Tax on UK pension

93 posts in this topic

What a great link... Thanks PM.

 

What started this for me is that through my Nortel company pension I can access it at 50, I could take a 25% UK tax free lump sum and forthwith a monthly payment...

 

It all sounded great until I found out that here in Germany the tax free lump sum would end up being taxed and not only that, the KK would also want their pound of flesh :-(.

 

This was supposed to be a down payment on a house, I am really beginning to think it would not be a great idea to go ahead with this plan and just wait until I retire completely. By then I would either be back in Blighty or inherited and purchased a property with that money, later on in life. Unless the Erbschaftsteuer would also work against me :-/

 

Just hate when a plan ends up going down the swanny :-(

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Dear forum members,

 

I hope you an be of help regarding my mother’s tax situation here in Germany. My mother moved to my home in Germany November 2017 at the age of 81 and has the following running pensions since she was 60:

  • UK company pension paid into UK account
  • UK State pension paid to German account 
  • A small German pension paid in German account

We were under the impression that because she has been receiving the UK pensions for over 15 years in the UK that they must stay taxed there (Bundesgesetzblatt II Nr.33, Artikel 17, para 3) and therefore we have never made a Steuererklärung here in Germany.

 

We have now received a letter from the Finanzamt Neubradenburg asking many questions concerning when she arrived and if my mother has other sources of income. I presume they only see the small German pension and believe she must have another form of income.

Will my mother now have legal problems because she never made a tax return for 2017, 18 and 19?

Can my mother simply fill out a tax return back to 2017?

Is it correct that the tax requirement remains in the UK?

Can the Finanzamt see all the pensions in the UK?

They are requesting that reshow a ‘Certificate of Residence for the purpose of tax relief according to the Double Taxation Convention’, Where do we get this certificate? 

 

Finally, can someone recommend a UK competent Tax advisor in the Bodensee area?

 

Many thanks for any helpful comments

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Manonlake... any update on your Mum?

 

In regards to my issue with the 25%, I have found a Steuerberater who I think might be able to help me in my matter... Still hoping that I wont have to fork out to much from the pot...

 

Eitherway, I'll keep you updated...

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On 5/22/2020, 10:50:28, Manonlake said:

 

We were under the impression that because she has been receiving the UK pensions for over 15 years in the UK that they must stay taxed there (Bundesgesetzblatt II Nr.33, Artikel 17, para 3) and therefore we have never made a Steuererklärung here in Germany.

 

 

I've checked Article 17, Paragraph 3, of the DTA and I don't think it says what you think it says; it talks about "contributions for over 15 years", not  "collection of the pension for over 15 years".

 

I would think that according to Paragraph 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.") the UK company pension is taxable in Germany, and according to Paragraph 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.") the UK state pension would be taxable in the UK.

 

I'd think the German pension would be taxed in Germany regardless of it coming from the DRV or any other fund.

 

 I am not a tax expert, so I don't know if there are any if and buts, but any German Steuerberater should be able to sort this out and help you answer the Finanzamt questions. 

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The UK State Pension is taxable only in the UK.  I can't remember whether for a resident of Germany, subject to taxation on their worldwide income, it still feeds into the Progressionsvorbehalt but pretty sure it does.

 

The German State Pension is taxable in Germany of course.

 

The UK company pension is potentially covered by Article 17(3). 

 

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.

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.

 

Were the contributions tax deductible for more than 15 years in the UK and not also tax deductible for that length of time in Germany? In essence, did the person work only in the UK and for at least 15 years? Was the tax relief clawed back?

 

These are all questions of fact but if the conditions are satisfied, the pension would be taxable only in the UK but again, will almost certainly feature in the Progessionsvorbehalt - oh the joys of the German tax system...  

 

@PandaMunich will correct my errors...

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I read through this with interest as I may want to start taking my UK Final Salary Pension next year. I have the 25% lump sum tax free issue too of course due to living in Germany. I am prepared to go back to the UK for just over a tax year to start taking my pension and avoid the Germans taxing it as I have a house in both countries. However my family would have to stay in Germany (kids schooling). We may actually divide the family up a bit to get round the 'centre of vital interests'. I am going to an international tax specialist to see what my options may be but wondered if anybody on here also has some points to make that may help me? It is worth a lot of money to me and would be well worth it to incur considerable costs to achieve it. I am just awaiting the UK 2021 Budget to make sure no changes are made before I go to the tax specialist. Any views / help much appreciated.

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Germany/EU exit taxation may be relevant for you, as might be residency/citizenship regarding brexit.

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On 03/08/2020, 21:14:28, Nightstalker said:

Manonlake... any update on your Mum?

 

In regards to my issue with the 25%, I have found a Steuerberater who I think might be able to help me in my matter... Still hoping that I wont have to fork out to much from the pot...

 

Eitherway, I'll keep you updated...

Did you ever get anywhere with your 25% lump sum?

