Filing a tax return - help on how to file

3,376 posts in this topic

I started the Pru pension back in Mar.1984. All premium payments have been consistently made from one UK bank account.

I only started taking £s from the plan in Apr.2022, ie this year.

 

So, according to Article 17, I should be fine - but how can I persuade the Finanzamt to get off my case? Am I going to have to compile a massive binder of Article 17, plus the state pension paperwork, plus 38 years worth of bank statements (argh!!) plus 38 yrs worth of Pru annual statements, hump them all down there, and argue the toss?

tbh, I'm not at all sure I have all the bank and Pru statements.

0

Share this post


Link to post
Share on other sites

I think you do not understand the pertinent point, that a "tax relief" needs to have occured during the paying in phase that lasted over 15 years.

You simply having paid into it for more than 15 years doesn't bring you anything.

 

For the UK to now have taxation right on that UK private pension, you need to prove that you paid (partly) untaxed money into it for over 15 years while living in the UK, since only then does article 17 (3) of the double taxation agreement (DTA) say that it is only fair that as soon as you start drawing that UK private pension, the UK finally gets the tax they had deferred all those years.

 

If you paid only already taxed money in that private pension, no matter for how long, Germany as your country of residence has the taxation rights on the payout, under the default rule of article 17 (1) of the DTA.

 

**************************************************************************************************

 

A German example for such a tax-relieved private pension would be a Rürup pension.

If someone starts paying into a Rürup pension in 2023, he gets to lower his taxable income in his German income tax return by what he had paid in, e.g. 10,000€ per year, so he is paying untaxed money into his Rürup pension.

 

Alternative 1: he pays in for 15 years + 1 month while living in Germany

Let's assume he continues paying in for 15 years and 1 month, and then moves to the UK at age 62, retires there and starts drawing his Rürup pension.

--> since Germany allowed him to pay untaxed money into that Rürup pension for more than 15 years, Germany finally gets to reap the harvest and despite that person now living in the UK, he will have to file a German tax return every year in which he taxes all that Rürup pension pays out and pays German income tax.

 

Alternative 2: he pays in for 15 years while living in Germany

Let's assume he continues paying in for 15 years, and then moves to the UK at age 62, retires there and starts drawing his Rürup pension.

--> the DTA is ruthless, never mind that Germany forewent tax on in total 15*10,000€ = 150,000€ of income during those 15 years.

Since that person did not pay in tax-relieved contributions for "more than 15 years", Germany now gets nothing and the UK gets to reap the rewards and gets to tax that entire German Rürup pension payout.

1

Share this post


Link to post
Share on other sites
1 hour ago, MaineCoon said:

I started the Pru pension back in Mar.1984. All premium payments have been consistently made from one UK bank account.

I only started taking £s from the plan in Apr.2022, ie this year.

That is not quite the right position to assert.  Article 17(3) overrides 17(1) to switch taxing rights back to the UK if, and only if, all of the conditions in 17(3) are met.  17(3) says:

 

"Notwithstanding the provisions of paragraph 1, such a pension ... arising in [the UK] which is attributable in whole or in part to contributions which, for more than 15 years in [the UK],

a) did not form part of the taxable income from employment, or

b) were tax-deductible, or

c) were tax-relieved in some other way

 

shall be taxable only in [the UK].  This paragraph shall not apply if [the UK] does not effectively tax the pension ..., or if the tax relief was clawed back for any reason, or if the 15 year condition is fulfilled in both Contracting States"

 

Given that you were were working for many years in Germany, without (I assume) taxable income in the UK against which the pension contributions were set, you may have a factual challenge in demonstrating that all conditions in 17(3) are met.  It matters not from which bank account the pension contributions were paid, or when you started drawing the pension... 

 

You also mention that you have no capital income.  Is that correct remembering that bank interest falls under that heading?

 

1

Share this post


Link to post
Share on other sites

@PandaMunich: hmm... you're right, I didn't take the "tax relief" bit on board, apologies.
I moved to Germany in 2007, so at that point the scheme had been running for 22 years. Prior to 2007, I had been tax-resident in the UK since forever.

I have been self-employed for my entire working life.

