Tax on UK pension

48 posts in this topic

Posted

Hi,

Anybody claiming UK state pension in Germany? There are some changes in the DT treaty in 2010 regarding tax on UK state pensions. As far as I could make out, UK state pensions are still subject to UK tax and relief is granted through personal allowance. I am still confused. Although it is very difficult to tax a UK state pension in accordance with German law...e.g 50% tax free from 2005, convertion from £sterling to Euros, increasing to UK terms..everything is possible. I would be most pleased for information.Thanks!

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Posted

I see no one's answered this query and I have a related one. Hopefully we might get lucky.

I could take early retirement at 55 and cash in a small UK teacher's pension amounting to about 2000 a year with a lump sum of about 5000. I have worked self employed in Germany for over ten years in a low income job (under 20000 gross a year). I intend to keep working until i drop. I wondered about the implications?

a) Will I be taxed on the lump sum - in the UK or Germany.

B) Do they tax my pension in UK or Germany. Any idea of percentages? I'm only looking for a very approximate idea.

Thanks in advance

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Posted

Private pensions and 'normal' UK state pensions are taxable here just as is pretty much any other income from any source anywhere in the world.

According to my local Steueramt on the other hand, a pension paid to an ex-state employee (i.e. civil servants, anyone who would be classed as Sesselfurzer Beamte in Germany), would not be taxable here provided that it can be shown that the pension is indeed being taxed in the UK.

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Posted

Thanks for your response and the useful information. That's very helpful.

I'll need to find out if a teacher constitutes 'Beamte'. Looking at wiki it probably does. I assume as I earn nothing in the UK I'll probably not be taxed there and end up getting hit in Germany.

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Posted

Hi,

I cashed in my private pension plan (from my ex employer) on my 55 birthday and receive an annual pension of €2000. I also took a cash sum of €17,000. The pension provider was required to deduct UK basic tax unless I got an exemption from the Inland Revenue. I contacted the Inland Revenue re tax on the pension and once I proved that I had been in Germany for 20 Years and paid tax here they gave me a exemption from UK tax. From start to finish took less than 10 days to get the exemption. I’ve not heard a word from the IR since.

The Finanzamt will however want to know about the lump payment and the annual pension will have to be declared each year. Make sure when you declare the lump sum that it is declared as a one off payment from a pension fund as allowed under UK law. I wrote the FA a letter with my tax return explaining the situation and receive a large tax-free allowance on the sum. Don’t forget that the Krankenkasse will also want to know about the annual pension income. To save time and back and forward of post I included a copy and translation of my pension statement from the UK to the FA and Krankenkasse.

Hope this helps and good luck.

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Posted

There is of course the interesting situation where some pension plans in the UK foresee an monthly payment plus a tax-free lump sum at 65. Whether the German FA accepts that the UK tax-free lump sum is tax-free is another matter. On the other hand the UK folks are not likely to inform the German FA about something that the UK deems to be tax-free.

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Posted

Thanks again. Really useful. One thing that might emerge from this is that on speaking to my partner (who's a teacher) she said you couldn't be Beampted (or whatever it is) if you didn't begin work as a teacher before thirty in Germany - which might mean some tax implications for em as I might have been just thirty when I started work.

if its not too personal can I ask if they pay your pension direct to Germany or does it go to the UK?

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Posted

I have payment sent to my UK bank. It allows me to transfere money when the exchange rate is to my advantage. They where however willing to pay direct to my German bank.

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Posted

... if its not too personal can I ask if they pay your pension direct to Germany or does it go to the UK?

If you are talking about the state pension, you can choose between being paid in GBP into a UK bank or in EUR into a German bank.

Some private pension providers offer only the GBP UK account option.

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Posted

My own kind of gut feeling is that wherever you're resident you'll be paying tax and you'll possibly/probably be exempted from tax in the country where the money is coming from.

I should say I didn't start working when I was thirty. I'd worked for years before. I just started working as a teacher. I'm guessing I don't fall into the Beampte class - as I worked for under 9 years as a teacher and I think 16 would be the minimum.

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Posted

Hi, yes, I had little response to my initial problem. I continued to pay tax in the UK although I already lived in Germany for several years.

