UK taxation for Canadian expats

Whether you’re a Canadian resident already living in the UK or simply considering the move, it is important to be aware of your tax obligations as a Canadian citizen living in the UK.

As a Canadian expat living or moving to the UK, you have to deal with the concept of residency and domicile.

This article forms an introduction to UK tax for foreign residents.

Theoretically all UK residents must pay taxes on all of their world wide income. However, this is rule of thumb as many have exceptions.

One of the first steps you should take when accessing your UK tax obligations making an inventory that includes all of your sources of income and where they are located.

You should then access whether you would be regarded as a UK resident for tax purposes.

Are you a UK resident for tax purposes?

A UK resident for tax purposes is an individual present in the UK for 183 days or more within a tax year. You can also be counted as a resident for tax purposes if you visit the UK more or less regularly, depending on the presence of important ties.

Important ties include:

·      Family Bonds

·      Property ownership

·      Holiday Home

·      Business Ownership

·      Work-related duties

‘Regular visits’ are labelled as temporary stays of an average of 91 days or more within three tax years in a row.

Residence, Ordinary Residence or Domicile

Residence, Ordinary Residence and Domicile are all British legal definitions involved in establishing an individuals residency status. An ordinary residence is some one resides in the UK voluntary and has a settled purpose of residence (such as family or a job). Therefore staying in the UK is the ‘habitual mode of life’ for an ordinary residence.

A Domicile is more entangled than a residence. A domicile is the destination of your permanent home. It is often influenced by your physical residence and nationality.

 

Claiming Remittance and Arising Basis

The concepts discussed above are important as, if you are not an ordinary resident and/or not domiciled you can claim the ‘remittance basis; for taxing your foreign income and capital gains. This means that the mentioned income is only subject to UK tax once ‘remitted’ to the UK. Otherwise, they can remain overseas and will only be taxed there.

If you do not claim remittance basis, your worldwide income will be subject to UK taxation as it arises. On first glance, arising basis seems like all negatives. However, this is not necessarily the case, since although you may have to pay taxes on your income and capital gains abroad, you can keep other benefits.

When you claim remittance basis, you may have to give up a number of tax reliefs in the UK, like your personal allowance.

Canada and the UK Double Taxation Avoidance Agreements (DTA)

The UK and Canada are both under the DTA, therefore you will not have to pay UK taxes on most of your foreign income anyway. Royalties, dividends and interest paid abroad are protected by the DTA.

Contact us for expert Canadian expat tax advice