UK Tax on a Canadian RRSP

I am currently tax resident in Canada but am planning to move back to the UK in the next few years. If I save in a Canadian RRSP and then leave the funds invested in the RRSP until retirement age will I be taxed in the UK on any dividend income or capital gains on the funds held in the RRSP before I commence withdrawals.

Hi,

The guidance at DT4617 below, advises that, where a UK resident makes a lump sum withdrawal from an Registered Retirement Savings Plan (RRSP) or an Registered Retirement Income Funds (RRIF), Canada imposes a 25 per cent withholding tax. 

DT4617 - Double Taxation Relief Manual: Guidance by country: Canada: Withdrawals from Canadian RRSPs/RRIFs

No tax credit relief is allowable, which means that the full lump sum is taxable in both Canada and the UK. You can, however, claim Foreign Tax Credit Relief of up to 100% of the foreign tax deducted, against your UK tax liability.

Thank you.

Thank you for this reply. However I was seeking confirmation that I will not be taxed on the income or capital gains which accrue on the funds invested in the RRSP after I return to the UK but before I commence withdrawals from the RRSP. Could you please provide further guidance. Many thanks

Hi Brian Lerner,

If these are just added to the fund to give you a better pension when you do withdraw it, then no, it will all be taxed at the point of withdrawal.

Thank you.

Dear HMRC Admin, To help me understand your answer could you give me the answer with respect to this concrete example? Suppose an original investment of CAD 5000 in an RRSP is now worth CAD 10000. If a person who is tax resident in the UK wishes to withdraw the whole amount, it appears the Canada Revenue Agency will take CAD 2500 withholding tax, leaving CAD 7500. How much of this is taxable in England and at what rate? Thanks in anticipation.

Hi
You will declare the gross income received and then claim foreign tax credit relief for the tax paid in Canada (if applicable).
The rate of  tax to pay in the UK is dependant on your level of income.
Thankyou.

I have the same issue as the previous person. How do I go about reporting a Canadian RRSP withdrawal in a Self Assessment? I am also curious about your answer regarding reporting the full amount (gross income). The previous post describes investing $5000.00 to receive a profit of $5000.00. Wouldn't you declare the profit and not the entire amount? Thanks in advance.

Hi Brianj,

Please refer to guidance here:

DT4617 - Double Taxation Relief Manual: Guidance by country: Canada: Withdrawals from Canadian RRSPs/RRIFs

Thank you. 


 

I am finding that DT4617 does not help me understand exactly how to enter my RRSP lump sum payment into my UK tax self assessment form. Using C$10,000 gross payment (C$7,500 net of Canadian tax), and assuming a UK tax rate of 20%, can you advise what numbers go where? The foreign tax credit is particularly confusing on the UK tax return. Many thanks

Hi Barbuta Barbut,

You will need to show the income as sterling in the foreign page, the pension will be declared as foreign pension. you will also claim the foreing tax credit relief in sterling and if the Canadian tax works out more than 20% you will need to limit it to the 20% that would be the UK tax on the income.

Thank you.

Hi,

You will need to report the pension in a Self Assessment tax return, SA100, and declare the gross pension and witholding tax on the SA106, foreign, page F2 and F3, or the online equivalents.  

The Canadian tax authorities deduct witholding tax and pay it to HMRC on your behalf, so when your liability is calculated, this tax is included as tax paid and can be refunded to you, if too much tax is paid.

Thank you.

Thanks for this thread, it has been helpful. I would like to see if I can summarize what has been discussed for myself and future readers. Can you confirm if the following example demonstrates an accurate understanding of the UK HMRC tax code and UK-Canada tax treaty? 1) A UK resident (Canadian non-resident) has an RRSP in Canada that holds marketable investments. These investment accrue unrealized capital gains and dividends over X years. All the while, Canada Revenue Agency does not tax these unrealized capital gains or dividends. And also, the UK HMRC does not levy any income tax nor do they levy any capital gains tax on the dividends and the unrealized gains, respectively (the RRSP is considered an overseas pension). 2) After X years, this UK resident (Canadian non-resident) intends to withdraw the total value of the RRSP. 3) The RRSP portfolio is sold in full and the total amount is withdrawn to a Canadian bank account—this triggers an immediate Canadian withholding tax of 25% processed by the account's financial institution. 4) The amount sold/withdrawn is considered income (not capital gains) by both the UK (worldwide/foreign income) and Canada, and is taxable by both countries as per their local income tax rates. Thus far, only the withholding tax is taken upfront, but the sale of assets has triggered a UK taxable event and the total RRSP withdrawal has triggered a Canadian taxable event. These taxable events will inform year-end tax filings. 5) On the Canadian tax filing (Tax year Jan to Dec), the total tax due will be re-calculated as per the individual's total Canadian income. With respect to the 25% withholding tax already deducted, the Canadian non-resident may owe more or less, depending on other local Canadian income sources for the Canadian tax year. 6) On the UK tax filing (Tax year Apr to Apr), the gross amount sold in the RRSP (prior to the withholding tax) is reported as foreign income (along with any other Canadian or worldwide income) and is subject to the UK resident's UK income tax rates (based on their total worldwide income for the UK tax year), and the final/total Canadian income tax (on all their Canadian income, thus this includes the original withholding tax + a year-end adjustment) is reported as foreign tax credit relief (up to a maximum of the gross amount of Canadian income * UK income tax rate—i.e., you cannot claim foreign tax credit relief for more than the UK intends to tax you for selling the RRSP portfolio and earning any other Canadian income).

