Tax on UK pension

67 posts in this topic

I think the info in this thread means I have to hope to die the day before I retire... or not retire:(

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hi

 

Just about to retire in Germany and just found this thread

 

Can I summarise and please someone correct me if I'm wrong

 

Worked in the UK for 30 plus years before moving to Germany

 

So here goes

 

UK pension sent to German Bank out tax in the UK but adds to linear progression rate in Germany. (tax not deducted in Germany just effects the rate on other income)

 

German pension taxed in Germany both circa 10% KK health care

 

UK stakeholder pensions taxed in the UK due to double taxation agreement (tax relief given at source) although all less than 15 years individually - again will be added to linear progression taxation rate in Germany but not taxed

 

KK circa 18% as stated -seems a little unfair if I am correct if I had stayed in SERPs it would have stayed at 10%

 

The lump sum :-( - again not taxed in UK but add to linear progression for year so would end up with quite a tax hit on my German income

 

please correct me if I'm wrong would have lover the 25% lump sum but looks as if its not sensible

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Who will tell the German FA about your lump sum? The UK unlikely to do that since they will consider it tax-free.

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Hi HEM

 

Excuse the spelling in previous, dinner was on the table. I don't know if it will appear on my UK tax return, I will ring and ask how they deal with it. To be honest this is a real minefield, paid for an expert in Frankfurt who got most of it wrong according to the thread, still looks like a hit of 40% after UK tax and KK (after allowances) - but I do like living in Germany

Ps also told if Germany calculate my tax on world wide income and it is more than I paid in the UK,I have to pay the difference if less unlucky :-)

Thanks for the input its been really difficult

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Update

 

Having just spoken with the Double Taxation experts at HMRC they inform me that because I didn't pay the individual stakeholder pensions for a period greater than 15 years i.e 3 pensions 10 years each (change of job/company) they will be exempt in the UK and taxable in Germany

 

Regs

 

Bill

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So for both pension income and lump sum, they will not be taxed in the UK and will be taxed in Germany?

 

Do you know where the 15 year rule comes from?

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The 15 year rule can be found in article 17 paragraph 3 of the double taxation agreement between Germany and the UK:

 

 


  • Article 17
    Pensions, annuities and similar payments

    (1) Subject to the provisions of paragraph 2 of Article 18, pensions,
    other similar remuneration or annuities arising in a Contracting
    State and paid to a resident of the other Contracting
    State, shall be taxable only in that other State.

    (2) Notwithstanding the provisions of paragraph 1, payments
    which are made in accordance with the social insurance legislation
    of a Contracting State shall be taxable only in that State.

    (3) Notwithstanding the provisions of paragraph 1, such a
    pension, similar remuneration or annuity arising in a Contracting
    State which is attributable in whole or in part to contributions
    which, for more than 15 years in that State,
    • 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 that State

 

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Hi

 

Double taxation agreement

 

Article 17

 

http://www.hmrc.gov.uk/taxtreaties/in-force/germany.pdf

 

Have tried various "financial experts" and HMRC (really helpful) and the German FA (not at all helpful)

 

Guess the lump sum as HEM states is "who informs who".

 

I have to do a UK tax return for 2014 - one of the downsides of asking- so not sure if a lump sum will be declared - will probably go for the pension because from what I have been told the German tax authority will just add the sum to the years income and the KK will spread over a period to make sure they get their 18% and not the maximum payment for a one off sum

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In October or November I will get a pension and a one off lump sum from a UK Local Govt pension. I understand from reading the above posts how this will be treated for tax purposes.

However does anyone know how the lump sum will be treated by a Krankenkasse. Presently I have no income and am family insured.

I have tried to look in TT for previous posts about this but have had no luck so far. Any help would be gratefully received.

 

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Worst case they will treat it like a betriebliche Altersvorsorge, which means that they divide the lump sum by 120 and then over the next 10 years you will have to pay each month an additional public health and nursing insurance contribution on that 120th, i.e. on lump_sum/120.

For details please read this.

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Thanks for the information PandaMunich.  You say the worst case they will treat it like a betriebliche Altervorsorge is this implying that it may be treated differently depending

on the Krankenkasse involved ?  Secondly if they do treat it like a betriebliche Altervorsorge would that be an additional contribution on the contribution you might already be paying or would the divided monthly sum be added to your monthly income and assessed altogether. So for example if I had to be Freiwillig insured but on the lower contribution rate (due to low monthly income) would the divided monthly sum be added to my income in which case I would likely still be on the lower contribution rate. Alternatively would I be paying the lower contribution rate plus an extra rate for the lump sum divided by 120 months.

Hope this makes sense.

 

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Wow.. what a minefiield :-(

 

in about 2 years I will get 25% of my company pension. In the UK the 25% is tax free... now I know the providers do send funds to German bank accounts, however I do have a UK bank account.

 

What would happen if I were to receive the 25% into my UK bank account then pass it on to a relative as a gift and they gift it back to me. If this is not admitted on a Steuererklärung then the FA and KK would not know about it... Further more the funds could get split back to myself and my wife and should be Tax exempt under the Schenkungssteuerregelung:-/.

Just a thought on how to avoid paying Tax on an ammount which is actually Taxfree in country of origin...

 

Furthermore, the pension payments I would then receive (were talking of not even 300 odd quid here) should they be paid into my UK account and just saved up, I intend to take this pension at 50 (which on this scheme I can) but not use it, as I am still in full time employment... how would the FA find out about those payments as the pension is not a state pension?

 

I sound a little like a crim, but I hate to pay money to a government when its supposed to be Tax free :unsure:

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Good link PandaMunich!

 

A key point to remember is that a potential tax liability arises in relation to each payment to a person under the pension agreement/scheme.  Simply receiving a payment and then gifting it to a third party doesn't change the fact that the person has received (potentially) taxable income.  Indeed it can only serve to add a further layer of tax considerations and consequences in relation to the (purported) gift.  Manipulating documentation or adding transactions to appear to achieve something different would seem to me to be at best tax avoidance and at worst fraud! 

 

Also, the fact that one country decides to attach a particular rate of tax, allowance or indeed exemption to a particular form of income does not mean that a different country will apply the same rules - that is what sovereignty is all about.  So, amounts received under a pension scheme can only carry an expectation of a particular tax treatment if none of the pertinent facts have changed between commencement and maturity.  Changing country of residence is a material change in those facts and as we see, can have consequences on how tax is calculated when the scheme pays out.  

 

Sorry if this sounds negative but that is the way the world turns...

 

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2 hours ago, HEM said:

 

Given that one wonders why one has to fill in 90% of the German tax forms if the FA knows about it anyway.

Unless they are gathering statistics on honesty & forgetfullness!

 

My understanding is that the FA will only know the end-of-year balance of the bank account and any capital income that the account has accrued during the year but no details of account movements. I would assume that the pension payout that Nightstalker is talking about would not be considered as capital income and would not be reported that's why it would have to be mentioned in the tax return. Of course, if the difference between the bank balances reported at the end of 2021 and 2020 (both reported) is much bigger than the capital income generated (also reported) the FA might get curious and ask where the money comes from (the pension payout, which I'd assume doesn't get reported).

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Also, when NS starts having to pay German income tax on the remaining 75 percent of his pension, could this lead the FA back to the lump sum?  Tax evasion penalties are really harsh, is it worth the risk?

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