UK to Toronto retaining UK home as investment

AntP · Post by **AntP** » Wed Mar 09, 2005 9:29 am

Hello

My wife an I will be moving to Toronto in July this year. All the visa's are ready. We are planning on retaining our home in the UK for 5 years as an investment and renting it out in the meantime. We do have a mortgage on the UK property.

We are planning on getting a new mortgage as soon as possible and buying a home in Canada when we arrive. the plan is to pay off some/all the Canadian house's mortgage when we sell the UK house in about 5 years.

As an Immigrant settling in Canada, what I need to know is will the sale of the property in the UK in 5 years be taxable for Capital Gains?? Is there any kind of clause that allows Immigrants a few years to sell their assets without being taxed in Canada on the capityal gain?

If we will have to pay the tax - how can I work out what the amount would be that might need to be paid?

I've trawled through the masses of information, but am simply confusing myself the many many scenarios stated on various guides.. I need someone to advise me on my situation if possible.

Any assisstance greatly appreciated!

Thanks
Anthony

nelsona · Post by **nelsona** » Wed Mar 09, 2005 11:34 am

When you arrive in canada, you will be deemed to have bought and sold your UK home (and all your investments) the day before you arrive.

This is called the deemed aquisition rule for new residents to canada.

As a result, the absolute most that Canada would tax you on your UK property (and all other investments) would be on the gains made after you arrive in canada.

So, from a planning standpoint, you would, at a minimum, want to get a solid market evaluation on your home around the time you leave UK.

CRA allows you to have one principal residence at a time, and there is nothing that specifically prevents that residence from being outside canada, so you could claim that the UK home was your principal residence until (a) you get a home in canada, or (b) you rent out your UK home. Either of those events would end the option of electing to have your UK home as your principal residence.

I have not adressed any UK tax issues of course. It may not be beneficial to go thru hoops to save Cdn tax, if the UK will tax you anyways, and at a higher rate (I would think that UK will tax you on real estate gains as well). The UK/Canada treaty may have some relief as well, but this forum is not the place that discussion.

So, from a Cdn tax point of view, your capital gains tax meter will start running on the later of:
(a) your arrival date
(b) the day you buy your CDN home
(C) the day you rent out your UK home

and the cost basis for any calculation would be the Fair Market Value on that date. Of course, you would only pay tax on any gains when you actually sell the property.

You will of course, also have to report and pay UK and Cdn tax on any rental income you make.

<i>nelsona non grata</i>

AntP · Post by **AntP** » Thu Mar 10, 2005 6:02 am

Thanks for the information nelson.. Much appreciated.

Regards Anthony

Norbert Schlenker · Post by **Norbert Schlenker** » Thu Mar 10, 2005 12:58 pm

You should also contact a competent cross-border tax lawyer. Immigrants to Canada have the option of setting up a foreign trust to hold their assets and could be eligible for a 5 year long Canadian tax holiday on any income or gains on the trust's assets. It may not be worthwhile in your case, depending on the value of that house and on UK taxation in the interim, but it's worth at least a look.