The pension scheme docs say: "Contributions by individuals and third parties are paid net of basic rate tax relief to the scheme and the scheme administrator claims basic rate tax relief from HMRC, which is paid directly into the scheme."
I think that means Article 17(3) requirements have been met?

 

@GaryC: yes, I had taxable income in the UK during the entire period I was working in DE, and yes the pension contribs were declared on my UK tax returns each year.

 

Good point re bank interest; I forgot that comes under the "Capital Income" heading.
I just had a quick glance, and a back-of-the-envelope calc shows that my entire interest income during 2007-2014 was the princely sum of ~£400.  Eep, I never declared any of that on my German tax returns - although note, they were always prepared by the Steuerberater, who gave me a form to fill in when I registered with her back in 2008, but I don't recall it asking anything about UK bank interest - which I faithfully calculated every year and is declared on the UK tax returns.

 

@PandaMunich said: "There is a separate tax-free allowance for capital income of 801€ per person, so you may not even end up owing any tax because of your capital income, but you still have to declare it. So that would also be a reason for a mandatory tax return in Germany."

Possibly the Steuerberater chose to ignore the miniscule bits of interest? Note, after the 2008 debacle, bank interest shrunk to the point of near-invisibility and has pretty much stayed that way ever since.

 

(groan) so I may have to fill in the 2014-date tax returns here because of the bank interest? And maybe get into trouble over 2008-2014 not-declared UK bank interest?

The gods don't love me :(

 

0

Share this post


Link to post
Share on other sites

Income for which the UK has the taxation rights and that you can prove you taxed in the UK through your UK tax returns, still has to be declared in your German tax return, in Anlage AUS, lines 36 to 40: https://www.steuertipps.de/downloads/article/aav_11786726826/1/aav_anlage_aus_2021.pdf

It will not be taxed again, but it will raise your German income tax rate on your other income, for which Germany does have the taxation rights, this is called Progressionsvorbehalt (please scroll down to the section "Progressionsvorbehalt" in here and read the example with numbers).

 

You will also always have to provide your UK tax returns, as proof that you taxed both your UK state pension and the UK private pension (which you started receiving in 2022?) in the UK.

The D/UK DTA has an "effectively taxed" clause in article 23 (1) a), which means that if you neglect to declare something in your UK tax return for which the UK has the taxation rights, Germany gets to tax it instead.

 

For example, if you sold a let flat, you would have had to declare the profit from the sale in your UK tax return, and if you had owned that let flat for up to 10 years, also as income subject to Progressionsvorbehalt in Anlage AUS, line 36. 

If you didn't declare the profit in your UK tax return, because of the "effectively taxed" clause, the Finanzamt would get to tax the profit outright. But they would then snitch on you to HMRC, and after you had proven that you had taxed the profit from the sale of the let UK flat in the UK (as you should have from the start), the Finanzamt would reimburse you the overpaid German tax.

If the UK then declined to tax the profit, the Finanzamt would keep the German tax. But if you didn't pay any UK tax because it was below your UK tax-free allowance, that's still "taxing it", don't worry.

 

Starting with 2021, thanks to Brexit, you also have to declare your UK rental profit - calculated according to German tax rules - in Anlage AUS line 36 (if it was a rental loss, in Anlage AUS line 48), because from 2021 it is subject to Progressionsvorbehalt:

Ask Prudential to issue a certificate on their letterhead addressed to you, stating that the contributions from 1984 to ??? into the private pension with the acount number 12345678 had always been tax-relieved.

 

If everything works out, i.e. if you can prove the tax relief for your private pension contributions for more than 15 years through the Prudential certificate, this would leave you with no income for Germany to actually raise the income tax rate on, since the UK state pension is also only income subject to Progressionsvorbehalt.

 

3 hours ago, MaineCoon said:

Good point re bank interest; I forgot that comes under the "Capital Income" heading.

I just had a quick glance, and a back-of-the-envelope calc shows that my entire interest income during 2007-2014 was the princely sum of ~£400.  Eep, I never declared any of that on my German tax returns - although note, they were always prepared by the Steuerberater, who gave me a form to fill in when I registered with her back in 2008, but I don't recall it asking anything about UK bank interest - which I faithfully calculated every year and is declared on the UK tax returns.

