glendem4

My partner (Canadian) and I (Brit) will be moving to Ontario in 2018. We are both able to access our private pensions (SIPPs).

As there is no QROPS(Qualifying Retirement Overseas Pension Schemes) currently active in Canada for UK private pensions, can we split the income I generate from my UK private pension?

I have heard it makes sense to take the 25% tax free lump sum BEFORE we move from the UK.

Are there any other considerations we SHOULD be aware?

Hurlabrick

I don't understand what you mean by 'split the income'.

If either of you are 55 or over before you go to Canada, you should definitely consider taking the 25% tax free lump sum (I have certainly done this). The way you have to do this would be to 'crystallise' your SIPP in it's entirety and in the process, take 25% PCLS (Pension Commencement Lump Sum is the more up to date term) and put the remaining 75% into a Flexible Drawdown plan - note that you do not have to take an income at all from the drawdown plan if you don't want to.

BristolUK

Pension splitting I believe.

Where an income wholly or including a pension takes one into the next tax bracket. It's possible to split the pension - attributing up to half to a spouse - to reduce your tax (the part that would attract the higher rate) while not increasing that of your spouse.

Hurlabrick

Oh wow - can you do that in Canada? Thats great and would affect us for sure. Pretty sure (but not certain) you cant do that if you are resident in the UK.....

glendem4

Thanks for clarifying the question. Yes, I mean Pension splitting.
More details on this can be found at Strategies to pay less tax with pension income splitting

Our main source of income will be my UK pension. The UK Pension provider deducts the tax from any pension withdrawals at source.

Can I reclaim the tax paid in the UK and split the income with my partner when we live in Canada?

Due to double tax arrangements, how would this work?

Has anyone on this forum tried to split the retirement income with their spouse/partner?

Twitcher1958

My understanding is that you don't reclaim UK tax - you fill out form (P85?) which basically confirms to HMRC that you are paying tax in Canada, then you don't pay tax in UK, although they may ask you to complete tax form.
We have been pension spliting our UK pensions for a few years, apparently successfully. Software such as Turbotax directs you to this.

Hurlabrick

You and I are in virtually the same boat and asking the same questions! I was about to make a post on double taxation myself. I think my question is the same as your, so if you don't mind, rather than create a new thread, I'll add mine here??

My 'Plan C' is that we are planning on 'landing as settler' mid-November (half way through UK tax year, but near the end of Canada tax year). I know that I have to submit a P85 to HMRC, and I will ask them to issue my UK Income Drawdown provider with an 'NT' tax code, but I am not sure if they will. I am 61 and have taken early retirement. My wife is younger and has similarly taken VR and does not plan to return to formal work.

AIUI, I cannot move my Income Drawdown (as HMRC withdrew all QROPS accreditation!!). But, I would like to start taking a monthly income from my UK drawdown after I move to Canada (pay to my UK account then Transferwise monthly to my Canadian account). My questions are:

1. Am I right in thinking that with the 'double tax agreement' between the UK and Canada, that I would be taxed in Canada and not in the UK on my Income Drawdowns?

2. What is the 'cutover' process, hard to believe that HMRC will receive my P85 and say 'righto, we'll issue your drawdown provide with a 'No Tax' code - or will they? If there is a period where UK tax continue to be taken (coz new tax codes take time), I guess I can claim the deductions back from HMRC somehow?

3. I know I need to declare the income on my CRA tax returns, and I am loving the idea of 'split income' that seems to be in place in Canada - this could be VERY good news for us! Will speak to my Canadian tax guy.

I do plan on speaking to HMRC next week, but I find things go better when one has a reasonable idea of what to expect / how it works!

Hurlabrick

PS Glendem4 - this is how you complete and submit a P85 - which you need to do when leaving the UK to settle in Canada in case you haven't seen it yet.

https://www.gov.uk/government/public...-tax-right-p85

glendem4

A quick comparison on tax implications, please correct me if I am wrong with any figures.

In the UK in the current tax year you can earn £11,500 tax free, then the next £33,500 is taxed at 20%

For someone drawing a pension of £45,000, the income tax would work out to be £6,700 a year = 14.8% tax.

Assume exchange rate is £1=$1.6, the income would = $72,000

For an individual moving to Ontario the taxes in 2017 would be $14,834 = 20.6%.

If you split the retirement income and assign $36,000 to your spouse the taxes would be $4958 = 13.3% for each person.

That gives you a saving of $14,834-($4,958*2)=$4,918

All figures calculated using
2017 Personal tax calculator - EY - Canada - EY - Canada


Assume you were lucky to draw £65,000 as an annual pension, the % you pay in taxes rises to 22.6% in the UK. (£6,700+(£20,000*40% tax rate)

For a couple splitting $104,000 = £65,000 x exchange rate of £1=$1.6, in Canada, the tax works out to be $8904 (17.2%) per person.

Splitting a pension really can save you quite a bit.

Hurlabrick

I am getting senile in my old age! I have already asked and had answered the 'how do you reclaim tax paid in the UK' question! See posting #3 in the thread below.

http://britishexpats.com/forum/canad...ration-893489/

BexB

Hi

I haven't yet retired, but have a UK SIPP from which I've drawn down some funds.

I got the CRA to sign-off a Double Taxation Treaty form and submitted this to HMRC. The idea wasn't so much to reduce the tax paid (the tax due in Canada is more than the tax paid in the UK), rather to make tax returns etc. easier. Unfortunately HMRC did not accept the DTT, due to the nature of the pension arrangement. I guess they felt SIPP drawdowns were lump sums rather than "pensions".

I'm not 100% certain the SIPP payments would qualify for pension splitting (again because they may be regarded as lump sums), but am not sure how closely the CRA would scrutinise this.

Broadly, the UK has the advantage of 25% tax-free lump sums, Canada has the advantage of pension splitting. Hurlabrick should achieve the best of both worlds!

Hurlabrick

You need to be very careful to decide HOW you want to take money from a SIPP or a UK Personal Pension.

If you vest the pension (or part of it) to move it to an Income Drawdown, you can take the tax free lump sum during the process as this is a pension crystallisation event.

If you simply take a lump sum directly from the same plan as what is called an UFPLS (uncrystallised fund pension lump sum) you cannot take 25% tax free and perhaps it is this HMRC are saying isnt really a pension payment - as it is not a crystallisation event. Not an expert UK financial adviser, just someone who worked in Pensions Admin.....

Siouxie

TaxTips.ca - Pension splitting
TaxTips.ca - Pension income tax credit - what is eligible income?

https://www.canada.ca/en/revenue-age...splitting.html

Hurlabrick

B*gger! So wont apply to me for three years yet!