Where to pay tax on German pension received in UK

77 posts in this topic

I am a British national and resident in the UK since 1982. Since 2011 I receive a German state pension as a former guest worker in West Germany. The pension is paid monthly by Deutsche Post Renten Service into my UK bank account in pounds sterling.

 

Back in 2011, soon after the first pension payment was received, I was informed that the (then valid) Double Taxation Agreement between Germany and the UK meant I would only pay tax on it in the UK, which I have been doing.

 

However, I became aware today of recent changes to the Double Taxation Agreement, which imply that I may in future have to pay tax on the German pension to the German Finanzamt, instead of to HMRC.

 

Can anyone please clarify what these changes mean? I've tried to understand the various websites, but all are couched in typical legalese, which is a minefield to navigate.

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Have you by any chance received a letter from the Finanzamt in Neubrandenburg asking you to submit a German tax return?

 

Anyway, whoever told you in 2011 to tax that German pension in the UK hadn't realised that a new double taxation agreement between Germany and the UK came into force on 30th March 2010.

If it was HMRC, well their web site wasn't up to date for the longest time, they still had the old version of the double taxation agreement online right up to January 2013.

 

According to this new agreement, you have to tax your pension (stemming from your social security contributions back when you were working in Germany) in Germany.

 

At the moment, even HRMC use the new, correct version on their web site, see here:

 

  • "German social security pensions are taxable only in Germany and are not taxable in the United Kingdom."

 

 

You can find the relevant regulation in legalese in article 17, subsection 2 of the double taxation agreement between Germany and the UK:

 


  • "... payments which are made in accordance with the social insurance legislation of a Contracting State shall be taxable only in that State."

 

 

For instructions how to fill in the German tax forms, please see the last part of post 6 in Working and receiving pension.

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Thanks, PandaMunich. Yes, I got that information from HMRC. Having in the past couple of hours browsed web pages at the Neubrandenburg website (specific to those drawing a German pension abroad), the German forms and advice notes seem very much better laid out.

 

It seems I DO have to submit a tax return to Neubrandenburg, irrespective of the tax return I submit to HMRC. (I shall probably get fined for not submitting one to Neubrandenburg for the pension received in 2011; the pension, currently 575€ per month, commenced in July of that year).

 

But right now, I'm reviewing a mountain of notes about filling in the relevant forms and have another question:

 

Should I consider sending in the form "Formular für den Verzicht zur Abgabe einer Steuererklärung" instead of a tax return? (See page at http://www.finanzamt-rente-im-ausland.de/servicedienste/formulare-neu/)

 

Or would it be in my best interests to always send a tax return?

 

Note that I receive the British state pension as well as the German pension.

 

Since 2012 (UK tax years 2011-12 and 2012-13), HMRC has assessed my tax liability based on the information I gave them in my (British) tax returns, including declaring the German pension. I didn't need to pay any tax for 2011-12, because my total income was below the personal allowance threshold. For 2012-13 the tax payable has been assessed at £355.

 

By the way, no, I never received any letter from the Finanzamt in Neubrandenburg asking me to submit a German tax return.

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According to this new agreement, you have to tax your pension (stemming from your social security contributions back when you were working in Germany) in Germany.

 

If that is the case, why has HMRC accepted two years running my UK tax return in which I declared the German state pension on page F2 ('Foreign Pages')? At the top of that page is stated: "Income from overseas sources If you have income from overseas savings, foreign dividends, overseas pensions or benefits..." etc

 

It was obvious to HMRC that the pension originates from Germany, because I entered the appropriate country code 'DEU'.

 

So HMRC seems perfectly happy to accept my foreign pension as a taxable part of my total income.

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Should I consider sending in the form "Formular für den Verzicht zur Abgabe einer Steuererklärung" instead of a tax return? (See page at http://www.finanzamt-rente-im-ausland.de/servicedienste/formulare-neu/)

 

Or would it be in my best interests to always send a tax return?

 

Yes, as long as you don't have any special expenses to deduct (for example health insurance, which doesn't apply to you since you are covered by the NHS) it would probably be easiest for you to just submit that form, saying that they should do the tax calculation on their own, based on the figures transmitted to them by the Deutsche Rentenversicherung.

 

If you don't like the result, you can always do an Einspruch within a month of the date printed on their Bescheid (= the tax calculation that they will send you by snail mail), and then submit a proper tax return.

 

In the special case that that German pension were over 90% of your total income, or if your non-German income were less than 8,130€ a year, you could apply for unlimited taxation liability in Germany, i.e. tax all your worldwide income in Germany and get an extra 8,130€ tax free allowance, i.e. the first 8,130€ of your worldwide income wouldn't be taxed.

