British rental property income taxation rules

85 posts in this topic

Hello together!

 

Partial rant, but mainly a request for advice.

 

I'll admit to being lazy (and potentially naive/stupid) in that I've never done a tax return here. Everything gets taken out of my wages PAYE and although I've heard that doing a tax return pays for itself in terms of what you get back from "overpayments", frankly it's all hoops to jump through and I'm barely organised enough to do my GB tax return in my native language without opening up a world of pain in German.

 

Anyway: I'm PAYE, mrs g has a mini-job, we get Kindergelt for mini-grampus. Our lot is a simple one, or so we thought.

 

Returned home today to a letter from the Finanzamt, containing a questionnaire regarding our house back in GB. How they even have this on their radar, I've no idea.

 

Background to grampus Towers:

We rent it out via an agent. It was (is) our family home before moving to Germany and we (okay, me) wanted to keep it as a small investment / contingency plan in case everything went pear-shaped here. Bit laughable, really. It's a two-up, two-down end terrace. It's not Millionaires' Row.

 

We barely break even on it, indeed have subsidised it for short periods when it's lain empty. Basically it's not in a lucrative area for rent, so what the market will stand is enough to cover interest repayments and insurance and that's it. We're not raking in profit: it's all declared to the British taxman and it's well within the basic rate allowance.

 

 

  • Payment goes from tenant to agent
  • Agent takes fee (and sometimes repair costs and/or finder's fees) and pays remainder into my GB bank
  • Mortgage gets paid from the same GB bank to the building society
  • Earlier this year, I transfered some money from my DE bank to my GB bank in order to make a capital repayment to the building society.
  • But no money gets transfered the other way (GB->DE) and everything is declared to GB taxman...
  • ...and is next to nothing anyway, under the basic rate allowance

 

 

My naive question after that long story is: what has all this got to do with the DE-Finanzamt? I get taxed on my earnings here PAYE. What has my "not-for-profit" house in GB and taxed in GB got to do with DE, especially since the lack-of-profit remains in GB? Have any other TTers had to fill in such a questionnaire? How much of an ass-pounding am I in for here?

 

Now bracing myself... and... Send...

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GB and DE share tax information, which is how the Finanzamt found out about it. Since a lot of UK TTers own property back there while being resident in DE, there will no doubt be someone to clarify this in greater and more accurate detail, but since you are resident in Germany, you still have to report any income from the UK, and you'll probably get a tax credit for any tax that you paid in the UK. The way it normally works with these dual taxation agreements is that the country where the property is located gets first crack at taxing the money you earn from rental payments, then the country where you live might tax you additionally depending on their tax laws, the amount of tax you paid in the UK and any applicable deductions/writeoffs. It's theoretically possible that you could be pushed into a higher German tax bracket and thus owe more tax to DE, but given that you can write off the interest on your mortgage and other things, you may not owe anything additional to the Finanzamt.

 

Sounds like you may need to get a Steuerberator involved to help you.

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Thanks Conquistador. I think you may well be right about taking on a Steuerberator. Just hacked off that the horse has already bolted...

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Since a lot of UK TTers own property back there while being resident in DE, there will no doubt be someone to clarify this in greater and more accurate detail

Bump for the daytime crowd. Morning, BTW!

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My naive question after that long story is: what has all this got to do with the DE-Finanzamt?

 

Quiet simple - when you are resident in Germany your world-wide income is taxable HERE.

 

Due to taxation agreements between various countries (including UK & Germany) you should not be liable for double taxation BUT...

The Finanzamt will apply the taxation due here on world-income (regardless of wether its from interest on capital/rent etc.) and IN PINCIPLE allow any UK tax deducted against that. I say IN PRINCIPLE because they might not take into consideration allowances etc that the UK revenue would and (in case of interest due to dividends) only take 10% Quellensteuer into consideration...

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Your UK income (related to that house) will not be taxed in germany, but it will raise your tax rate on your other income. But dont worry to much. Maybe, according to german law your calculated profit from your house will be a loss... You will certainly need a tax advisor.

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...and is next to nothing anyway, under the basic rate allowance

In simple terms say you had a UK nett income of £5,000 on the rental, you would be paying zero UK tax 'cos it is below the taxable UK threshold for 1 person.

 

But if in Germany you were already earning €50,000+ then the extra £5,000 profit would be part of your worldwide income and taxable here at 40% or more etc.

 

So you can see why the Germans take an interest in these things.

