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This is a question on a UK resident’s personal income tax on…

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This is a question on a UK resident’s personal income tax on lump withdrawals of funds in a Canadian RRSP using an example with funds expressed in $CAN.
Value of lump sum payment from the RRSP is $100,000
Withholding tax in Canada at 25% is £25,000. This tax seems to be a given.. The question is how will HMRC apply taxes in the UK.
1) No tax at all
2) Tax on the remaining $75,000
3) Tax on the original $100,000
I appreciate the calculations must be in £Sterling equivalent.
I have also read there are some pending rule changes associated with the changes to foreign pension income effective in 2017.
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Answered in 2 hours by:
11/20/2017
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 6,696
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

There is a Tax Treaty in place between the UK and Canada which provides for relief from double taxation.

Article 17 of the UK/Canada Tax Treaty provides that all pensions (including governmental and local authority pensions) will be taxable only in the State in which the pensioner is resident. So, pensions arising in Canada and paid to a United Kingdom pensioner will be taxable only in the United Kingdom.

If a United Kingdom resident has paid Canadian tax on his Canadian pension, he should claim repayment of the whole of the tax.

Claims for refunds of any Canadian tax paid are to be made to the Canadian authorities as follows:

a) tax on interest, dividends and patent royalties on form NR7-R, copies of which can be obtained from the Canadian Revenue Agency website, wwwcra-arc.gc.ca/ within two years of the end of the year of assessment for which the Canadian tax was paid.

b) tax on other income by letter to the appropriate District Taxation Officer or, if that is not known, to the Department of National Revenue-Taxation,***** Ottawa 8, Ontario KlA OL8, Canada.

https://www.gov.uk/hmrc-internal-manuals/double-taxation-relief/dt4610

https://www.gov.uk/hmrc-internal-manuals/double-taxation-relief/dt4618

Because you are a resident of the UK, the 25% withholding tax in Canada should NOT be a given. The $100,000 should only be taxable in the UK.

Please let me know if I can assist you further.

Thank you and best regards,

Barb

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Customer reply replied 9 months ago
Barbara, thanks for looking. Would you please clarify as follows:
I understand the periodic payments from a Canadian RIF are as per section 4610 and as you say fall under the dual tax treaty. As you say, the $100,000 would be taxable in the UK only.The question is about lump sum withdrawal of an RRSP. Taking the $100,000 all at once.CRA provides an calculator at http://www.cra-arc.gc.ca/ebci/nrtc/prot/welcome.action?request_locale=en_CA for different types of withdrawals for different countries. (While it seems almost too good to be true, this calculator has proven correct in more than one instance.)
The HMRC notes are consistent with CRA. The link https://www.gov.uk/hmrc-internal-manuals/double-taxation-relief/dt4617 begins with the sentences: Where a UK resident makes a lump sum withdrawal from an RRSP or an RRIF, Canada imposes a 25 per cent withholding tax. No tax credit relief is allowable in the United Kingdom in respect of the tax withheld …I am unclear about wording that follows and thus the question with examples. Can you please help?

Let me research this further, and I will let you know.

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The second link you provided is that you cannot claim a credit on your UK tax return for the 25% withheld by Canada because the UK is not taxing the withdrawal so there is nothing to deduct the taxes paid to Canada from.

In the calculator link you provided, it explains how you can claim relief by filing a Canadian return under Section 217.

Barbara
Barbara, Enrolled Agent
Category: Tax
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Customer reply replied 9 months ago
Barbara, final conclusion: The UK will not tax any of the amount withdrawn in the lump sum.Filing under Section 217 could be result in a rate less than the 25% withholding tax. Thanks for noting this. I'll close the question out. Thanks for your help.

My pleasure.

Thank YOU for the positive rating of my answer. It is very much appreciated!

Have a great week!

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