Thanks to a Toytown member, who assured me that the German tax authorities would be far more generous than the UK ones, I carefully considered my situation. At first I bought the "Steuersparer", a German Steuererklaerungs-CD that is really very cheap (5Euros). I worked through it several times in order to get an idea how the German tax system works. I entered all of my income, state pension etc. and after re-doing it again and again, I had a surprising and pleasing result: I would pay less tax in Germany. I knew, it was a leap of faith but I decided to fill in a double taxation form that asks for relief of UK tax. Naturally, it had to be signed by the local German tax authority and it had to be sent off to the UK. After 4 months, I received a considerable sum of money back from the HM Revenue&Customs. I then took all my paperwork to the German tax authorities and they sorted it all out. Since than, I am paying income tax in Germany (less than in the UK). I am still using a CD for my 'Steuererklaerung' each year and I am glad that everything worked out that well.

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Posted

Hello,

I think this will help. Shame that my new version is only in Germany.

Artikel 9

Öffentliche Kassen

(1) Vergütungen, einschließlich der Ruhegehälter, die aus öffentlichen Kassen des Vereinigten Königreichs oder Nordirlands oder aus Kassen einer Gebietskörperschaft im Vereinigten Königreich für gegenwärtig oder früher erbrachte Dienst- oder Arbeitsleistungen gezahlt werden, sind von der Steuer der Bundesrepublik befreit, es sei denn, daß die Zahlung an einen deutschen Staatsangehörigen geleistet wird, der nicht zugleich Staatsangehöriger des Vereinigten Königreichs ist.

The old version of the Double-Taxation-Agreement between UK and D says the same,so here is the English version:

Remunerations, including pensions, paid in respect of present or past services or work, out of public funds in the UK or Northern Ireland or the funds of any local authority in the UK shall be exempt from Federal Republic tax UNLESS the payment is made to a German national who is also a national of the UK.

I think the text is pretty clear, so there is no further explanation necessary!?

Regard

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Posted

It's unusual to ask a question on a forum and get all the answers in whats seems like a matter of moments. Thanks again everyone and I hope this thread might help others.

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Posted

Hello,

thank you for your update - you are right. Your one is the current one :wub:

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Posted

Help Please. I am confused.

The information in Artikel 9 is relatively easy to understand. But I have read and re-read the wording of Artikel 18 Absatz 2 and it might as well be in Chinese. Can anyone explain what it is saying, in plain speech?

As I understand things,a UK public sector pension, or a pension which is paid for from taxation in the UK is free from German tax. Is this right?

My pension, from the Royal Mail, converted to a public sector pension paid for entirely by taxpayer funds when it was taken over by the UK government in 2012. I started receiving it last February. Should I expect to pay tax on this in Germany or not?

I would be very grateful for any input about this.

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Posted

You're not the only one to be confused, Muggers. In my own case my local FA were confused about whether to tax my (bog standard private sector) UK State Pension or not.

In my early years here from 2004 onwards they did not tax it. Then suddenly they did, so I contested this on the grounds that nothing had changed since those earlier years. They took many months to hum and ha with the occasional email passing between us until ultimately they asked if my pension was being taxed at source. Since I had to admit that it wasn't, the FA took the view that it was therefore taxable here, with which decision we've lived ever since.

I think the translation of "State Pension" into "Staatliche Rente" was the source of the confusion.

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Posted

Am I correct then in assuming that payments from “contracted out company pensions” should fall under article 17 paragraph 2 and 3 and hence be taxed solely in the UK (Contracting State in which tax-deductible contributions were made for more than 15 years)?

Also, does anybody know how the tax-free lump sum (usually 25% of the “pension pot” that can be taken tax-free once pensionable age is reached) will be treated by the German FA? Would it be considered as part of the overall (otherwise taxed) pension payments or will it fall foul of the last three lines of article 17 paragraph 3?

Thanks.

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Posted

The information in Artikel 9 is relatively easy to understand. But I have read and re-read the wording of Artikel 18 Absatz 2 and it might as well be in Chinese. Can anyone explain what it is saying, in plain speech?

As I understand things,a UK public sector pension, or a pension which is paid for from taxation in the UK is free from German tax. Is this right?

My pension, from the Royal Mail, converted to a public sector pension paid for entirely by taxpayer funds when it was taken over by the UK government in 2012. I started receiving it last February. Should I expect to pay tax on this in Germany or not?

I would be very grateful for any input about this.

Case 1: If you do not have German citizenship, live in Germany and draw a pension as a UK civil servant

--> You have to tax your governmental pension in the UK, but you also have to mention in your German tax return. This does not mean that it will be taxed again, but that it will raise the German tax rate that you will have to pay on your income that is taxable in Germany. This raising of your tax rate is called Progressionsvorbehalt.

The following part of article 18, section (2) of the double taxation treaty between Germany and the UK applies to you:

  • Notwithstanding the provisions of paragraph 1, pensions and other similar
    remuneration paid by, or out of funds created by, a Contracting State, a “Land” or a political
    subdivision or a local authority of a “Land” or a Contracting State or some other legal entity
    under public law of that State to an individual in respect of services rendered to that State,
    “Land”, subdivision or authority or legal entity under public law shall be taxable only in that
    State.