In that case you would also have to submit the form "Bescheinigung EU/EWR - EU/EEA Certificate to apply for to be treated as a person with unlimited tax liability" .

 

 

If that is the case, why has HMRC accepted two years running my UK tax return in which I declared the German state pension on page F2 ('Foreign Pages')? At the top of that page is stated: "Income from overseas sources If you have income from overseas savings, foreign dividends, overseas pensions or benefits..." etc

 

It was obvious to HMRC that the pension originates from Germany, because I entered the appropriate country code 'DEU'.

 

So HMRC seems perfectly happy to accept my foreign pension as a taxable part of my total income.

 

You can't expect a HMRC case worker to know the ins and outs of all the double taxation treaties that the UK has.

Even more so since even their online service seemed oblivious to the new double taxation agreement until 2013...

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Yes, as long as you don't have any special expenses to deduct (for example health insurance, which doesn't apply to you since you are covered by the NHS) it would probably be easiest for you to just submit that form, saying that they should do the tax calculation on their own, based on the figures transmitted to them by the Deutsche Rentenversicherung.

 

But how would the Finanzamt then know what tax rate to apply (Progressionsvorbehalt), since they would have no information about my UK pensions or other income, e.g. private pensions, dividends? They'd only know about my German pension. Maybe they don't need to know anything else in order to apply a standard rate. Have you any sort of ball-park guesstimate as to what rate they would apply?

 

I assume that whatever tax they do calculate, and I pay, I would enter that amount in the British tax return under "Foreign tax taken off or paid" on page F2 so that the German pension wouldn't be taxed twice. This would mean that I would need to receive the Steuerbescheid from Neubrandenburg in plenty of time before I fill in the British tax return, so that I'd know how much I was paying to Germany. If they did the calculation, when do they typically send the Steuerbescheid?

 

 

In the special case that that German pension were over 90% of your total income, or if your non-German incomr were less than 8,130€ a year

 

Doesn't apply, as non-German income is slightly above that, and in any case I currently get a tax free allowance of £10,500 (approx 12390€).

 

:) And many thanks for all your helpful advice.

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But how would the Finanzamt then know what tax rate to apply (Progressionsvorbehalt), since they would have no information about my UK pensions or other income, e.g. private pensions, dividends? They'd only know about my German pension. Maybe they don't need to know anything else in order to apply a standard rate. Have you any sort of ball-park guesstimate as to what rate they would apply?

 

Progressionvorbehalt only applies to people who have unlimited tax liability in Germany - which you would only have if you fulfilled the conditions set out above and applied for it.

 

You will have limited tax liability in Germany, this means that the standard tax table for unmarried people (= Grundtarif) is applied to you, but with the small difference that they will tax your German pension from the first €, i.e. that you won't get the first 8,130€ tax-free as people with unlimited tax liability do.

 

You can calculate your tax burden by using this online income tax calculator.

Put in your Germany pension + 8,130€.

 

Example:

 

  • Your German pension is 6000€ a year.
    --> Put into the
online tax calculator, 6000€ + 8130€: 14130
Then look at the column "for Singles", and you will see that you will have to pay:
1,173.00€ income tax
40.20€ solidarity tax
_____________
1,213.20€ tax in total on your 6,000€ German pension

 

 

 

I assume that whatever tax they do calculate, and I pay, I would enter that amount in the British tax return under "Foreign tax taken off or paid" on page F2 so that the German pension wouldn't be taxed twice. This would mean that I would need to receive the Steuerbescheid from Neubrandenburg in plenty of time before I fill in the British tax return, so that I'd know how much I was paying to Germany. If they did the calculation, when do they typically send the Steuerbescheid?

 

No, since Germany has the taxation rights on this pension, you would only have to declare it in your British tax return if the UK had something similar to the Progressionsvorbehalt.

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Put in your Germany pension + 8,130€

 

I don't understand this. Why do I have to add 8,130€? It looks like they are charging me tax on money that I have not received! The pension received (in your example) is only 6000€.

 

 

No, since Germany has the taxation rights on this pension, you would only have to declare it in your British tax return if the UK had something similar to the Progressionsvorbehalt.

 

Do you mean I do not declare the German pension AT ALL in my British tax return?

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You have to add 8,130€ because that's the tax-free amount that that calculator automatically subtracts before calculating the tax.

Since you do not have unlimited tax liability in Germany, you are not entitled to that tax-free amount.

Look at it this way: in exchange you get a tax-free amount in the UK.

 

Yes, you shouldn't have to mention it at all in your UK return, but please ask a UK tax advisor to be sure.

