# Property built in UK



## Kennedyboy (Jul 21, 2017)

My wife and I emigrated from Scotland to canada in 2007. We have lived here ever since and both filed our tax returns on time every year. We became permanent residents in 2007 and citizens in 2013. I kept a bank account open in the UK with some savings in it and for making some payments out of for insurance policies etc. Between 2010 and 2015 an opportunity came up to construct a self build house on a piece of land gifted from my family in scotland. I sent regular large sums of money from canada to scotland into my scottish account to finance the build. Since 2015 the property has been let out and I am making a small income from it which goes into my scottish account. I should add that during this time we also purchased a house in canada which is our main place of residence. I received some poor advice from a scottish accountant who advised that I didn't have to declare the income on my scottish house as I was earning below the allowed taxable amount in the UK. However after looking into this I feel that I should maybe be declaring this on my Canadian tax return each year. If so, can I plead ignorance for the past 2 years I havent declared? Will I be penalized. In addition I am also considering selling the Scottish house. Since I didn't own it at time of coming to canada or becoming a citizen I am confused as to where I stand with regards to capital gains. I could sell the house and put the money in my scottish account but as soon as I want to move that money to canada I'm sure flags would be raised. I want to do everything fully legitimately. My thoughts are I need to declare my property and income on my next tax return and pay the taxes I owe on the income earned to date? Are there any loopholes or would I be looking at 20% of and sale profit going to capital gains tax. Also the house was built with a combination of gifted land, my money and some help from others. The exact cost of construction is very approximate and so how would it be possible to calculate exact profit for purpose of capital gains tax? Any help would be much appreciated thanks


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## Jaberwock (Aug 22, 2012)

In Canada, you have to pay taxes on your worldwide income, irrespective of whether or not you brought the money back to Canada. You need to re-file your taxes for 2015 and 2016 and include the income from your Scottish property.
If the property is jointly owned, you can split the income with your wife, in which case you will both need to re-file.
Explain the situation to the CRA (i.e. bad advice from a local accountant) and they might waive the penalties but not the back taxes or interest. You can deduct from the income, any expenses related to the house (e.g. property taxes, rental agent fees, maintenance, even trips to Scotland to look after the property may be deductible). You can also take depreciation (up to 4% of the property cost). Depreciation can be used to reduce your income to zero (but not below zero). However, depreciation has to be brought back into income in the year of sale if the sale price exceeds the depreciated value of the property, so be careful in choosing to take depreciation.

Establishing your cost base for capital gains will require a valuation of the land on the day it was gifted to you. 

Your capital gain will be the sale price minus the value of the land on the day it was gifted to you, minus your building costs, minus any other costs (land transfer taxes, real estate fees, legal fees etc)

You probably need an accountant to do all of this, it is complicated


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## heyjude (May 16, 2009)

I agree with everything Jaberwock said and endorse the recommendation to engage an accountant to help you sort this out. 

Canadian tax is based on residency. Not only are you liable for Canadian taxes on your worldwide income, but you are also responsible for declaring all foreign property on your annual tax return. This has been strictly enforced in recent years. Based on your post, I think this will need attention too.


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## Kennedyboy (Jul 21, 2017)

Thanks for the response. Makes sense. The property was completed in 2015, and I have been receiving a rental income since June 2015. If I go to a good accountant and explain my situation then you are saying I should declare the property and income from 2015 onwards, in which case I will have to re submit both 2015 and 2016 tax returns and hope I only get hit for extra income minus deductions. I read somewhere that I also should declare all bank accounts? Is this true or is it really just income I need to declare? As for the property, is there a particular way to declare it, like a special form or something? Thanks


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## heyjude (May 16, 2009)

You can find the form (T1135) here:

http://www.cra-arc.gc.ca/E/pbg/tf/t1135/

In addition to filing the declaration and paying tax due, you may incur penalties.


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## twa2w (Mar 5, 2016)

You are also required to declare foreign property if the value of said property is greater than 100,000 dollars.
From the CRA
"you also have to report information about these foreign investments on your tax return (Form T1135). This form must be filed by the due date for filing your income tax return for the particular year.

Specified foreign property includes

bank accounts held abroad,
debt securities and shares of foreign corporations,
real estate, and
other tangible and intangible properties located outside Canada"

Personal use property I believe is exempt but dince you are renting the property you have to declare it if it exceedsthe reporting limit.

Edit, somehow missed heyjudes post above with the link to t1135


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## Mechanic (Oct 29, 2013)

There was a linked article in the Financial Times about this that I read on another site. Britain is releasing all the information to other countries in September. Income from all sources is taxable in the country where you reside. Seems lots of people living overseas have sizeable investments in Britain and haven't been declaring them and pension incomes. Lots of British expats in Spain and the Spanish penalties are harsh. I would be getting my taxes refiled before September if I were in that situation.


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## gardner (Feb 13, 2014)

twa2w said:


> You are also required to declare foreign property if the value of said property is greater than 100,000 dollars.


It is the COST, not the value that triggers this.
http://www.taxtips.ca/filing/foreign-asset-reporting.htm

Property acquired without cost (inherited) may well be okay, depending on the FMV at the time of the inheritance.



> The cost amount of foreign property acquired by way of gift, bequest, or inheritance is its fair market value at the time the gift, bequest, or inheritance was received.


https://www.canada.ca/en/revenue-ag...ng/questions-answers-about-form-t1135.html#h2

The penalties for T1135 delinquency are outrageous in the extreme.


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## twa2w (Mar 5, 2016)

gardner said:


> It is the COST, not the value that triggers this.
> http://www.taxtips.ca/filing/foreign-asset-reporting.htm
> 
> Property acquired without cost (inherited) may well be okay, depending on the FMV at the time of the inheritance.
> ...


Very true, my poor choice of word in using value rather than cost, but I suspect the FMV of the property at time of inheritance, plus the cost to build the house, plus his UK bank account would easily exceed 100,000 Cdn.


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