Pension from Germany and UK

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Thanks again for the advice. I have read the comments through - several times, and am preparing the response to the Finanzamt. The earliest tax year for which they want a copy of the return is 2016/7, and I have noticed that in that year I received a payment of GBP 2996 from a forestry investment, which was included on my UK Tax Return. It is recorded under "Dividends from UK companies". Is that likely to cause a problem?

In the 2018/9 UK tax year, there was a payment from a supplementary pension scheme operated by Aviva. The gross amount was GBP 3132.00 and tax of GBP 626.40 had been deducted at source. I am reasonably sure that Aviva issued a P45, so that I presume that recording it on the UK tax return is correct. This was a "supplementary" pension scheme, to cover lost years when I had not been in any contributory pension scheme - in my case 1975-80. It was offered to civil servants, and my payments into the scheme ceased when I left the Civil Service in 1997. Since my UK income in that year was less than the tax-free allowance, the tax payment was refunded. Hopefully that won't be a problem.

Thanks again for your responses.

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3 hours ago, relh6l said:

The earliest tax year for which they want a copy of the return is 2016/7, and I have noticed that in that year I received a payment of GBP 2996 from a forestry investment, which was included on my UK Tax Return. It is recorded under "Dividends from UK companies". Is that likely to cause a problem?

If you can prove through documentation that it was income from UK forestry and not just a simple "dividend" as indicated on your UK tax return, then it's not a problem, since it is then taxable by the UK and not even subject to the lesser evil of Progressionsvorbehalt back in 2017 (just like UK rental income), so you were right not to mention it in your German tax return.

Article 6 of the double taxation agreement (DTA) assigns the taxation rights on "income from agriculture or forestry" to the UK: https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Internationales_Steuerrecht/Staatenbezogene_Informationen/Laender_A_Z/Grossbritannien/2010-11-23-Grossbritannien-Abkommen-DBA-Gesetz.pdf?__blob=publicationFile&v=3

And in §32b (1) Satz 2 Nr. 1 EStG Germany waives its right to Progressionsvorbehalt on EU agricultural and forestry income: https://www.buzer.de/32b_EStG.htm

 

If you cannot prove it to be forestry income, then Germany had the taxation rights on it in accordance with article 10 (1) of the DTA, with the UK being entitled to 15% source tax in accordance with article 10 (2) c) of the DTA.

The total tax on the dividend is, since it is capital income, 25% Abgeltungsteuer + 1.375% Soli (= 5.5% * 25%), i.e. 26.375%.

 

3 hours ago, relh6l said:

In the 2018/9 UK tax year, there was a payment from a supplementary pension scheme operated by Aviva. The gross amount was GBP 3132.00 and tax of GBP 626.40 had been deducted at source. I am reasonably sure that Aviva issued a P45, so that I presume that recording it on the UK tax return is correct. This was a "supplementary" pension scheme, to cover lost years when I had not been in any contributory pension scheme - in my case 1975-80. It was offered to civil servants, and my payments into the scheme ceased when I left the Civil Service in 1997. Since my UK income in that year was less than the tax-free allowance, the tax payment was refunded. Hopefully that won't be a problem.

The P45 doesn't tell us anything, Aviva probably had a UK address on file for you.

If you had told Aviva your German address, they would have snitched on you to Germany, and would have then let you sort it out with the Finanzamt: https://www.toytowngermany.com/forum/topic/361434-taxation-of-currency-transactions/?do=findComment&comment=3477369

 

If you paid tax-relieved money into the Aviva pension for more than 15 years in the UK, then article 17 (3) of the DTA assigns the taxation rights to the UK.

But article 23 (1) d) of the DTA allows Germany to apply Progressionsvorbehalt on that income.

So you should have declared that Aviva pension payout of 3,132 GBP (you always declare the gross amount, i.e. even if you had ended up paying UK tax on it) in Anlage AUS and it would have raised your German income tax rate.

Please read this to see how to calculate how much extra German tax you're looking at: 

In all other cases, Germany had the taxation rights on that Aviva pension payout, as laid down in article 17 (1) of the DTA.

In which case you should have declared and taxed it in your German tax return, not in your UK tax return.

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@PandaMunich - Thanks very much for your prompt response.

"If you can prove through documentation that it was income from UK forestry..."

Unfortunately not - the company that organised the investment operated from the UK (among other countries) but the trees were in Canada.

