October 2016

“Taxation is legalised extortion and is valid only to the extent of the law.”

Ed Troup (now Head of HMRC – in a 1999 newspaper article)

This final installment in a trilogy of posts detailing the transition of my tax affairs from the UK to Canada over the last year (previous episodes here and here) may seem somewhat dry reading, but it might also provide at least some useful information for those who find themselves in the same boat.

As mentioned previously I had taken advice from HMRC in the UK before we left for Victoria. One of the suggestions that they had made was that I should write to them setting out in detail our intentions and proposed schedule. This I did – if for no other reason than that it is always a good idea to get such things down in writing and to file a copy for posterity.

Income tax in the UK is collected through a Pay As You Earn (PAYE) system which relies on each individual being ascribed one or more codes which determine how much tax is deducted each time an income is payed. My income before retirement fell into a higher tax bracket, which in turn meant that the two pensions that I was already drawing at the start of the 2015/16 tax year were also taxed at that level. When I retired and started receiving my third and final pension (but stopped receiving a salary) the tax codes for all three pensions should have been changed to reflect the fact that my income no longer merited being taxed at the higher level. Once we had become Canadian tax residents the codes should have been changed again to ensure that I was no longer taxed in the UK at all.

Naturally, ensuring that these codes were all corrected at the appropriate times proved to be far from simple. They should have been updated as a result of communications from my final employer when I retired, but in the event I still had to spend some considerable time on the phone from Canada to the HMRC arguing the case before all three pensions were finally being taxed at the basic rate. HMRC then had to pay me a rebate for overpaid taxes – which they duly did.

Once my tax status as a resident of Canada had been confirmed by Revenue Canada and the consequent paperwork forwarded to HMRC there followed another round of ‘negotiations’ before all three pensions finally became un-taxed in the UK. I had by this point already been taxed in Canada for the year to December 31st and I was looking forward to recovering the monies that had been deducted in the UK since our departure in July. A further conversation with HMRC made it clear that this wouldn’t happen until I had completed and submitted a tax return for the 2015/16 tax year in the UK.

Filling out that tax return was quite a mission in itself and entailed another couple of hours of phone calls to HMRC before I was satisfied that I had accurately particularised our situation.

Having ventured thus far with my explication I firmly intend to document that process as well – though I fear that so to do will entail a fourth post. Ah well!

“The hardest thing to understand in the world is the income tax.” 
Albert Einstein

I have been meaning for some little while now to draft a brief disquisition on the subject of taxes – with particular reference to the effects thereon of relocating to a different continent. Though circumstances are – in term of taxation – really quite different from case to case, it is yet possible that my recent experiences in the field may be of some small use to someone somewhere.

That I have not until now carried out the electronic equivalent of putting pen to paper can be readily explained. Our situation featured certain complexities which have complicated the transition considerably. It is only very recently that we can state with reasonable confidence that our tax affairs have now been put in order. We have yet to receive final written confirmation that this is the case, but the omens have a propitious look about them.

It is a basic principle of income taxation that the norm is for all such to paid in one’s country of residence. There might well be exceptions should one be in receipt of income from territories other than that in which one resides, unless there exist between said nations a reciprocal tax agreement. The United Kingdom and Canada have just such an agreement.

On moving from the UK to Canada there is a supposedly relatively simple procedure to follow to ensure that one stops paying tax in the former and commences so doing in the latter. Of course, such things rarely turn out to be simple in practice, though that has much to do with the degree of tax complexity to which one is subject.

In my case the situation was complicated by the following factors:

• I retired part way through the 2015/2016 tax year. I paid income tax at above the basic rate on my salary until that point.
• I was already drawing two of my three employer’s pensions from the start of the year. These were also being taxed at the higher rate.
• When I retired my final pension kicked in, though of course my salary stopped at the same time. I was still being taxed at the higher rate even though my income no longer merited such.
• Two weeks after retiring we moved to Canada and I became a tax resident here. My pension incomes are all paid in the UK and transferred monthly to Canada, but because the UK uses PAYE (Pay as you earn) I was still seeing tax deducted at source in the UK. I was thus for a period being effectively taxed in both countries – though in Canada (which does not have PAYE) payment was not due until the end of the tax year.
• We sold our property in the UK a week before leaving the country. Normally the sale of one’s primary residence in the UK does not attract capital gains tax. We had – however – been living in a rented apartment for our last four years in England, and had tenants in our apartment. In such circumstances the rules are different and capital gains tax can come into play.
• The UK and Canadian tax years do not coincide. In Canada the tax year runs quite logically from January 1st to December 31st. In the UK – as you might expect – the situation is quite different and the year runs from April 6th to the subsequent April 5th.

I fear that I can only subject myself to a certain level of tax contemplation at any one sitting. A subsequent post (or posts!) will thus be necessary to guide the gentle reader through how the process of tax transfer was effected in our case.

Something to look forward to!