Paying tax to the wrong country doesn't get you any brownie points.

 

I think you need to switch your way of thinking to:

"Germany as my country of residence gets to tax my entire worldwide income, only if I'm lucky, will the DTA take the taxations rights on certain income away from Germany again.

But I will still have to declare the income for which Germany didn't get the taxation rights in Anlage AUS, because of that pesky Progressionsvorbehalt."

 

You wouldn't have also had a few ISA or LISA, would you?

Because the capital income inside those also has to be declared, they stopped being "tax-free" when you moved to Germany.

 

If your capital income was below 801€ per year, you won't have committed tax evasion.

This is about your entire worldwide capital income. So think long and hard whether you haven't forgetten any other income!

 

For example, you said that you had invested in stocks at Commerzbank.

I assume that stock paid a yearly dividend during all those years that you kept it, waiting for it to recover in value. That dividend would have also come off your 801€ tax-free allowance, i.e. you won't have the entire 801€ left.

 

--> if by looking at all the years back to the calendar year 2012, you see that you would not have owed any tax, just file the tax returns starting with 2014 that the Finanzamt asks for.

 

--> if by looking at all the years back to the calendar year 2012, you see that you would have owed tax, you need to do a Selbstanzeige, i.e. file all corrected tax returns for 2012 to 2021 in one go and then pay the due tax and interest on that tax (6% per year up to 31.12.2018 and 1.8% per year for interest periods starting with 01.01.2019). To cut off the interest accumulating, you should pay the tax you calculated immediately and not wait for the Finanzamt to process your tax returns and to issue the Bescheide.

A Selbstanzeige is a one-off chance, everything needs to be declared in it perfectly from the start, since you do not get to "repair" a Selbstanzeige.

Any forgotten income, even if introduced later on, will lead to the Selbstanzeige not being successful and you getting a criminal fine and a criminal record.

Please read §370 and §371 AO (they're in English): https://www.gesetze-im-internet.de/englisch_ao/englisch_ao.html#p2615

 

**************************************************************************************

 

Just checking:

You do know that since you are not drawing a German social security pension, but just a UK social security pension (= UK state pension), that you can get free German public health insurance through a form S1 issued by the NHS?

 

See here: https://www.nhs.uk/using-the-nhs/healthcare-abroad/moving-abroad/planning-your-healthcare/

 

and here:

 

2

Share this post


Link to post
Share on other sites

Gosh, am I glad I posted my Q here. Thank you so much, even though your advice is going to lead to quite a few days of pain and drudgery.
Thank you for the info about a Selbstanzeige, I can see I have a great deal of reading and understanding ahead.

 

Re the S1: Thank you, yes I do know - because @john g. was extremely helpful in holding my hand while I navigated through the wilds on this.

 

> Income for which the UK has the taxation rights and that you can prove you taxed in the UK through your UK tax returns, still has to be declared in your tax return, in Anlage AUS...
Good grief. What on earth was I paying the Steuerberater all those €000s every year for? I had no idea I was supposed to declare my taxed UK income here. And she certainly never mentioned it.

 

Yes, I've heard of Progressionsvorbehalt, they have something similar in the Netherlands, where my son lives. Seems reasonable it should be here too, although (again) the Steuerberater never asked me about UK income, nor mentioned there being a Progressionsvorbehalt here.

 

> Ask Prudential to issue a certificate...
I certainly will, thank you.
> You will also have to provide your UK tax returns...
That's no problem.

> You wouldn't have also had a few ISA or LISA, would you?
Nope, never.

> But you said that you had invested in stocks at Commerzbank.
"Invested", ha. Those stocks paid exactly €0.00 for the entire period I had them. Every year I would get a letter "Sorry, things weren't so good this year... but next year...". As I said, the day they reached their buy-in price, I got rid of the lot - so made exactly €0.00 on them. Their existence and lack of dividend-ness were included on each year's Steuererklärung though, so that's one less headache.

 

> If you didn't declare the profit in your UK tax return,...
I'm a software engineer, so I know a bit about databases and information exchange. I would never attempt to fiddle my taxes by assuming the left keyboard didn't know what the right one was doing.

