20 February 2025
Key takeaways
If you’re a UK resident inheriting assets from Canada, here are the key things you need to bear in mind as a beneficiary:
- Canada doesn’t impose a direct inheritance tax on beneficiaries, so if you’re a UK resident inheriting assets from Canada, you won’t need to pay inheritance tax. Instead, the Canada Revenue Agency (CRA) collects taxes owed to the government from the estate before any money is released to you or any other beneficiaries.1
- However, if you generate income from your inherited assets, you might have to pay taxes on that income (e.g rental income or dividends).2 We’ll take a look at which taxes might apply in this context, both in Canada and the UK.
- Even though you don’t have to pay anything yourself, the CRA will still tax your assets before they reach you. We outline how this process works and what is deducted from the estate.
While this article provides a high-level overview of Canadian inheritance tax laws, tax regulations are complex and subject to change. We recommend consulting a qualified tax professional for advice tailored to your circumstances and referring to official sources, such as the Government of Canada website, for the latest information.
Inheritance tax in Canada: an overview
What is inheritance tax?
Inheritance tax is a levy on money, property or other assets someone leaves to you after they die, with the taxes varying depending on the country imposing it. Depending on the country, inheritance tax is either deducted from the estate of the deceased or taxed directly against the beneficiary.
How will I know if I need to pay Canadian or UK inheritance tax?
UK inheritance tax
The first thing to check is the ‘domicile status’ of the deceased. Someone’s ‘domicile status’ refers to where their permanent home is for legal and tax purposes. In the case that the deceased person was UK-domiciled, their assets will be subject to UK inheritance tax.
However, it’s important to consider that someone’s residency and domicile status won’t always be the same. This means a person could be living in Canada but still be classed as UK-domiciled.3
That’s why it’s always important to check the domicile status of the deceased first. If they were not UK-domiciled, their assets would generally fall outside the scope of UK inheritance tax.3
Canadian inheritance tax
Canada has no federal inheritance tax, but certain provinces may apply probate fees or estate administration taxes based on the value of the deceased’s estate. If you’re a UK resident receiving inheritance from Canada, any fees or taxes will be taken from the estate before it reaches you or any of the other beneficiaries.2
What taxes will you need to pay if your inherited assets generate income?
Although Canada doesn’t impose any direct inheritance tax on beneficiaries, if you generate income from the assets you inherit, you could be subject to capital gains taxes – both in the UK and Canada.
UK Capital gains tax on worldwide assets
As a UK resident, you are generally liable to pay Capital Gains Tax on any profits (‘gains’) you make from selling or disposing of assets, regardless of where they are located in the world. This means that if you sell an overseas property or shares in a foreign company, the gain is subject to UK Capital Gains Tax.4
So, while you won’t need to pay any Canadian taxes for inheriting assets, as soon as they start generating income, there might be Capital Gains taxes in the UK you need to pay.
Canadian Capital gains tax on inherited assets
In Canada, Capital Gains on inherited assets work slightly differently, with these taxes being deducted from the estate of the deceased before they reach the beneficiary.
When someone dies, the CRA treats their assets, like property, stocks and investments as if they were sold at fair market value right before their passing. Any outstanding taxes are then taxed within the deceased’s final tax return. This is called ‘deemed disposition’ and means that the estate, not the beneficiary, is responsible for paying any capital gains tax due at the time of death.5
If the value of the assets has increased since they were originally bought, 50% of the Capital Gains are added to the deceased’s final income tax return and taxed at their personal income tax rate.5
Based on the rules above, here is a hypothetical example:
- If a person bought a house for $300,000 and at the time of their death, the house is worth $500,000, the capital gain would be $200,000.
- With 50% taxable, $100,000 would be added to the deceased’s tax return. Let’s say the deceased’s income tax rate is 30%. That would mean the estate must pay 30% of that $100,000.
- This would mean $30,000 in tax would be deducted from the estate before it passes to you as the beneficiary.