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Thanks guys. Appointment made. Chatting to a colleague here makes me worry that the income might be taxed, not the profit. Feck... I hate it when mrs g is right...

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Nahhhhhhh. I think your colleague is talking rubbish. Even here you can offset your costs against your income when renting property.

 

Imagine things on a bigger scale. XYZ Gmbh owns €10M of property with €8M of bank loans. They don't tax 'em based on the income ONLY and totally ignore the huge costs of bank finance do they?

 

And same whether XYZ Gmbh or Mr. Smith with his 1 bed flat.

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Stop worrying Grampus and find a tax advisor. The worst they'll tax you on is the profit BUT you can offset all sorts of costs against that including, I would be pretty sure, at least a yearly visit back to GB Towers (to check on the manicured lawns and all that).

 

Just a note - it's irrelevant that your profit is below the UK taxable rate, I don't think we're allowed the taxable rates for various countries, just the one that we're domiciled in for tax purposes. Sounds as though that's Germany for you so you need to bring all the income - and associated costs - for your property into your German tax situation. Germany has - compared to other countries I've lived and paid taxes in - an incredibly generous range of things you can offset against income.

 

As I said, stop fretting and find an advisor, they'll help you sort it out and it won't be too complex. I'd ask around TT for local recommendations.

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Thanks to all: appointment made for the New Year. I shall try to keep calm in the meantime.

 

Get me a whisk(e)y, stat!

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Stop worrying Grampus and find a tax advisor.

 

As I said, stop fretting and find an advisor

 

I can only agree this and the many other excellent comments made here. No point in me repeating my own experience because it's similar (and yup, EU tax authorities do share tax info, my Finanzamt have told me that often enough).

 

One thing I learned over the years is just not to worry. It is very easy to hook onto the "worst case" stuff you hear (as per your colleague's remark) but reality is invariably different. OK so it'll come in scope of German tax authority as you are resident here. But that doesn't mean some humungous bill (as many others here say). I focus now on process - just take it through the process. It is what it is - and worrying doesn't change anything anyway.

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You may have to prepare the accounts for you UK property according to the German tax year rather then the UK tax year and submit these to the Finanzamt along with something to show the income has already been declared on the UK side so it shouldn't be taxed twice. Bearing in mind the tax deductible expenses are different here it is worth seeing a Steuerberater to make sure you get the expenses part correct.

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Dear grampus,

 

I am a German tax advisor and can give advice on this:

 

In previous years, it was necessary to declare your UK rental income in the German tax return. This income influenced the German tax rates.

However, the German tax regulations have been changed last year. Due to this change any rental income from properties located outside of Germany and in the EU (exept Spain and Finland) is no longer considered in the German tax return.

 

I suggest that you let your taxman know that your UK rental income doesn't need to be included according to current tax law.

 

If your taxman still isn't satisfied I'm happy to assist - please see my contact details on www.stb-brune.de

 

Best,

 

Martin

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Hi Martin,

 

Hey, that's really nice of you! Thanks very much! :)

 

I had a meeting with a tax advisor last week and she talked me through the preliminary/investigative form that I had been asked to fill in. Since the deadline was yesterday, the form has already gone back.

 

Following her advice, I also volunteered the income and costs associated with the property since mrs and mini-grampus vacated the property to join me here (showing tiny profit '07, loss '08, bigger loss '09). The idea being to head the taxman off in his thinking i.e. "nothing to tax here"!!!

 

Anyway, if the taxman comes back to me and wants an annual declaration (which, according to advice, looks unlikely at this stage), then I shall certainly use your advice. Very kind of you!

 

Supplementary question: as this situation goes back a couple of years, could the taxman potentially ask for back-taxes on "profit" from previous years (i.e. when foreign rental income was covered by German law)?

 

I plan to write up / help write up a little more feedback on the topic once the taxman responds, then there should be a clearer picture for future sufferers!

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Anyone know what the situation is when Grampus comes round to selling it? If there is say a tidy profit after owning it 5 years, is it subject to speculation tax in Germany?

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If not that then I'm pretty certain that it's liable for Capital Gains Tax in the UK.

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I own a property in the UK on which I made a loss ie the income from renting it out is less than the mortgage payments.

HMRC demanded a couple of years ago I did a UK tax return but of course there was no tax to pay.

The German tax office was just totally not interested at all and of course wouldn't let me balance the "loss" against my earned income in Germany.

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