 

> I think you need to switch your way of thinking...
I hear you. I had partitioned it in my head: "What's earned here, is taxed here" wrt each country. But it's become clear things aren't quite that simple.

 

> Think long and hard whether you haven't been forgetting other income!),...
By the time I was 28, I had decided that "investments" weren't for me, as I don't have the nerve. The one or two occasions on which I've deviated from this decision have only reinforced it.
At that time, I also thought the state pension wouldn't exist by the time I was 65. Since then, I've put all my income into property - which is why I don't have interest income as I've never had any savings worth talking about.
So yes, I'm completely sure I don't have any Capital-type stuff anywhere else.

 

My UK Tax Returns all say (eg) 2014-2015: Gross interest income: £14.00.
My taxable income for every year (except one) has been less than my UK Personal Allowance. However, from what you've been saying, I have to declare that taxable income here, so that it can be taken into account to calculate the correct Progressionsvorbehalt for 2012-2014.

Then for 2015-2020, I can forget about rental income (but not interest income); and starting in 2021, I must declare it.

 

> Any forgotten income will lead to the Selbstanzeige not being successful
Right, so I'm better off over-declaring things.

I can't help feeling rather cross with the Steuerberater - it was, after all, her job to know about all this. It would have been zero hassle to include the UK stuff along with everything else at the time. Grrr.

 

One last thing: I have a bad feeling that rather than just giving the Finanzamt a simple list of things I forgot (for each year: bank interest income, taxed income), the correct figures for the DE filings for each year are going to have to be re-calcuated and amended throughout, and the entire form re-submitted. Am I correct in thinking this? If so, is there a "DE Tax Filing for Self-Employed Dummies" site somewhere you could point me at?

 

0

Share this post


Link to post
Share on other sites

Use these monthly exchange rates to convert GBP into €, they go back to 2010 and are the monthly averages of the ECB exchange rates: https://www.bundesfinanzministerium.de/Datenportal/Daten/offene-daten/steuern-zoelle/umsatzsteuer-umrechnungskurse/umsatzsteuer-umrechnungskurse.html

Also a available as pdf starting with the year 2015: https://www.bundesfinanzministerium.de/Web/DE/Themen/Steuern/Steuerarten/Umsatzsteuer/Umsatzsteuer_Umrechnungskurse/umsatzsteuer_umrechnungskurse.html

 

I'm going to use German number notation, since that is also what you need to fill into the tax forms.

 

Income directly taxable by Germany:

2012 to 2021: declare worldwide capital income, which you say was only interest in Anlage KAP, line "Ausländische Kapitalerträge", usually to be found around line 17 or 18 or 19 (the form Anlage KAP changes a bit from year to year).

629978dd0c6c5_2022-06-0304_54_52-Formula

 

Income subject to Progressionsvorbehalt:

2012 to 2020: do not declare UK rental profit/loss, but do declare (UK state pension - Rentenfreibetrag) in Anlage AUS "Nach DBA steuerfreie Einkünfte", line 36.

The Rentenfreibetrag is an amount that gets frozen, it never changes.

Attach your calculation that should also state which exchange rate you used and where you got it from, so that the Finanzamt can check everything with no effort at all.

For example, if you first got your UK state pension in December 2015, then 70% of it are "taxable", i.e. your Rentenfreibetrag is 30%, see the table in §22 Nr. 1 Satz 3 a) aa) EStG: https://dejure.org/gesetze/EStG/22.html
62997f55b6409_2022-06-0305_21_17-22EStG-

 

Example: 

500 GBP UK state pension in December 2015 

--> declare in Anlage AUS 2015, line 36: 70% * 500 GBP / 0,72595 GBP/€ = 482,13€ --> always round in your favour:

line 36 of Anlage AUS 2015: Großbritannien / brit. gesetzl. Rente / sonstige Einkünfte / 482

62997e28138f5_2022-06-0305_17_35-Formula

 

Since 2016 is the first year in which you received 12 months of UK state pension, your Rentenfreibetrag is based on your 2016 yearly pension (convert each monthly pension amount plus any extra payments in between that you received from DWP into € using the official monthly exchange rates), but you use the "non-taxable" percentage of the year in which you first received a pension, i.e. the 30% from 2015.