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Yes, you shouldn't have to mention it at all in your UK return, but please ask a UK tax advisor to be sure.

 

I have since been advised by someone in a very similar situation to mine, who has already been through the same process, that the overseas pension needs to be entered in the Foreign Pages of the UK tax return, but MOST IMPORTANT, the tax already deducted (by Germany) has to be entered too. By this means the German pension will not be taxed twice.

 

Any comments? Thanks again.

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You can calculate your tax burden by using this online income tax calculator.

Put in your Germany pension + 8,130€.

 

Example:

 

  • Your German pension is 6000€ a year.
    --> Put into the
online tax calculator, 6000€ + 8130€: 14130
Then look at the column "for Singles", and you will see that you will have to pay:
1,173.00€ income tax
40.20€ solidarity tax
_____________
1,213.20€ tax in total on your 6,000€ German pension

 

 

When I input 14130 as pension for year 2011 into the calculator at Alterseinkünfte-Rechner Finanzamt Bayern http://www.steuerberechnung.bayern.de/Alterseinkuenfte-Rechner/2011/aekr_formular.asp?VLG=1 I get a taxable income evaluated as 8622 EUR and tax evaluated as 90 EUR.

 

Why is this so different from the figures quoted above?

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Because that calculator is meant for people who live in Germany and therefore have unlimited tax liability and who therefore receive a tax free amount called the Grundfreibetrag.

Since you do not live in Germany, you will be taxed from the first € and not get that Grundfreibetrag and will therefore have to add it to your taxable income.

But I already told you so in post 9.

The Grundfreibetrag was 8,130€ for 2013.

 

A further twist (that will apply to you, even as a non-resident) is that depending on when you retired, a certain percentage of the amount of your first year's pension amount is deducted, which then gives you your taxable income.

 

Since you retired in 2011, that amount is (100 - 62)% = 38% of your pension in the first 12 months of your retirement. This amount in € will remain unchanged your whole life. So don't think that your taxable income is simply 62% of your pension, that's only true until your pension rises, after that, with the deduction amount being fixed at 38% of your initial pension, you will end up taxing more than 62% of your present pension.

For details, please see the blue table in post 7 in Tax deductions for pension and health insurance.

 

Example:

Your pension in 2013: 9,648€

- 38% of your first pension year = 0.38 * 9,600€ = 3,648€

_______________________________

= taxable income: 6,000€

+ Grundfreibetrag for 2013: 8,130€ since you are not resident

_______________________________

14,130€ total taxable income

 

Now please look again at post 7.

Alternatively, use this calculator, but check the Auslandswohnsitz box, to tell them that you live outside Germany.

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How soon after sending in the Steuererklaerung can one usually expect to receive the tax notification (Steuerbescheid)? In the UK one has until 31 October* each year to send in the British tax return (paper form) to HMRC. The amount of tax paid in Germany will have to be known at that point in order to enter it on the foreign pages as a deduction.

 

* Until 31. January if self-assessment tax return is submitted electronically.

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Alternatively, use this calculator, but check the Auslandswohnsitz box, to tell them that you live outside Germany.

 

I did use the calculator you mentioned. This is what I got (reformatted for this forum):

 

Rahmendaten

 

Ihr Renteneintrittsjahr: 2011

Besteuerungsanteil der Altersrente: 62%

Versorgungsfreibetrag: 30.4% bis maximal 2280 Euro (This field cannot be altered.)

Max. Zuschlag zum Versorgungsfreibetrag: 684 Euro (This field cannot be altered.)

Altersentlastungsbeitrag: 30.4% bis maximal 1444 Euro (This field cannot be altered.)

 

Ihre Berechnung mit dem Rahmendaten

 

Bruttoaltersrente bei Renteneintritt: 562 Euro (my ACTUAL German pension from July 2011 to June 2012)

Ertragsanteilbesteuerung: [ ] (not ticked) Betriebsrente: 0 Euro

Private Riesterrente: 0 Euro

Witwenrente: 0 Euro

Kitchensteuer: keine

Ehegattensplitting anwenden: [ ] (not ticked)

Auslandswohnsitz (beschränkt steuerpflichtig): [X]

 

Nettorente berechnen

 

Bruttorente: 562 Euro

Steuer- und Soliabzug: 48 Euro (???)

Kirchensteuer: 0 Euro

Krankenkassenbeitrag auf Altersrente: 46 Euro (doesn't apply to me, but I can't change this)

Krankenkassenbeitrag auf sonstige Renten: 0 Euro

Pflegeversicherung: 12 Euro (doesn't apply to me, but I can't change this)

 

Nettorente bei Renteneintritt: 456 Euro

Steuerberechnung im Detail anzeigen: [X]

 

Achtung: Steuerrechnung mit Jahressummen.

