Moving to Germany before Brexit ?!?

29 posts in this topic

For the last 16 years I have been living a life in England and Germany travelling every few weeks between the two unhindered and with barely any contact to Bureaucracy with the proviso that I always make sure I am in England for more than 6 months. Since the election this month, this will have to change, and I am thinking the best way to secure my family life is to switch my residency to Germany and make sure I say this side of the channel for 6 month plus each year with UK visits being less than 90 days. Am I correct in thinking  this can be done certainly til 31 Jan 2021 and probably the whole of next year ?  

 

I have read quite a bit on this forum and seen the Government advice  https://www.gov.uk/guidance/living-in-germany#eu-exit-updates however there are many things I am unsure of.

 

My circumstances are mid 50s, self employed ( I'm sorry !!! ) own my own home, fully qualified to UK state pension, have private pension which would be considered very small by most but is a fortune to me.  Currently I am not married to my long term German Partnerin / Lebensgefährtin and while this may well change, I don't want it to change because of bureaucratic expediency.  Most of my income comes from England and this will not change if I switch residency to Germany and for that reason I need to maintain a home in the UK and spend considerable time there. The plan is 5 1/2 months a year spread over numerous trips.

 

My biggest uncertainty is my house which is paid for and I have lived at for over 20 years. I paid 60k and it is now worth 200k. Correct me if I am wrong but the moment I become resident in Germany , my home becomes a "second home" which , after a period of tie is liable to Capital Gains Tax ( Kapitalzuwachssteuer ) . My understanding is this is a UK liability for the first 5 years and subject to UK rules which allow a period where you can sell the house.  If I keep it , which I would like to do, what are the German rules if and when I sell it at some future point. How would they count the gain, would it be from when I become resident in Germany or when I bought the house in 1998?

 

Next uncertainty is the car. For normal people its a case of move, swap driving licence, swap car headlights, change random pointless parts as directed by TÜV tester and register in Germany.   I have 3 cars, 1 of which is for sale. 1 is a classic car which will stay in England until at some point old age forces me to abandon an English residence and then my every day car .  If my car stays in England can I leave it registered as a UK vehicle?  If I do that, can I still drive it in Germany for less than 6 months? I read a horror story of a German borrowing a Swiss friends car which was confiscated and he was given a bill based on the new cars Tax and duties, so am wary of this. On the other hand as soon as I register my right hand car in Germany it will become worthless and as a self employed person the requirement to give a 1 or 2 year guarantee on vehicle sales, means I could never sell it, only auction or PX  for buttons, hence I would rather keep it as a UK car. Also headlights will be 1500 to 2 grand. I guess the least cost and least stress option is, take a loss , sell it and buy a German car.

 

Oh another question, if I move some or all my possessions to Germany after brexit  is there tax / import duties to pay. My assumption is with a free trade deal no and without yes and in the event of the later, best option is to sell / give away everything in the UK and buy new in Germany. 

 

Last uncertainty - UK private pensions savings. I have a 5 figure sum in 2 UK pensions. Currently they mature about 15 years  and I am free to choose an annuity or take part as a limp sum. They are intended for an annuity which in the UK would be tax free except where the resulting income goes above the 10k tax threshold. Would these be treated the same in Germany or would they be treated as a 5 figure income in the year they mature and result in loosing most of my pension to tax in one swoop? 

 

Sorry, just remembered yet another question. I am UK registered for VAT and sell to German customers on the reverse charge procedure. My local German Steueramt knows about me and is happy. I will no doubt need to register for German MwSt as I register for tax ( I will use a Steuerberater ) Should I keep my UK VAT registration for UK customers or deregister. I am worried if I retain a UK VAT registration HMRC might want income TAX from UK earnings. Perhaps I should form a Ltd co for UK income ? 

 

 

 

 

 

 

 

 

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2 hours ago, JonnyEnglander said:

My biggest uncertainty is my house which is paid for and I have lived at for over 20 years. I paid 60k and it is now worth 200k. Correct me if I am wrong but the moment I become resident in Germany , my home becomes a "second home" which , after a period of tie is liable to Capital Gains Tax ( Kapitalzuwachssteuer ) . My understanding is this is a UK liability for the first 5 years and subject to UK rules which allow a period where you can sell the house.  If I keep it , which I would like to do, what are the German rules if and when I sell it at some future point. How would they count the gain, would it be from when I become resident in Germany or when I bought the house in 1998?