 

Let's assume the sum of all these converted UK state pension amounts that entered your bank account between 1. January and 31. December 2016 is 8.300€.

Rentenfreibetrag = non-taxable part of your UK state pension = 30% * 8.300€ = 2.490€ <-- this € amount will be frozen for all eternity. Attach calculation.

--> taxable part of your 2016 UK state pension =  8.300€ - 2.490€ = 5.810€

line 36 of Anlage AUS 2016: Großbritannien / brit. gesetzl. Rente / sonstige Einkünfte / 5.810

62997e5c38c15_2022-06-0305_18_35-Formula

 

Let's assume the sum of all these converted 2017 monthly UK state pension amounts is 9.053€.

--> taxable part of your 2017 UK state pension =  9.053€ - 2.490€ = 6.563€

line 36 of Anlage AUS 2017: Großbritannien / brit. gesetzl. Rente / sonstige Einkünfte / 6.563

62997f3ad449c_2022-06-0305_19_26-Formula

 

and so on.

 

2021: declare calendar year 2021 UK state pension in Anlage AUS, line 36, after deducting the Rentenfreibetrag of the here assumed 2.490€.

Declare UK rental profit (which is the category "Vermietung") from line 37 (if loss, declare from line 48), I assumed you are letting a flat in Brighton and a house in Worthing.

62997fe72aec1_2022-06-0305_25_05-Formula

 

from 2022: declare UK state pension, UK rental profit and UK private pension that started in April 2022, the contributions to which had been tax-relieved for more than 15 years in Anlage AUS, starting with line 36.

Let's assume your private pension paid out 8.565€ in 2022. There is no Rentenfreibetrag for this. The Rentenfreibetrag only exists for social security pensions like the UK state pension.

62997d35ebb6c_2022-06-0305_13_23-Formula

 

4 hours ago, MaineCoon said:

One last thing: I have a bad feeling that rather than just giving the Finanzamt a simple list of things I forgot (for each year: bank interest income, taxed income), the correct figures for the DE filings for each year are going to have to be re-calcuated and amended throughout, and the entire form re-submitted. Am I correct in thinking this?

Not really, the German tax return is nicely modular.

--> you only need to provide the additional 2 Anlagen to each of your already filed 2012 and 2013 tax returns.

 

I would suggest not "touching" the other parts of the already filed tax returns (well, not unless you know the contents are incorrect - if they are incorrect, they have to be corrected).

Just send the Finanzamt print-outs (paper rules at the Finanzamt!) of the additional Anlage KAP and Anlage AUS for 2012 and 2013, plus print-outs of all your Excel calculations with all the steps left in, so that the caseworker can understand what you did just from the print-out.

They are not allowed to get Excel files, for fear of viruses.

Even if you try to send the Finanzamt files by e-mail, they will only accept pdf files as attachments, which then immediately get printed and the files then deleted.

The most beautiful formula is of no use to the caseworker, since he/she cannot see what formula resulted in this value, he just sees the amount.

--> repeat all formulas as text in Excel, i.e. with a leading ' to define the contents of the Excel cell as text.

 

I suggest using these tax forms that you can fill in and then download as a "form package" (only available in Windows).

For other operating systems, you can download what you filled in as an XML file and then upload it again later into the form.

 

Starting with 2014, you will do complete tax returns, consisting of: https://www.finanzamt.bayern.de/Informationen/Formulare/Steuererklaerung/Einkommensteuer/2014/

  1. Mantelbogen (= form ESt 1A): general form, has your name and address. This is where you sign if you are filing on paper.
  2. Anlage AUS: has your UK income that is subject to Progressionsvorbehalt
  3. Anlage KAP: has your capital income (since you don't own funds, you don't also need KAP-INV)
  4. you could also file Anlage Vorsorgeaufwand (only bother if you end up having income that is directly taxable by Germany, to reduce it), this is where you would usually declare your health insurance, but since you don't pay for it courtesy of the S1 from the NHS, it leaves you 1.900€ "space" to claim for other insurance, e.g. car liability insurance (Kfz-Haftpflicht): https://www-merkur-de.translate.goog/leben/geld/versicherungen-steuer-absetzen-steuererklaerung-werbungskosten-sonderausgaben-geld-zr-91503001.html?_x_tr_sl=de&_x_tr_tl=en&_x_tr_hl=en-US&_x_tr_pto=wapp

 

4 hours ago, MaineCoon said:

If so, is there a "DE Tax Filing for Self-Employed Dummies" site somewhere you could point me at?

