it (tax on piles of cash is otherwise known as "wealth tax" and only a few stupid countries levy this - France, Sweden, Norway - with the inevitable result that all the rich people leave and take their money with them).

If you sell your house after you land then you would be paying capital gains tax, but when you land you are deemed to have reacquired all your assets at fair value on that day. So you would only be due to pay tax on the increase in value since the day you landed, which is almost nothing given the state of the flat UK housing market.

K.

I take it that if you do not intend to sell your UK house, then you need to bring along a very recent valuation of the house when you land in Canada.

Cheers.

Very good idea. In years to come when you need it, you'll be glad you have the piece of paper.

K.

I'm still looking into this whole issue as I still own a house in scotland - I thought that as it is my ONLY property it would not be subject to capital gains - can anyone confirm this?

It certainly wouldn't be liable for CGT in the UK.

I have a meeting with my accountant on Thursday. If this discussion is still going on then, I'll ask him what he thinks.

That all depends. It escapes CGT only if you LIVE in your own house. When you stop living in it, it's no longer your residence and you start to lose the tax break on a pro rata basis (where you pay tax on the proportion of the time you owned it and weren't living in it).

You do get 3 years after leaving it where you are counted as living in it, to give you time to sell it, etc. And there's a special tax break called Letting Relief which can also reduce the bill.

But if you don't sell the house, leave, and in ten years time expect to sell without tax: forget it. You'll get hammered for tax in the UK regardless of what Canada does (and you might get hit by Canada too, if it is sold for more than its value when you landed in Canada).

My advice: sell the house within three years. That will crystalize the tax-free UK gain. If you wait longer than this then every year that goes by a higher and higher proportion of the gain becomes subject to CGT until eventually (after decades) you'll have a whopping tax bill.

Besides, if you're hanging on to the house to keep a toe in the property market then you can take the money tax free now, and then roll it into a new REIT (real-estate investment trust) when Gordy Brown gives them the OK (listen out for this in the budget tomorrow). Rolling it in also avoids being burned by price crashes.

K.

Using phrases like "hammered" is not really all that helpful, as opposed to talking about more specific issues like tax rates.

I thought that those not resident or ordinarily resident in the UK were outside the scope of UK CGT entirely. Has this changed recently?

And even if there is a UK CGT liability ...

The UK taxes capital gains as income, there's a special CGT allowance (or at least there used to be), you have the personal allowance (if a British/EEA/Commonwealth citizen) and the lower rate tax bands. Plus any UK tax payable could well be offsettable against Canadian tax.

Tax should never be the only consideration in making financial decisions.

Yes, "hammered" is a subjective term. The tax rate goes from 0% to a marginal rate of 40%.

And yes, an £8000 CGT allowance and lower-rate bands are useful, but not that useful when cashing in £200,000 of house equity (say).

And yes, you normally don't pay UK CGT on gains when not ordinarily resident. But you will have to stay away for more than 5 years (i.e. if you leave, sell, but come back within 5 years, then you have to pay the tax retrospectively).

And yes, you would be able offset the CGT paid against Canadian CGT, but only on the Canadian tax on the property. Which means if the Canadian due tax is lower then you can't use the tax credit against anything else. Not really fair, but tax is rarely about "fair".

And yes, the tax tail shouldn't wag the investment dog. But since the housing market is a bit toppy right now (for fun, go to www.housepricecrash.co.uk) the dog and tail are wagging in the same direction. OK, metaphor stretched too far.

But you're right, the important thing to do is to know the implications of any decision. If you know what the tax is going to be, then you can say "ow, I'll do something" or "doesn't affect me".

K.

With respect you said: "But if you don't sell the house, leave, and in ten years time expect to sell without tax: forget it. You'll get hammered for tax in the UK ... If you wait longer than this then every year that goes by a higher and higher proportion of the gain becomes subject to CGT until eventually (after decades) you'll have a whopping tax bill."


But aren't you now saying that after 5 years you can forget about UK CGT completely and there is only Canadian CGT to consider?

It is possible to leave and still not be out of the UK tax system. It depends on circumstances. For example, if you are in the UK for more than 90 days a year on average over a certain period, you fall back in (or, rather, retrospectively never fell out).

K.

I checked with my accountant about this today. The CGT liability in Canada would be based on the difference in value between the time the person becomes resident in Canada and the time the house is sold. I think that reiterates what was said earlier.