 

The German rule is very simple: since you have owned the house for more than 10 years, the profit you make when selling it does not appear at all in your German tax return, §23 (1) Nr. 1 Satz 1 EStG

 

If you should let the house, then the UK rental income will be taxed by the UK, and:

  • until Brexit (and up to the end of any standstill transition period that may be negotiated, in which the UK is still treated as an EU member): you do not mention your UK rental income at all in your German tax return
  • once the UK is treated as a non-EU country, you do have to mention it in your German tax return. The UK rental income will not be taxed again by Germany, but it will raise your German income tax rate on your other income, under Progressionsvorbehalt. For details and an example with numbers, please scroll down to "Progressionsvorbehalt" here.

Please also read (to read it, just click on the blue headline):

 

 

2 hours ago, JonnyEnglander said:

Oh another question, if I move some or all my possessions to Germany after brexit  is there tax / import duties to pay. My assumption is with a free trade deal no and without yes and in the event of the later, best option is to sell / give away everything in the UK and buy new in Germany. 

 

No, don't worry. People move from non-EU countries to Germany all the time, their Übersiedlungsgut (= all the private possessions they move with) are not subject to tax or import duties: 

2 hours ago, JonnyEnglander said:

Last uncertainty - UK private pensions savings. I have a 5 figure sum in 2 UK pensions. Currently they mature about 15 years  and I am free to choose an annuity or take part as a lump sum. They are intended for an annuity which in the UK would be tax free except where the resulting income goes above the 10k tax threshold. Would these be treated the same in Germany or would they be treated as a 5 figure income in the year they mature and result in losing most of my pension to tax in one swoop? 

 

To answer that, we have to know whether the contributions that you made to these UK private pensions were paid in for at least 15 years and whether they were tax-deductible:

  • option 1: if the answer is "yes" to both questions, then article 17 (3) of the double taxation agreement between Germany and the UK applies, which means that the UK gets to tax that lump sum. This still leaves you with the lesser evil of Progressionsvorbehalt.
  • option 2: if the answer is "yes" to "tax-deductibility" and "no" to 15 years, i.e. you made these contributions out of pre-tax money, then Germany will tax the entire lump sum pay-out with your personal variable German income tax rate.
  • option 3: if the answer is "no" to "tax-deductibility", then you made these contributions out of post-tax money, i.e. out of already taxed money. This means that Germany gets to tax the "interest", i.e. the difference between what you paid in and the lump sum payout, the taxation of which differs (but in both cases, the tax-free amount for capital income applies, which is 801€ per year):
    - option 3.1: if you get the lump sum after reaching age 60 and you had contributed into it for at least 12 years, you only have to tax 50% of that "interest", but they forbid the use of the 25% flat rate Abgeltungsteuer in §32d (2) Nr. 2 Satz 1 EStG, so you have to tax those 50% of the real interest with your personal variable German income tax rate.
    - option 3.2: otherwise, you have to pay a 25% flat rate Abgeltungsteuer on the "interest" part of the lump sum pay-out, or your personal variable German income tax rate if it should be below 25%.

There is a general tax-free amount in Germany which goes up every year, the Grundfreibetrag. In 2020, it is 9,408€.

 

2 hours ago, JonnyEnglander said:

Sorry, just remembered yet another question. I am UK registered for VAT and sell to German customers on the reverse charge procedure. My local German Steueramt knows about me and is happy. I will no doubt need to register for German MwSt as I register for tax ( I will use a Steuerberater ) Should I keep my UK VAT registration for UK customers or deregister. I am worried if I retain a UK VAT registration HMRC might want income TAX from UK earnings. 

 

Since you're reverse charging, you are selling services and not goods, which makes things easier.

You would have to deregister from the UK and get a German VAT-ID instead.

 

As long as the UK is still in the EU (and as long as a possible standstill transition period is still running), you would be writing your UK business customer reverse charge invoices, i.e. net invoices with the "Reverse Charge" remark to indicate that they have to tax that net amount at the local UK VAT rate.