For the complete tax returns starting with 2014, take your pick:

 

There is the TT Elster wiki to get you started on how to do a tax return, but it is a bit out of date (2012 and 2013): https://www.toytowngermany.com/wiki/ELSTER

 

If you want software, the Buhl tax is best, but it's in German: https://update2.buhl-data.com/documents/Steuern/2022/Leistungsuebersicht_tax.pdf

If you really need "self-employed" tax forms, you need at least "tax Professional": https://www.idealo.de/preisvergleich/MainSearchProductCategory.html?q=Buhl+tax+professional

If you don't have self-employed profit to declare, the "tax" software will do (it is exactly like the Professional version, it only lacks the tax forms for self-employed): https://www.idealo.de/preisvergleich/MainSearchProductCategory.html?q=Buhl+tax

 

If you need tax software in English, look at SteuerGo, it's web-based: https://www.steuergo.de/en

2

Share this post


Link to post
Share on other sites

Gosh. When do you sleep? 

I can see I'm going to have to clear the decks, sit down and get to grips with this lot. I'll probably go with the paper version until I feel confident I know what I'm doing. With the vast quantity of information you've so kindly provided, I shouldn't have a problem. I hope. 

Ich stehe in deiner Schuld. 🙏

0

Share this post


Link to post
Share on other sites

Sorry to add to your woes but when you write to the Pru you may open another can of worms unless you told them in 2007 that you were moving abroad. 

 

This is not my area of expertise, so you will need to do further research, but as I understand it you can only retain tax relief on your UK pension contributions for up to 5 years after you became non resident and only if you fall within the meaning of "relevant UK individual".  I think you fall into that category because you were resident in the UK at some time during the five tax years immediately before the tax year in question and you were also resident in the UK when you joined the pension scheme. However, relief is limited to net contributions of £2,800 (£3,600 when the reclaimed tax relief is added to your pension pot).  This means that from ? 2012/13 or 2013/14 ? at the latest the Pru should no longer have been reclaiming the 20% basic rate tax on your behalf.  And if you did fall within the meaning of "relevant UK individual" then the reclaimed tax should have been restricted to £800 max per year for the 5 years after leaving the UK.  As I understand it, rental income (unless it is from certain furnished holiday lettings) is not taken into account when considering whether UK tax relief on pension contributions is available. 

 

This may be a good starting point for your further reading... 

Tax relief on member contributions (pruadviser.co.uk)

PTM044100 - Contributions: tax relief for members: conditions - HMRC internal manual - GOV.UK (www.gov.uk)

 

If the Pru has been incorrectly reclaiming tax relief at 20% for some or all years from 2007 to 2022, the impact on your pension would be significant. 

 

Pension tax relief is complex, so I hope I am wrong but I fear the worms are itching to get out of the can. 

0

Share this post


Link to post
Share on other sites

@GaryC, thanks for the heads up. The Pru know I'm in Germany, as they send the annual statements here.

I will need to read both the links you sent, but a quick scan shows:

Quote

Relevant UK individuals
Tax relief is available on pension contributions paid by or on behalf of an individual... if he or she is a 'relevant UK individual'. A ‘relevant UK individual’ must meet one of the following conditions so will qualify if they:
* have relevant UK earnings chargeable to income tax for that tax year,

I file annually for income tax in the UK, and anticipate continuing to do so indefinitely. Therefore, the 5-year rule won't apply - as long as the earnings are "relevant".

 

The question of "relevant earnings" is moot. I have previously engaged with HMRC on this matter, arguing that refurbishing, managing and looking after the properties consumed enough of my time for it to be a trade (the argument related to what's tax-deductible and what isn't). Additionally, most of the profits were ploughed back into the acquisition of other properties. They did agree, eventually, so hopefully that's not a problem either. Now, I'm not sure if I should / should not let sleeping dogs lie. 