The article giving Germany the right to use your pension in raising the German tax rate on your other income is laid down in article 23, section (1), d):

  • Germany, however, retains the right to take into account in the
    determination of its rate of tax the items of income and capital which
    are under the provisions of this Convention exempted from German tax.

Case 2: If you have German citizenship, live in Germany and draw a pension as a UK civil servant

--> You have to tax your governmental pension in Germany.

In that case the following addendum in article 18, section (2) of the double taxation treaty between Germany and the UK applies to you:

  • However, such pensions and other similar remuneration shall be taxable only in the
    other Contracting State if the individual is a resident of, and a national of, that State.

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Posted

Am I correct then in assuming that payments from “contracted out company pensions” should fall under article 17 paragraph 2 and 3 and hence be taxed solely in the UK (Contracting State in which tax-deductible contributions were made for more than 15 years)?

Also, does anybody know how the tax-free lump sum (usually 25% of the “pension pot” that can be taken tax-free once pensionable age is reached) will be treated by the German FA? Would it be considered as part of the overall (otherwise taxed) pension payments or will it fall foul of the last three lines of article 17 paragraph 3?

If your private pension does not get taxed in the UK then I'm afraid the following part of article 17 section (2) would apply:

  • This paragraph shall not apply if that State does not
    effectively tax the pension, other similar remuneration or annuity, or if the tax relief was
    clawed back for any reason, or if the 15 year condition is fulfilled in both Contracting States.

As far as know, the Finanzamt would - if the UK didn't tax it - consider those 25% of your "pension pot" income in the year that it gets paid out to you, and ask for tax on it.

Even worse, if you are a voluntary member of a Krankenkasse (= public health insurance), then they may also make a claim to it.

In Germany such lump pay-outs from private pension insurances are considered when calculating your public health insurance contribution.

And to make matters worse, they don't just consider it for the month it gets paid out, which would still be bearable in that you would have to pay the maximum contribution of 700€ for that month - no, they spread that amount over 10 years, and then charge you an additional health insurance contribution according to lump_sum/120 each month. For details please see Private Pension from German Lebensversicherung.

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Posted

Hi, I see the last posting on this was 8 months ago but hopefully I can get an answer to my question. Most of the responses above have been related to public service pensions. It is not clear to me what the situation is for private company pension schemes.

I intend to split my time two thirds in Germany and one third in the UK. I am not a German citzen but spend more than 183 days in the year here so will be taxed in Germany. I will get my pension paid into my UK bank together with a small lump sum and assume that it will be taxed at source in the UK, the lump sum being zero tax. I can therefore say that my pension was taxed in the UK. Can I therefore assume that because of the double taxation agreement I will not have to pay tax in Germany? I have a small German company pension. Shall I assume that this German pension will attract a higher tax based on a rate calculated from the sum of my UK and German pensions, i.e., Progressionsvorbehalt?

And what is the situation regarding the Krankenkasse? If the majority of my pension is taxed in the UK are they still going to want 17.4% of the lot?!??!?

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Posted

Since you will have unlimited tax liability in Germany, it doesn't matter squat whether a pension is paid into a UK or German bank account: its taxation is governed by the Germany/UK double taxation agreement (DTA), and for run-of-the-mill private pensions that aren't connected to former employers this means that Germany has the taxation rights on it.

My reply in post 21 was about a fall-back clause in the DTA, which basically says: even if the UK has the taxation rights on a certain type of pension and if it doesn't choose to exercise them, then the taxation rights revert back to Germany.

Please do work through the above posts and the linked threads (including the linked DTA) and you will see that things aren't as simple as you assumed.

Regarding the Krankenkasse, if you will be a mandatory member (= you spent more than 90% of the second half of your work life in public health insurance) then they will only charge you around 9.325% of your public (German + UK) pensions. But with the additional payment of contributions on pay-outs from private pensions that have been paid from money that hadn't yet had social security contributions deducted, as described in post 21.

On the other hand, if you will be a voluntary member then yes, it will be around 17.5% of all your worldwide income, from all possible sources (not only on your pensions, public or private).

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Posted

Is the KK entitled to a proportion of (for example) British rental income, even though the Finanzamt doesn't even want to know about it?

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Posted

Yes, if you are a voluntary of a Krankenkasse then charge on a wider basis than the Finanzamt - they really charge on your worldwide income.

They have published a list of all income types that they base their contributions on, see here.

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