Once the assets are transferred to you and the beneficiaries, any income generated from these assets, such as rental income from property or dividends from investments, becomes taxable in the hands of the beneficiaries. This means that if you receive assets which generate income, they must be reported on your personal tax returns for the year it is received.
Double taxation treaties
The UK and Canada have a ‘Double Taxation Convention’. This agreement primarily addresses income and capital gains taxes, and as a UK resident inheriting assets from Canada, it could offer you some tax relief and prevent you from being taxed twice on the same assets.
Rental income: If you inherit property in Canada and decide to rent it out, the rental income would be subject to Canadian tax. According to the Convention, such income may be taxed in Canada, but the tax charged will not exceed 15% of the gross amount of the income. You still need to report this as income on your UK tax return but can claim a credit for the Canadian tax paid, preventing double taxation.6
Dividend income: ‘Dividends’ are payments you receive from certain investments, including company shares, stocks, mutual funds, and investment trusts. If you receive dividends from Canadian investments, Canada may tax these dividends. However, similar to the rental income rule, the tax charged will not exceed 15% of the gross amount. You also need to report this on your tax return but can claim a credit for the tax paid to avoid being taxed again.6
The UK resident must report this income on their UK tax return but can claim a credit for the Canadian tax paid, thereby preventing double taxation.
Taxes are complex and subject to change. You can read more on this Convention on the official Government of Canada website for all the details on the Double Taxation agreement between Canada and the UK.
What will be deducted from your Canadian inheritance before it reaches you in the UK?
How the process works
In the absence of a direct inheritance tax for beneficiaries in Canada, the estate is responsible for settling any tax liabilities before distributing assets. Here’s how the process works:7
- Final tax return: The executor of the estate files a final tax return on behalf of the deceased, reporting all income earned up to the date of death, including employment income, investment earnings, and capital gains. The CRA treats most assets as if they were sold at fair market value immediately before death, potentially resulting in capital gains taxes.
- Estate taxes: All taxes owed are paid from the estate’s assets before being distributed to you, shielding you from additional tax obligations related to the deceased’s income or capital gains.
- Clearance certificate: Before distributing the assets, the executor should obtain a clearance certificate from the CRA confirming that all taxes have been paid. This protects the executor from personal liability for any outstanding tax debts.
Any income you generate from the assets you’ve inherited, such as interest or dividends, is taxable and must be reported on your personal tax return. Similarly, if you sell an inherited asset that has appreciated in value, you might need to pay capital gains tax.1
Consult with a tax professional or financial advisor to ensure compliance with all tax obligations.
Which assets are taxable and which are exempt?
If you’re a UK resident and inherit assets from Canada, some may be taxable under Canadian Law before they reach you.
Assets that are taxed:
- Retirement accounts are taxed as regular income of the deceased before being passed on to you as a beneficiary.8
- Investment properties, stocks and non-registered investments are all subject to capital gains tax when their value has increased.8
Assets that might be exempt from taxes:
Some assets may not be taxed if they qualify for special exemptions such as:
- A main home (principal residence) – if the property you inherit was the deceased’s main home, it is not subject to capital gains tax due to Principal Residence Exemption.8
- A property or business used for farming or fishing – Usually, when someone sells one of these they owe capital gains tax. However, if the estate sells one of these, it may qualify for capital gains deduction, which reduces or removes the tax owed.9
- RRSPs or RRIFs transferred to a spouse or dependent child/grandchild – If the recipient is the surviving spouse, common-law partner, or financially dependent child/grandchild, the tax can usually be deferred instead of being paid immediately.10
Taxation on retirement accounts
Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) do not receive special tax treatment upon death. Instead, the full value of the account is considered income and taxed at the deceased’s personal income tax rate.10
Unlike other investments, capital gains earned within these accounts are not taxed separately – everything is taxed as regular income.10
Based on the rules above, here is an example:
- If the deceased had an RRSP or RRIF worth $200,000, the full amount is taxed as income at death.
