Tax on Renting UK home from Canada
Many BE members consider retaining ownership of their home in the UK after they move to Canada, either as an investment or to have somewhere to return to. If the UK property is rented to tenants there are tax implications in both the UK and Canada to consider. This article discusses Income Tax issues in the UK and Canada for a Canadian resident who has rental income in the UK. Capital Gains tax and taxes for a foreign resident having rental income in Canada are discussed in the article Tax and House sales.
The default position is that a UK tenant should deduct basic rate tax from rents paid to a foreign resident and remit this to HM Revenue and Customs (HMRC). It is up to the landlord to complete form NRL1 and submit this for approval to receive the rents without deduction of tax.
Even if this is approved, any profit made on the rental is subject to tax in the UK. The landlord is required to complete and file a tax return every year if requested. If the rental profit is small and falls within the landlord's personal allowances HMRC may decide that UK tax returns are not required.
This is a link to HM Revenue and Customs' web site with further information.
Residents of Canada are subject to tax on their world wide income - including rental income from the UK.
You will need to complete form T776 Statement of Real Estate Rentals and file this with your tax return each year. Income and expenses should be converted into Canadian dollars on the day they are received or incurred. In practice, if there are many transactions an average rate for the year is acceptable.
If you have paid any tax to HMRC on a rental profit you can claim a tax credit in Canada. Complete form T2209 and T2036 and file these with your tax return. The foreign tax credit should effectively eliminate double taxation of the rental income.
If the UK property is worth more than $100,000 you must also complete and file form T1135 with your tax return.