Hi HMRC Admin25
Thank you for your response. Could you please clarify what the cost base would be for UK tax calculations in the following two examples of a lump sum distribution from a RRIF/RRSP:
1) the Canadian emigrant disposes of investments in the fund prior to emigration so that there is only cash in the fund; and
2) the fund owns the shares of one Canadian company which it acquired ten years prior to the Canadian's emigration. The fund disposes of the shares after emigration in order to make the lumps sum distribution.
In situation 2) above the question would be whether any gain would be determined by reference to the original cost of the shares to the fund or their fair market value at the date of emigration.
I have just noticed your comments to Skad above and your reference to the Canada UK double tax treaty. I have looked at the treaty and see that Articles 13 (on capital gains) and 17 (on pensions) would appear to apply. A lump sum settlement payment out of a RRIF/RRSP by definition under Article 17 is not a pension or annuity payment. As a consequence, it appears that such a lump sum is caught by Article 13(8). In order to compute the gain under Article (13) I would assume the cost base for determining the gain is the fair value of the RRIF/RRSP at the time of emigration to the UK. Do you agree and if not why not?
I do not understand why the UK is entitled to tax the full distribution from the RRIF/RRSP. The contents of these funds represent earnings of the Canadian resident in the years prior to departure. If the UK seeks to tax the distribution it is effectively taxing the earnings of the individual prior to establishing residence in the UK. I would have thought the proper treatment would be for the UK to treat the fair value of the RRIF/RRSP as a capital asset at the time of becoming a UK resident and any earnings on the RRIF/RRSP subsequent to establishing residence to be fair game for the Inland Revenue. Please explain why the UK believes it is entitled to tax an individual's earnings prior to establishing residence in the UK.