Looking back, I wish now I had put them all in a company, but "you can't should've".

 

0

Share this post


Link to post
Share on other sites

This gets more and more complicated. 

 

Whether you submit a UK tax return, or plough the profit back into property, are not, I think, in this context, determining factors.  As I read it, you must be a "relevant UK individual" and have "relevant UK earnings".  Earnings that would fall within that definition but which are not taxable in the UK by virtue of a DTA are not "relevant UK earnings". Rental income is not "relevant UK earnings". 

 

I don't think the trading question you mention is relevant either.  Whether the activities of a person amount to a trade that includes the receipt of rental income is one that would turn on its own facts but let's just say the bar is high as income from property is, per se, not trading income, so you need something which makes that income subordinate to the income from the other activities.  And, if you are seen to be carrying on a trade then you would be liable for Class 2 & 4 NIC, which you may or may not have been paying (mandatorily in relation to your trade as opposed to paying voluntary NIC as a non-resident to boost your pension). 

 

Whether you then have "relevant UK earnings" is not wholly clear (to me).  Earnings from a trade are "relevant UK earnings", so long as they are not exempted from UK tax by a DTA, if they are chargeable under Part 2 Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005).  Income from property is chargeable under Part 3 of that Act, so is not relevant earnings. Whether being treated as carrying on a trade means that the property income becomes taxable under Part 2 ITTOIA is a good question.  I think it might but that is one for another day, sigh...  That said, there is a boundary rule which gives priority to the charge under Part 3 over that under Part 2.  The example there is of a property developer who temporarily lets some property before its sale.  That rent is chargeable under Part 3, even though there is an argument that it could be trading income under Part 2...

 

If the activities amount to a trade as previously described it would presumably still not be "relevant UK earnings".  This comes back to what Panda Munich has said about taxation of your worldwide income as a tax resident of Germany.  If your property activities amount to you carrying on a trade, the DTA would presumably award taxing rights to Germany (because it is looking at trading profits, not profits from immovable property) and the income would therefore not be "relevant UK earnings". 

 

So, from the pensions tax relief perspective, it would seem that the profits arising from your UK properties are not "relevant UK earnings" whichever way you cut it and you therefore appear to qualify for tax relief on your contributions only under the 5-year rule.  You will of course want to draw your own conclusions on all of this but be mindful of running into the combined might of HMRC and the Finanzamt from an income tax/tax return perspective, as well as HMRC and the Pru in terms of pensions tax relief at source.  I do not envy you and if I am wrong about all of this then my apologies for setting hares running!

 

As far as "having should have" held the property(ies) in a corporate envelope, you may have fallen foul of ATED - the Annual Tax on Enveloped Dwellings, though it is a long time since I broke my brain reading those provisions and as you didn't do it, I will refrain from entertaining myself that way now too, lol.

 

Good luck

1

Share this post


Link to post
Share on other sites

 

Quote

If the activities amount to a trade as previously described it would presumably still not be "relevant UK earnings".  This comes back to what Panda Munich has said about taxation of your worldwide income as a tax resident of Germany.  If your property activities amount to you carrying on a trade, the DTA would presumably award taxing rights to Germany (because it is looking at trading profits, not profits from immovable property) and the income would therefore not be "relevant UK earnings". 

From a German point of view, it would only be a trade (Gewerbe) if he offers something "additional" to just letting, e.g. if he runs a Coworking space.

In that case, he would have a permanent establishment in the UK (that Coworking business), since he would also need personnel to clean, to man the reception desk, to hand out equipment like beamers and so on, see article 7 of the DTA. 

This would also mean that the real estate used for this business would automatically be business assets, which would mean that even if he sold it after more than 10 years, the profit would always be subject to Progressionsvorbehalt.

 

Of course, if he runs this Coworking business from Germany, he would create a permanent establishment also in Germany according to article 5 (5) of the DTA since he "habitually exercises, in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person under-
takes for the enterprise,"

--> the part of his Coworking profit stemming from his work would have to be taxed in Germany.