 

I have the same dilemma with an old IBM Ireland pension (ca 100k value) which I can access in less than 7 years. I was going to forgo the tax free lump sum and just buy an approved retirement fund or ARF (basically further invest the pension fund rather than buying an annuity. The UK has similar options but they are called something I forget) and then take an annual distribution. There seems little point in taking the 25% "tax free" in Ireland when it'll just be taxed here instead. From my understanding of the Irish-German DTA where ARFs are specifically mentioned, Ireland retains the taxation rights to distributions from these ARFs. This suits me as I would (strangely) be entitled to a PAYE tax credit once again as these distributions are taxed through the PAYE system (the pension fund acting like an employer, issuing "payslips" and everything). I have rental income in Ireland, which the PAYE tax credit can be used against. I wonder do UK tax credits work similarly.

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The UK does not have a "PAYE Tax Credit".  We have a personal allowance of currently £12,570, which is available to UK, EU and EEA citizens.  It simply means that the first £12,570 of your taxable income does not get taxed.  So, if you had £22,570 of taxable income from employment/pension, rental income, interest, etc., you would pay tax at 20% on £10,000. (This ignores for simplicity the fact that you also have a Personal Savings Allowance that gives a certain amount if interest tax-free, and a similar alloance for dividend income.)

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Ah ok, yeah that's the way it used to work in Ireland as well with a tax free allowance but they abolished that in favour of a series of tax credits only. I think it was better the old way personally. Does the UK Germany DTA deal with retirement funds at all or just annuities?

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Not my area of expertise but it sounds a bit like a drawdown pension.  That is, I think, taxed as income in the normal way, and I assume it would just be a pension within Article 17 of the treaty but that is guessing somewhat, so you'd have to research a little more to find the definitive answer. 

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Hoping that somebody can give me some advice on this. I've lived and worked in Germany for most of my life and worked in the UK before I came here. I started receiving pension here in Germany at the end of 2020 and received my UK pension in 2021 starting in April. I have dual citizenship. I phoned the    pension office in the UK to ask them for a statement showing how much I'd received for 2021 and I just   received the statement which is unfortunately incorrect (it shows the payments from April 2021 to January 2022!). They also enclosed a letter which states 'because of administration costs it is not normal policy for us to give annual statements of benefit. So in the future, you should keep a personal record of the benefit that you get if needed for tax or other purposes'. I asked for this for my tax return here in Germany for 2021. Surely the Finanzamt won't accept a personal record from me showing the payments, they always ask for some sort of proof usually from the institute that is paying. I'd be interested to know how other expats do this.

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You only need to return the UK pension for the Progressionsvorbehalt as the pension is taxable only in the UK, not in Germany.  DWP in the UK is correct that they do not provide statements, and if they did they would probably be for April to April to coincide with the UK tax year.  This annoys a lot of people in the UK because the pension is taxable on your entitlement, i.e. how many weekly payments you were entitled to receive in the tax year even though you are paid 4-weekly in arrears, and people get confused (as do many advisers) and are not sure what to put on their tax return.

 

If the FA wants proof I can think of two ways to provide it.  One would be the form  002 - Bescheinigung außerhalb EU / EWR - Englisch 2018 (finanzamt-rente-im-ausland.de, though HMRC take at least 6 months to respond to that at the moment, meaning you cannot send it to the FA until October or so.  The other way would be to do what we have started doing and that is an unprompted self-assessment return to HMRC.  It will show UK state pension £X less personal allowance (probably more than £X) and no tax due, assuming you have no other UK income.  Once HMRC has responded to submission of your tax return you can print the tax statement (income less personal allowance = £0 tax) and send that to the FA if they ask for proof.  

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Thank you for your reply. When you say I only need to return the UK pension for the Progressionsvorbehalt is this the case even if I have German Citizenship?

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Yes, so far as you are talking about the UK state pension and not a government service (civil service, teachers, local authority etc) employment-related pension. 

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12 hours ago, Lindar said:

Surely the Finanzamt won't accept a personal record from me showing the payments, they always ask for some sort of proof usually from the institute that is paying. I'd be interested to know how other expats do this.

 

It works for me.  I create a table showing each payment with date it arrives in my DE bank account, the value in GBP (you know that) & what actually arrived in DE (which is variable of course).  I assume you get it transferred by Worldlink (used by UK pension service & others). 

I then sum the values for the year.

 

If your FA baulks explain that the UK tax year is April - April & that UK organisations (not just your pension service) will not deviate from that.

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3 hours ago, HEM said:

It works for me.  I create a table showing each payment with date it arrives in my DE bank account, the value in GBP (you know that) & what actually arrived in DE (which is variable of course).  I assume you get it transferred by Worldlink (used by UK pension service & others). 

I then sum the values for the year.

 

I do this too and also include the pages from my monthly bank account statements highlighting the transfer from Worldlink into my bank account as proof. I use the services of a Steuerberaterin to be safe rather than sorry. 

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I believe that the first 2 years for which I received UK pensions I did it all myself (including tables as mentioned above); for year 2019 onwards I have used a local Steuerberater but for reasons unconnected with UK pensions.

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