Tax on UK pension

67 posts in this topic

 

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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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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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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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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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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Interesting, so how does it work if you are a compulsory member of the KK during your working life and then you take early retirement at say age 60 and then become a member of the Krankenversicherung der Rentner when you reach legal retirement age...would you just pay contributions on the rental income from age 60 until 64 or whatever the earliest legal retirement age is?

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I've worked my way through this but my head is spinning. It's not easy for me to understand.

 

So.. basically.. me.. a UK citizen working in Germany .. my UK pension (when it eventually arrives) will be taxed by the Germans? Even if it is paid into a UK account?

 

Drat... that upsets all my calculations.

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So.. basically.. me.. a UK citizen working in Germany .. my UK pension (when it eventually arrives) will be taxed by the Germans? Even if it is paid into a UK account?

 

Of course - your world-wide income is taxed HERE (even the parts that might be considered to be "tax-free" in UK).

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Hi PandaMunich, I had looked through the previous posts and that was the reason I came to the conclusion that my pension would be taxed in the UK. Sorry if I got my terminology wrong. By company pension I was referring to a contracted-out pension linked to my former employer who also made contributions. In the good old days it was a final salary scheme but was frozen some time ago. If I read the DTA Article 17 para 3 it implies that if I paid into that pension scheme for more than 15 years (which I did), the UK has the first right to tax.

 

Yes it does seem as though the KK will take a big 17.5% chunk out of it. In order to mitigate those contributions a little bit I need to have those contributions tax deductible. But if all my pension income is being taxed in the UK how can I do that? Or do I somehow need to persuade the UK tax people that even though they have first rights to tax my pension they should not. It can then be taxed in Germany.

 

BTW, I see you give a lot of helpful hints and advice on this site. Thanks!!!

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So.. basically.. me.. a UK citizen working in Germany .. my UK pension (when it eventually arrives) will be taxed by the Germans?

 

No, you really have to read through the double taxation agreement, and depending on what type of pension it is, either one country or the other has the taxation rights.

 

 

Even if it is paid into a UK account?

 

It doesn't matter at all into which bank account it is paid into.

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Interesting, so how does it work if you are a compulsory member of the KK during your working life and then you take early retirement at say age 60 and then become a member of the Krankenversicherung der Rentner when you reach legal retirement age...would you just pay contributions on the rental income from age 60 until 64 or whatever the earliest legal retirement age is?

 

Under the present rules, yes.

 

But the Krankenkasse have a history of enlarging the contributory base all the same, so by the time you retire, they will probably anyway charge according to your total worldwide income.

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Yes it does seem as though the KK will take a big 17.5% chunk out of it. In order to mitigate those contributions a little bit I need to have those contributions tax deductible. But if all my pension income is being taxed in the UK how can I do that? Or do I somehow need to persuade the UK tax people that even though they have first rights to tax my pension they should not. It can then be taxed in Germany.

 

What exactly do you mean?

 

German public health insurance contributions are always based on your gross, i.e. pre-income-tax income.

So no matter whether the UK or Germany has the taxation rights, the Krankenkasse will always take 17.5% of the gross.

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Yes I know that the KK takes its 17.5% out of the gross, but the Finanzamt charges you tax on your taxable income, i.e., gross minus all deductions. I had understood that KK contributions are deductible and therefore you pay those contributions out of your gross income before the Finanzamt works our your tax. It would be a big difference if you paid KK out of your taxed income. Hence my point that if the UK has first rights on your UK pension how can you deduct your KK contributions?

 

Incidently I would like to make an observation. I would be willing to bet that the majority of people who are freiwillig versichert, i.e., no Arbeitgeber chipping in, pay far more for public health insurance than they contribute to the exchequer in tax.

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You still get to claim for your Krankenkasse contributions when submitting your German tax return, i.e. they lower the taxable income that Germany gets to tax.

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But if I am retired with my main income being the UK pension being taxed in the UK and insignificant other income that Germany gets to tax ...

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Then you really should look into moving back to the UK, getting covered by the NHS again and only visit Germany, like you proposed in your other thread.

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Under the present rules, yes.

 

But the Krankenkasse have a history of enlarging the contributory base all the same, so by the time you retire, they will probably anyway charge according to your total worldwide income.

 

Thanks for confirming PM. Yeah, I had read that the KK's net just keeps spreading and that it's likely this "loophole" will go. Here's one for you (this is getting very edge case, so I don't expect even you to know this one!)...

 

How is the taxable rental profit from Ireland calculated for the purposes of the KK deduction? The Finanzamt allows a lot of deductions when calculating gross profit that the Irish tax authorities do not allow (costs for visiting/inspecting the property, for example). I presume the KK would have to accept all those deductions that the Finanzamt allows for German rental property to be used when calculating the gross profit?

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Unfortunately, the Krankenkassen ask for Steuerbescheide, so they will ask for your Irish tax certificate and go by the profit stated in there.

 

If you have a look at the document that they publish on contributions by voluntary members, you will see in §6 (6):

 

 

  • für die Berücksichtigung von
    Änderungen bei sonstigem Arbeitseinkommen sowie bei Einnahmen aus Vermietung
    und Verpachtung gilt § 7 Abs. 7 entsprechend.

    and in §7 (7) they specifically state the Steuerbescheid as the proof that they want:
    Das über den letzten Einkommensteuerbescheid festgesetzte Arbeitseinkommen bleibt bis zur Erteilung
    des nächsten Einkommensteuerbescheids maßgebend. Der neue Einkommensteuerbescheid
    ist für die Beitragsbemessung ab Beginn des auf die Ausfertigung
    folgenden Monats heranzuziehen. Legt das Mitglied den Einkommensteuerbescheid
    später vor und ergäbe sich eine günstigere Beitragsbemessung,
    sind die Verhältnisse erst ab Beginn des auf die Vorlage dieses Einkommensteuerbescheids
    folgenden Monats zu berücksichtigen.

 

 

However, it does say in §3 (1b):

 

  • Einnahmen aus Vermietung und Verpachtung und Einnahmen aus Kapitalvermögen
    sind den beitragspflichtigen Einnahmen nach Abzug von Werbungskosten
    zuzurechnen. Werbungskosten sind Aufwendungen zur Erwerbung, Sicherung
    und Erhaltung der Einnahmen.

which would basically mean applying the German rules for calculating rental profit.

 

Basically, the problem is that this document wasn't written with anything in mind other than German rental profit.

Only for German rental profit is there no contradiction between §3 and §7.

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Sorry I need to come back on the KK issue. I thought we had done it to death and come to the conclusion that the KK will take about 17.5% out of your worldwide income including foreign pension.

Now a letter lands on the doorstep today with some other information. This was informing me of my new KK contributions based upon the Gesundheitsreform. I will quote one paragraph:

Hinweis zur Beitragsrechnung: Für Einnahmen aus gesetzlichen Renten, Versorgungsbezügen (z.B. Betriebsrenten, Pensionen) und/oder selbständiger Tätigkeit gilt in der Krankenversicherung ein Beitragssatz von 14,6 Prozent. Für ausländische gesetzliche Renten gilt ein besonderer Beitragssatz von 7,3 Prozent. Für alle anderen Einnahmen gilt ein Beitragssatz von 14,0 Prozent.

 

The Plegeversicherung with 2,6% comes on top of that plus Techniker has a Zusatzbeitrag of 0,8%.

 

However, bottom line is that a UK state pension seems to only have 10% sliced off by the KK as opposed to the 17-18% I had assumed.

 

Need to get my terminology right but does anyone know if a "Workplace pension" is classified as a gesetzliche Rente???

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