 

Once the UK is out of the EU for good, i.e. no longer in a possible standstill transition period, you would be writing your UK customers net invoices and would have to pay the UK VAT on your services to the UK, unless they decide to keep the "Reverse Charge" rule in place (which I assume will happen) and then you would continue writing net invoices with the "Reverse Charge" remark and your UK business customers are responsible for the UK VAT, like before. Some non-EU countries, e.g. Switzerland, also use the "Reverse Charge" rule, so so why shouldn't the UK? 

 

2 hours ago, JonnyEnglander said:

Perhaps I should form a Ltd co for UK income ? 

 

Nope, not a good idea, it would only mean extra costs (UK accountant since you have to publish the accounts at Companies House).

 

Once the UK leaves the EU completely, the UK Ltd. would immediately turn into a pumpkin, i.e. from a capital company into a Personengesellschaft (partnership) and you would anyway have to tax all that Ltd. income in Germany. In fact, since you would be its only shareholder, it wouldn't even turn into a Personengesellschaft (partnership), but would simply be ignored by the Finanzamt and all its income would be considered your personal self-employed income, all of which you would have to tax right away, no leaving any money in the Ltd.

For details, please read:

 

 

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Hi big thanks to  PandaMunich for that info. Makes things clearer about Capital Gains Tax and should mean I can keep my house in England as long as I want it.

 

Very worrying about the treatment of Pension savings though. I will need to read that several times and read the references to understand it.

 

I am already qualified for the UK state pension and expect to receive around 7000 GBP pa from that. For private pensions, a pension pot of 100, 000 GBP produces an annuity of 5000 GBP per year. My original goal, which I have not achieved yet, was to have a pension pot of 100k on reaching retirement age giving me 12000 pa or 1000 GBP per month pension which I view as the minimum I needed to live in the UK. At 12k pa, if I stayed in the UK I would only pay a small amount of tax on 2k pa. If my pension pot faces swinging taxes as soon as I retire then I will be left with little of an annuity.  I should say, I have no intention of withdrawing a lump sum at retirement, it is or was all intended to buy an annuity, ie a yearly income, 

 

 

 

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1 hour ago, JonnyEnglander said:

I am already qualified for the UK state pension and expect to receive around 7000 GBP pa from that.

 

If your UK state pension is not a pension for government service, it would fall under article 17 (1) of the double taxation agreement and its monthly payouts would be taxed by Germany as soon as you become resident here.

 

1 hour ago, JonnyEnglander said:

For private pensions, a pension pot of 100, 000 GBP produces an annuity of 5000 GBP per year. My original goal, which I have not achieved yet, was to have a pension pot of 100k on reaching retirement age giving me 12000 pa or 1000 GBP per month pension which I view as the minimum I needed to live in the UK. At 12k pa, if I stayed in the UK I would only pay a small amount of tax on 2k pa. If my pension pot faces swinging taxes as soon as I retire then I will be left with little of an annuity.  I should say, I have no intention of withdrawing a lump sum at retirement, it is or was all intended to buy an annuity, ie a yearly income, 

 

The problem is that this is a 2-step algorithm:

  1. you get the pension pot at age ??
  2. you then use the pension pot to buy an annuity

The Finanzamt would immediately tax you at step 1, since at that point you can use that money from the pension pot as you like, e.g. you could take all the money and spend it.

They see it as your free personal decision that you then purchase an annuity with it, but they will first make you tax the pension pot.

 

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

 

Solution:

To avoid having the pension pot payout taxed by Germany, you could still do this:

  1. move to Germany, register your address here and get married to your German GF.
    This would ensure your residency right even if you move away from Germany after Brexit, as I propose in step no. 3. 
    Besides, being married also has tax advantages as long as both spouses don't earn exactly the same.
     
  2. let the UK house, so that you have somewhere to move back to in step no. 3.
     
  3. shortly before you are scheduled to get the UK private pension pots, move back to the UK into your house (don't forget to de-register your address in Germany when you move away!) and benefit from the more advantageous UK taxation rules.
     
  4. then move back to Germany, register again and live happily ever after.
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10 hours ago, JonnyEnglander said:

Next uncertainty is the car. For normal people its a case of move, swap driving licence, swap car headlights, change random pointless parts as directed by TÜV tester and register in Germany. 