Hi HMHippo
That is correct.

Thanks, HMRC Admin 10. By confirming that it is correct (assuming realized growth in an RRSP portfolio of marketable securities) you're saying that the net tax obligation after year-end filing in the UK, with respect to the combined act of disposing assets & withdrawing from an RRSP, will (1) amount to paying higher UK taxes given the additional worldwide income and (2) the Canadian taxes paid will partially offset a portion of this UK tax liability (both 1 & 2 assume the individual's effective tax rate in Canada is lower than the UK). However, it's not clear to me how to reconcile your confirmation with the post by HMRC Admin 10 (yourself?) and HMRC Admin 20 here: https://community.hmrc.gov.uk/customerforums/pt/c2e69bc3-091f-ee11-a81c-000d3a8751e3#06ebbae6-4e3d-ee11-bdf4-6045bd127724 —these two posts suggest that what you have confirmed may not be correct; these two posts suggest that (contrary to point #4 in my last post above), the UK does not treat the disposed assets as worldwide income but perhaps as capital gains?

This is exactly the query I am looking for an answer to. In the above (very helpful) post from HMHippo, the treatment makes sense; the UK resident owner of the RRSP is taxed to income tax in the UK as part of their worldwide income, and receives a foreign tax credit for the 25% tax withheld in Canada. However, per DT4617 it seems clear that there are two separate taxable events when encashing an RRSP: 1) a Canadian taxable event when the funds are distributed from the RRSP, and 2) a UK taxable event when the assets of the funds are sold (ie prior to distribution). As these are two different taxable events, the UK Canada DTA only allows for FTC relief when tax is charged by both states on the same taxable event. Since this isn't the case above, a UK resident is double taxed - 25% withholding on the distribution in Canada, and then income tax on the gross proceeds of the disposal of the assets in the UK. So as a Higher Rate tax payer in the UK, the UK resident could have a marginal tax rate of 65%? The other thing that is still not clear to me is the UK income tax treatment within the RRSP. HMHippo's example is when the entire RRSP is liquidated but doesn't specifically cover the point about the UK tax treatment whilst the assets are accruing value (but have not been withdrawn). From a Canadian perspective it seems clear that unrealised gains are not taxed - because the tax treatment in Canada is based on withdrawal of funds. However, from a UK perspective, is it specifically the sale of the assets in the fund that creates the taxable event, or is it the revaluation of such assets on an annual basis? If it's the former - the sale of assets - it's hard to understand why this wouldn't be a capital gain rather than income, but if it is income, is there any top slicing relief available - because otherwise the tax is potentially incredibly punitive - say you made a £100,000 gain over ten years, if taxed annually (assume £10k a year and no other income) you would get the gains tax free due to the personal allowance. But if it's all taxed to income in the tenth year, you would end up as as higher rate tax payer - all while the economic performace of the RRSP has been identical. Thanks for confirming which way we should look at this!

Hi HMHippo,

HS263 advisies "If you’ve paid foreign tax on income received or capital gains made that are also taxable in the UK, you may be able to claim relief for the foreign tax paid". If no tax is payable on that foreign source of income, no tax relief is allowed.

Relief for Foreign Tax Paid 2023 (HS263) Updated 6 April 2023

Disposal of capital assets such as property, shares or personal possessions, are considered under capital gains rules.

Thank you.

Hi HMRC Admin 19—Thank you. Tax is certainly going to be paid in Canada on the withdrawal from an RRSP, but in Canada it is treated as a source of income upon withdrawal and taxable at one's personal income tax rates. If the UK taxes the disposal of assets as capital gains, then ostensibly the UK and Canada are considered to be taxing separate events. In this case, is there no tax policy available to offset the UK taxes owed by 100% of Canadian income taxes paid upon withdrawal? Put differently, if the FTCR cannot be applied to separate taxable events, is there another method to leverage the Canadian income taxes paid to offset one's total UK tax liability? Additionally, it is worth confirming what Simon.Catax had asked above in their 3rd paragraph. As I understand it: over the lifetime of holding the RRSP investments, the UK will tax any foreign dividends or interest earned as income in the year they're received, but will not tax UNREALIZED capital gains until the disposal of assets (i.e., when they are then REALIZED capital gains)—correct?

Hi Simon.Catax,
As it is seen as a chargeable event it is taxed as income tax and not Capital Gains Tax.
Top slicing relief would be given if the policy has been held for more than 1 year. further help is at:
Top-slicing relief
Thank you. 

Hi HMHippo,

No there is not another method to leverage the Canadian tax and you would be liable in both countries. capital gain would apply once the assets had been disposed of to make them realized assets.

Thank you.