- That means the full $200,000 would be added to their final income tax return. This is just one example, but if the retirement account had a higher value, it could push the deceased into a higher tax bracket, leading to a larger tax bill.
- Whatever the final taxable amount is, it is deducted from the estate before it is passed onto you as a beneficiary.
Lumon: Providing peace of mind for you and your loved ones
At Lumon, we’re here to make receiving your inheritance as straightforward as possible so you can focus on what matters most.
Our service is designed around your needs, offering a tailored approach and competitive exchange rates. Your dedicated currency specialist will guide you through your options and provide market insights, helping you get great value from your transfer.
- E-wallet: Keep your inheritance in the original currency and transfer it when the exchange rate works in your favour.
- Dedicated account manager: Get support from a currency specialist who will work with you to manage risk and plan your transfers.
- Forward contracts: Lock in an exchange rate for future transfers to protect the value of your inheritance from market fluctuations.
FAQs about Canadian inheritance tax
How much can you inherit without paying taxes in Canada?
As a UK resident, you don’t pay taxes on inheritance in Canada because the Canadian Government doesn’t impose a direct inheritance tax on beneficiaries. Instead, they tax the estate of the deceased, so any deductions will be made before the estate is passed onto you.1
However, once you have received your inherited assets, if they generate income, there could be various income taxes, both in the UK and Canada, to be aware of.
What are the inheritance rules in Canada?
There is no direct federal inheritance tax in Canada. Instead, there are various probate fees or estate administration taxes depending on the value of the deceased’s estate and the province in which the assets are based.
However, these fees and taxes are deducted from the estate of the deceased before it’s passed on to you or any of the other beneficiaries. So, as a UK resident receiving assets in Canada, there won’t be any taxes you need to pay before you inherit the assets.
How much money can you give to family members tax-free in Canada?
The CRA does not impose a gift tax, so whether you give or receive money, no taxes will be incurred on the transaction.5 However, even as a UK resident, any income generated from that gift, such as interest or dividends, is taxable.
Lumon does not hold its own license or permission to service clients in Canada directly. Services for Canadian customers are provided through our partnership with Currencycloud, an Electronic Money Institution authorised to operate in Canada. Currencycloud issues e-money for funds posted to your account and safeguards these funds in line with regulatory requirements. Safeguarded funds are held at reputable financial institutions and are protected in the event of Currencycloud’s or Lumon’s insolvency. Safeguarding starts as soon as Currencycloud has the funds and ends when funds are paid out to the designated beneficiary account.
This content is intended for residents of the UK and EEA only. Lumon does not hold its own license or permission to service clients in Canada. Services for customers in Canada are facilitated through our introducer arrangement with Currencycloud. For more details, please visit https://www.lumonpay.com/legal-info/.
Sources used:
1 Government of Canada – Amounts that are not reported or taxed
2 Government of Canada – What to do when someone dies – Estates and wills
3 GOV.UK – How Inheritance Tax works: thresholds, rules and allowances
4 GOV.UK – Tax when you sell property
5 Government of Canada – Prepare tax returns for someone who died – Taxable capital gains on property, investments, and belongings
6 Government of Canada – Convention Between the Government of Canada and the Government of the United Kingdom of Great Britain and Northern Ireland
7 Government of Canada – Prepare tax returns for someone who has died – File the returns
8 Government of Canada – Taxable capital gains on property, investments and belongings
9 Government of Canada – Capital gains and losses – farmers and fishers
10 Government of Canada – Prepare tax returns for someone who has died – RRSP & RRIF
Sources last checked on date: 20/02/2025
The information provided in this material is accurate to the best of our knowledge at the time of writing 20/02/2025, but it is subject to change. The content is for informational purposes only and does not constitute tax advice. It is essential that individuals seek advice from professional services regarding tax matters. We do not accept liability for any errors or outdated information, and individuals should not rely on the information presented without consulting an expert.