 

My suggestion is that you don't bring UK car to Germany. It would be okish for a short period, but not recommended long term. Driving would be more difficult and less safe. Insurance costs of course higher too.

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PanadaMunich, Moving back for the year of pension maturity would be an option, although not an easy one as self employed. I will have to seek financial advice. One option may be to transfer my UK pension savings into a policy which can be turned into an annuity when it matures or alternatively transfer to a German Pension provider. I know with my main provider this is not possible. I should point out that unless I withdraw my pension as cash, at no time do I get my hands on it. Normally at maturity, it is transferred to an annuity provider. 

 

I wont be renting out my house, I need it as I intend to carry on my 2 country living. For one thing most of my income comes out of the UK and so I need to be there every few weeks for appointments etc. 

 

Gambatte, Re car, I have been driving a UK car in BRD for 16 years and so am well used to it. I usually drive to Germany, only in mid winter do I fly as I want to avoid buying winter tyres. When next changing my car I would certainly buy a German registered one. I'm just a bit reluctant to change it right now as I have not had it long and I keep cars a very long time. Also second had cars are very expensive in Germany and the older the car the worse value they are. Car is a very minor issue compared to pensions etc. I would hope I can still drive my UK cars here to Germany occasionally, but the fear is , especially after Brexit, that I will not be able to do so.

 

Thanks everyone for the advice :o)

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11 hours ago, PandaMunich said:
  • once the UK is treated as a non-EU country, you do have to mention it in your German tax return. The UK rental income will not be taxed again by Germany, but it will raise your German income tax rate on your other income, under Progressionsvorbehalt. For details and an example with numbers, please scroll down to "Progressionsvorbehalt" here.

 

Is it only for EU contries that you can earn income without having to report it to the German taxman, or is it for a broader pool of countries? 

If the latter, and if they could get a grip on Brexit (they can't, never mind Boris' big win), it would be reasonable to expect the UK to join such a pool of countries soon after Brexit... 

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11 hours ago, PandaMunich said:

The UK rental income will not be taxed again by Germany, but it will raise your German income tax rate on your other income, under Progressionsvorbehalt.

 

Panda, nothing against you, on the contrary, but...

... Is it just me finding this "game of words" irritating?

What's the difference between Germany taxing extra the UK income,  and Germany taxing extra the German income once you report the UK one? I would say there is NO difference. Saying "it will not be taxed again by Germany", as things stand, is at best misleading...

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2 hours ago, Gambatte said:

 

Panda, nothing against you, on the contrary, but...

... Is it just me finding this "game of words" irritating?

What's the difference between Germany taxing extra the UK income,  and Germany taxing extra the German income once you report the UK one? I would say there is NO difference. Saying "it will not be taxed again by Germany", as things stand, is at best misleading...

 

What? No it's totally different.  

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16 minutes ago, zwiebelfisch said:

 

What? No it's totally different.  

 

Say you earn 100 in DE and 10 in UK. Here two hypothetical scenarios:

 

A. DE taxes you 40 for the DE income, and it also taxes you 4 for the UK income. Total tax due to DE is 44.

B. DE kindly says they don't tax you at all on the UK income. How nice. However, because you do have UK income, they will tax your DE income 44 rather than 40. Total tax due to DE is 44.

 

If I understand correctly they don't follow case A., they follow case B.

 

Seems to me in both cases you earn total 110, they tax you total 44.

What's the difference between A. and B.?

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Let's do an example with real tax rates.

 

Example:

An unmarried German resident had:

  1. German taxable income of 60,000€ from employment (or freelancing or whatever), and 
  2. UK rental income of 12,000€

 

Scenario 1: Up to Brexit, that person would pay (since UK rental income is privileged as long as the UK is in the EU, i.e. does not affect his German tax rate):

  • 27.365% * 60,000€ = 16,419€ German income tax

 

Scenario 2: After Brexit, that person would pay (with the 12,000€ now being progression income that drives up his German income tax rate from 27.365% to 29.8041%): 

  • 29.8041% * 60,000€ = 17,882.46€ German income tax

 

Scenario 3: Now comes your scenario, which does not exist: "Germany taxing extra the UK income", this would mean:

  • 29.8041% * (60,000€ + 12,000€) = 21,458.95€ German income tax

 

3 hours ago, Gambatte said:

What's the difference between Germany taxing extra the UK income,  and Germany taxing extra the German income once you report the UK one? I would say there is NO difference.

