Sent: Saturday, January 27, 2007 11:49 AM
To: taxman at centa.com; centapede at lists.centa.com
Subject: Tax on UK property
Dear Mr. Ingram;
Thanks for your helpful reply. I think
that I
will need to do some more throrough investigations before we
think about
selling the property in the UK. We were Canadian residents
(although we
retain UK citisenship) when we bought the place in the UK. We are
still
residing in Canada. We bought it so that we would have a place to
stay
when we went over to visit my wife's mother, who is now deceased.
The
apartment was not used for rental at all, nor was it bought as an
investment - it was just convenient to have our own place over
there. It
would be nice to know what the tax situation would be when/if we
decide
to sell the place. I will make some enquiries next time we are
over there.
Thanks, again.
---------------------------------
david ingram replies:
It should/might be UK tax free then.
However, it does not matter. It "IS" definitely taxable on your
Canadian return. Any tax paid to the UK would be a tax credit in
Canada so paying the tax to the UK first means that you do not
need to worry about them coming after you in the future and will
not cost much extra if anything.
I, personally, would not fight it. I would pay the UK tax and
then claim the credit in Canada.
The situation is governed by Article XIII of the UK / Canada
Income Tax Convention (Treaty) which reads as follows (I have put
in the Country names in Brackets to apply to you as a resident of
Canada)
No matter what else happens, the Treaty is supreme. I have
included the whole article even though the small print stuff does
not apply to your situation.
For those reading this for the first time, the original question
was whether or not there is capital gains tax to pay on a
property owned in the UK for 15 years by a couple who are dual
citizens of the UK and Canada.
-----------------
Article 13
Capital Gains
1. Gains derived by a resident of a Contracting State (Canada)
from the alienation of immovable property situated in the other
Contracting State (GB) may be taxed in that other State (GB).
2. Gains from the alienation of movable property forming part of
the business property of a permanent establishment which an
enterprise of a Contracting State has in the other Contracting
State or of movable property pertaining to a fixed base available
to a resident of a Contracting State in the other Contracting
State for the purpose of performing professional services,
including such gains from the alienation of such a permanent
establishment (alone or with the whole enterprise) or of such
fixed base, may be taxed in that other State.
3. Gains derived by a resident of a Contracting State from the
alienation of ships or aircraft operated in international traffic
or movable property pertaining to operation of such ships or
aircraft, shall be taxable only in that Contracting State.
4. Gains from the alienation of:
(a) any right, licence or privilege to explore for, drill for, or
take petroleum, natural gas or other related hydrocarbons
situated in a Contracting State, or
(b) any right to assets to be produced in a Contracting State by
the activities referred to in sub-paragraph (a) above or to
interest in or to the benefit of such assets situated in a
Contracting State,
may be taxed in that State.
5. Gains from the alienation of:
(a) shares, other than shares quoted on an approved stock
exchange, deriving their value or the greater part of their value
directly or indirectly from immovable property situated in a
Contracting State or from any right referred to in paragraph 4 of
this Article, or
(b) an interest in a partnership or trust the assets of which
consist principally of immovable property situated in a
Contracting State, of rights referred to in paragraph 4 of this
Article, or of shares referred to in sub-paragraph (a) above,
may be taxed in that State.
6. The provisions of paragraph 5 of this Article shall not apply:
(a) in the case of shares, where immediately before the
alienation of the shares, the alienator owned, or the alienator
and any persons related to or connected with him owned, less than
10 per cent of each class of the share capital of the company; or
(b) in the case of an interest in a partnership or trust, where
immediately before the alienation of the interest, the alienator
was entitled to, or the alienator and any persons related to or
connected with him were entitled to, an interest of less than 10
per cent of the income and capital of the partnership or trust.
7. For the purposes of paragraph 5 of this Article:
(a) the term "an approved stock exchange" means a stock exchange
prescribed for the purposes of the Canadian Income Tax Act or a
recognised stock exchange within the meaning of the United
Kingdom Corporation Tax Acts; and
(b) the term "immovable property" does not include any property
(other than rental property) in which the business of the
company, partnership or trust was carried on.
8. Gains from the alienation of any property, other than that
referred to in paragraphs 1, 2, 3, 4 and 5 of this Article shall
be taxable only in the Contracting of which the alienator is a
resident.
9. The provisions of paragraph 8 ^^ of this Article shall not
affect the right of a Contracting State (GB) to tax, according to
its domestic law, gains derived by an individual who is a
resident of the other Contracting State (CANADA) from the
alienation of any property, if the alienator:
(a) is a national of the first-mentioned Contracting State (GB -
you and your wife are) or was a resident of that State for 15
years or more prior to the alienation of the property; and
(b) was a resident of the first-mentioned Contracting State (GB -
you were not as I see it from your note) at any time during the
five years immediately preceding such alienation.
-------------------------
David Ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa
Specialists
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