 

Zu versteuernde Altersrente: 4181 Euro (I've no idea how they arrive at this figure.)

Zu versteuernde Betriebsrente: 0 Euro

Zu versteuernde Riesterrente: 0 Euro

Zu versteuernde Witwen- oder Witwerrente: 0 Euro

Abzüglich Versorgungsfreibetrag: 0 Euro

Abzüglich Zuschlag zum Versorgungsfreibetrag: 0 Euro

Abzüglich Werbungkosten-Pauschbetrag: 102 Euro (doesn't apply to me, but I can't alter field)

Abzüglich Ausgaben für Krankenversicherung: 553 Euro (ditto)

Abzüglich Ausgaben für Pflegeversicherung: 138 Euro (ditto)

Abzüglich Sonderausgaben-Pauschbetrag: 36 Euro (ditto)

 

Zu versteuerndes Einkommen: 3352 Euro

Solidaritätsbeitrag: 0 Euro

Einkommensteuer: 579 Euro

Kirchensteuer: 0 Euro

Grenzsteuersatz: 20.5%

 

The income tax of 579€ is 17.27% of the taxable income 3352€.

 

This is only a ballpark calculation, since several amounts above (which I cannot change) don't apply in my case.

 

However, these figures appear to differ markedly from what you have calculated previously and I would be grateful if you could comment on these differences. Thanks!

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The above calculator assumes that you were a member of German public health insurance until the day you retired, and therefore continues that membership (and the monthly deduction!) into your pension existence.

This is meant for people who only move outside Germany after hitting pension age, they then remain in the German public health system, and wherever they move to within the EU or another country that Germany has a social security agreement with like, for example, Turkey, the German public health insurance will pick up their medical expenses in the background through an agreement with that country's public health insurance.

Nothing that applies to you, but they assumed this standard case when programming that online calculator.

 

The 4,181€ taxable income are the 62% of your yearly 6,744€ pension, just like in the calculation in post 12: 0.62 * 6,744€ = 4,181€, so no difference there. You then just have to add the Grundfreibetrag from 2011, 8,004€, and enter the result, 12185€ into the standard income tax calculator (change year to 2011)

--> 744€ income tax.

 

The differences that you observed come about because of the public health insurance contributions (Krankenversicherung + Pflegeversicherung) that they assumed, which are 100% tax deductible, i.e. because of them a person pays less income tax.

So without them you will pay more income tax than they calculated.

 

I suggest you go through the calculation in post 12 yourself, using your real pension, and then enter your end result from post 12 into this standard income tax calculator (don't forget to change the year to 2011 or whatever year you are considering) and see for yourself what result you get.

 

 

How soon after sending in the Steuererklaerung can one usually expect to receive the tax notification (Steuerbescheid)? In the UK one has until 31 October* each year to send in the British tax return (paper form) to HMRC. The amount of tax paid in Germany will have to be known at that point in order to enter it on the foreign pages as a deduction.

* Until 31. January if self-assessment tax return is submitted electronically.

 

They will take about 6 to 8 weeks to process it.

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Apart from all the foregoing, let's suppose for a moment that Johan Schmidt resident in Germany started to receive his state pension in 2005. He would be liable to a 50% "Besteuerungsanteil" (taxation rate). He would also be due the "Grundfreibetrag" (personal allowance).

 

Let's further assume he gets 15,000 euros pension. Does the tax system first take off the personal allowance and then calculate the 50%, or the other way round?

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Is a pensioner living abroad and receiving a German state pension entitled to the Altersentlastungsbetrag (age relief amount)?

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The Altersfreibetrag anyway doesn't apply to pension income.

See §24a Nr. 2:

 

  • Bei der Bemessung des Betrags bleiben außer Betracht:
    2. Einkünfte aus Leibrenten im Sinne des § 22 Nummer 1 Satz 3 Buchstabe a

If you then look up §22 Nr. 1a):

 

  • a) aa) Leibrenten und andere Leistungen, die aus den gesetzlichen Rentenversicherungen

 

 

But if you did have some eligible German income, e.g. German rental income, then you would get it, since §24a, i.e. the Altersfreibetrag isn't listed in the exclusion list in §50 Abs. 1 Sentence 3 (= special conditions for people with limited tax liability like you):

 

  • Die §§ 10, 10a, 10c, 16 Absatz 4, die §§ 24b, 32, 32a Absatz 6, die §§ 33, 33a, 33b und 35a sind nicht anzuwenden.

 

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