 

So yes, he had better never air the "trade" theory to the Finanzamt, because that would mean taxing the part of his "trade" profit that stems from his own work in Germany as business profits (Einkünfte aus Gewerbebetrieb), and the other part of his "trade" profit would have been income subject to Progressionsvorbehalt.

--> this would mess up his old tax returns, the ones he filed while he was still freelancing in Germany.

 

And he should be glad he never put his real estate into a capital company like a Ltd, since then his real estate - even if he only let it and did not run a business with it like a Coworking space - would have immediately become business assets and that means the special rule of §23 (1) Nr. 1 EStG, that private asset real estate that is sold after more than 10 years is not taxable (and therefore for UK real estate, the profit is not subject to Progressionsvorbehalt) would not apply.

--> there would always be Progressionsvorbehalt on any profit from selling his UK real estate, no matter how long you owned it.

 

Much better to have this simply be rental income (Einkünfte aus Vermietung und Verpachtung), i.e. him exploiting private assets (private Vermögensverwaltung).

Only for this non-business rental income does the exemption from Progressionsvorbehalt for EU/EEA rental income in §32b (1) Satz 2 Nr. 3 EStG apply, which is the reason why I told him that he should not declare his UK rental profit in his German tax return in a years up to and including 2020.

And should he ever sell any of the properties, them being private assets, as long as he had owned it for more than 10 years, the profit he makes would not appear in his German tax return at all.

2

Share this post


Link to post
Share on other sites

WOW - don't you just love international tax! 

 

What I take from all this is that the least worst outcome seems to be that tax relief may have been overclaimed on the pension contributions post 2007 or post 2012 or 2013 if the 5-year rule applies. 

 

From the taxation of the pension perspective I would assume that the 15 years would still be met as the tax relief that would potentially be clawed back relates to years after the magic 15 - Article 17(3) refers to "the" tax relief being withdrawn, which I would refer back to the 15 years of tax relief required but whether the Competent Authorities in the UK and Germany would view it that way is a good question.  

 

I have lost track of what income was received in each year since 2014 and am too lazy to scroll back up the thread but presumably, once the letter from the Pru is obtained, that would leave the German tax return position being to return the small amounts of UK interest, return the UK pensions as appropriate for the Progresionsvorbehalt and return any property disposals for Progression to the extent that they were owned for less than 10 years.  Not that a lot of tax would arise on that interest, even if the effective rate was 40%+. 

 

Quite how HMRC will view the over-claimed tax relief (assuming the Pru has continued to claim it) and what impact that would have on the amount of pension payable will drop out as things develop...

 

What a mess.

1

Share this post


Link to post
Share on other sites

Good grief. And there was me thinking how nice, tidy and simple my financial life was.

I suppose thing-to-do No.1 is find out for sure whether the Pru did or did not claim tax relief, and for which years.

Everything else flows from there.

 

GaryC: I should mention that my husband has a small building firm; he specialises in stone-built buildings. We bought and rebuilt some to keep over the years, which then turned into rentals. At the moment, we're working on what I hope and pray is the very last one. So when I've said above "refurbish", I really mean "rebuild the wretched thing".  It'll be nice when it's done - new roof, skylights, bigger windows, etc., etc.

 

signal-2022-05-12-203729_002.jpg

0

Share this post


Link to post
Share on other sites

Looks interesting but does not, in my view, make the letting business a trading activity.  As I would see it, either the properties were part of the trading stock of his business and "sold" as a trade sale when complete, which I doubt you would wish to claim as "he" would then suffer Income Tax and NIC on the proceeds less costs - and probably still have the rental income under Part 3 as shown on HMRC's website - or he has used his expertise and ability to get good prices on materials to refurbish an investment property that will be subject to CGT on sale proceeds less costs, including the refurbishment costs, to the extent they are reflected in the property when sold.  Income will be rental income under Part 3.

0

Share this post


Link to post
Share on other sites

Hm. I think I'm going to let this particular dog continue snoring, and just take the hit re the tax relief, should it turn out that way.

Sent the letter to the Pru this morning; I don't expect to hear back for a week or two.

2

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now