 

So here you have your difference, it's 3,576.49€ (= 21,458.95€ - 17,882.46€).

 

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10 minutes ago, Gambatte said:

 

Say you earn 100 in DE and 10 in UK. Here two hypothetical scenarios:

 

A. DE taxes you 40 for the DE income, and it also taxes you 4 for the UK income. Total tax due to DE is 44.

B. DE kindly says they don't tax you at all on the UK income. How nice. However, because you do have UK income, they will tax you 44 rather than 40 on the DE income. Total tax due to DE is 44.

 

What's the difference between A. and B.?

 

 

You haven't grasped how that works.

 

Let's simplify the progression system a little bit:

 

Somebody earns 50000€ in Germany

 

The taxes on the 1st 10000 are 0%

The taxes on the 2nd 10000 are 10%

The taxes on the 3rd 10000 are 20%

The taxes on the 4th 10000 are 30%

The taxes on the 5th 10000 are 40%

 

Now, if he also has 10000€ income in the UK, guess what happens: The Finanzamt will consider the first 10000€ earned in Germany as the second 10000 of his income.

 

So, no, he doesn't pay taxes in Germany on the UK income, but the UK income shifts the taxation of the German income to another level.

 

Yes, the numbers used are wrong. This is just done to make it easier to understand.

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3 hours ago, Gambatte said:

Is it only for EU contries that you can earn income without having to report it to the German taxman, or is it for a broader pool of countries? 

If the latter, and if they could get a grip on Brexit (they can't, never mind Boris' big win), it would be reasonable to expect the UK to join such a pool of countries soon after Brexit... 

 

Can anyone comment on this?

Thanks,

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16 hours ago, PandaMunich said:

 

If your UK state pension is not a pension for government service, it would fall under article 17 (1) of the double taxation agreement and its monthly payouts would be taxed by Germany as soon as you become resident here.

 

Doesn't a UK state pension fall under Article 17 (2), as it's social insurance?

 

As such it would be taxed by the UK, but subject to progression income.

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23 minutes ago, apel said:

Doesn't a UK state pension fall under Article 17 (2), as it's social insurance?

As such it would be taxed by the UK, but subject to progression income.

 

Very true, sorry.

Which should teach me to post on Toytown after a hard day at work, after midnight.

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54 minutes ago, apel said:

As such it would be taxed by the UK, but subject to progression income.

 

Lets say "subject to taxation by the UK".

 

The UK has an annual tax-free allowance of 11.000 GBP (I think that is the current value) which they allow even if you are resident outside the UK.

This is in contrast to the German FA - if you get a German state pension but live outside Germany they will tax you from the first Cent (correct Panda?).

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2 minutes ago, HEM said:

The UK has an annual tax-free allowance of 11.000 GBP (I think that is the current value) which they allow even if you are resident outside the UK.

Depending on your citizenship.

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32 minutes ago, HEM said:

This is in contrast to the German FA - if you get a German state pension but live outside Germany they will tax you from the first Cent (correct Panda?).

 

Yes, unless you apply for unlimited taxability in Germany, which would get you the Grundfreibetrag tax-free amount of around 9k€ per year. But you can only apply for that if you fulfill the conditions set down in §1 (3) EStG, which means that you need to get least 90% of your income from Germany or your non-German income has to be up to the Grundfreibetrag (if you live in a country that's in country group 1, it's the Grundfreibetrag; but only 0.75 or 0.5 or 0.25 of it in the other country groups).

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Re Grundfreibetrag requires 90% income from Germany... I have never heard of this. I have just read the link to the actual legislation but not sure I fully understand how it applies to me. My income comes from online transactions for services, so for the purposes of this rule, where do transactions take place if a buyer goes to a UK website, pays in GBP to a UK bank account, but at the time I am in Germany and providing the service from there. I assume online sales would simply follow where residence is but am now not so sure. Also if the FA does decide that my income is from the UK what will they do to me? Tax me on 100% of my income with no Grundfreibetrag ?  Is HMRC likely to stick its oar in and I  end up with two tax authorities trying to tax me on the same income ?  

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