"Aviva probably had a UK address on file for you."

Yes, that is correct. I started the payments into the Aviva scheme circa 1991, and stopped when I left the Civil Service in 1997, so not even close to 15 years.

I guess it's time for me to hand this over to a Fachfrau, or Fachmann! But I understand from your website Panda, that you're not taking new clients at the moment. Schade!

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On 27/01/2022, 00:13:55, GaryC said:

 

So, you should still get all years 2006/7 to 2021/22 (and later) filled if it is worth doing.  You can only pay NI in any shape or form until 5 April before you turn whatever for you is the gradually rising state pension age -  I assume at 64, yours will be 66...

 

I worked about 8 years in the UK, 2 as an employee and the rest as a freelancer, and I might have messed up my contributions because my current DWP account says I have only 5 full years of contributions.

 

I have the possibility to pay NI contributions for the five missing years – do you think it is worth doing that? Can I pay contributions even for the years after I have left the UK to get to my 10 years?

 

The two most recent years that I can see are 'priced' at £795 and £780 (I have no idea why it is so expensive, considering that in some past messages you were talking about £150ish :wacko: while next to the other three missing/incomplete years it says "We are checking this year to see if it counts towards your pension. We’ll update your record when this is finished, you do not need to do anything". I am very confused.

 

Another problem is that I have been employed for just one year in Germany so I currently do not reach the minimum five years for state pension, even with my studies.

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Oh dear, this reply is LONG.  Those not interested may choose to “scroll on”!

 

Goodness, a lot to unpick before you can talk with the DWP Future Pensions Centre about which UK years it would be beneficial to pay up, with HMRC about whether you are eligible to pay voluntarily, to arrange payment and to sort out what is happening with your current records and with the DRV in Germany to get a handle on where you stand there.

 

I am not sure what to include and what to leave for later posts as what follows is very long!  And, I think the definitive answer also depends on your nationality, i.e. in which country your social security record started, when you moved to and from UE/UK country(ies) and whether you fall under the Withdrawal Agreement or the 2020 Trade Agreement from both the UK and German/EU ends of the pensions’ telescope.

 

 

 

Looking at the UK position

 

A good place to start, if you haven’t done so, is to read Booklet NI 38 Social Security abroad: NI38 (publishing.service.gov.uk).  

 

Among other things, it explains the different types on National Insurance contributions (NIC) on page 4.  In summary, when employed you pay Class 1 NIC based on earnings and when self-employed you pay Class 2 and Class 4 NIC.  Class 4 is based on your profits and Class 2 is a flat rate (currently, £158.60 per year) payable in January along with your January self-assessment tax payment.  If you were both employed and self-employed in any year, you pay all three!  There are lower limits of income below which you do not pay NIC.

 

NI 38 also explains (page 9+) how to pay voluntary NIC to fill gaps in your NI record when you live abroad.  If you are eligible to pay Class 2 voluntary NIC it is currently £158.60 per year but if you have to pay Class 3 the amount is higher at, currently, £800.80 per year.  It will all increase by 3.1% from April 2022.  The fact that your records currently suggest the higher, Class 3, amounts is not necessarily an indication that you do not qualify for Class 2 at the lower amounts.  That, ultimately, is a decision for HMRC based on your situation.

 

You may already have this but the next document to get hold of is your NI record (Check your National Insurance record - GOV.UK (www.gov.uk)). It will show a summary of:

 

·       how many full years you have;

 

·       how many years you have left to contribute until 5 April in the year before you reach state pension age; and

 

·       how many years are not full

 

I find the second bullet somewhat confusing as it lists the years for which you could pay NIC, not those for which you must pay it, unless of course, you are working.  For instance, if you already qualified for a full state pension but were only 60, it would still say 5 or 6 more years to pay because, if you are working, NIC is mandatory.  However, if you were not working, paying voluntarily for those years would make no sense as it would not increase your pension.  There is, therefore, no direct read-across from this bullet to your pension forecast.  Indeed, because of the 2016 changes to the state pension rules, there is no direct read-across from the first bullet to your pension forecast either.  More on that in later post if you want it but I would get a pension forecast in any event, online if you can or by following the guidance in NI 38.

 

Anyway, below the summary of your NI record is a list of all years since you were registered on the NI system.  If you expand that out, it gives an explanation for each year.  I think you may have a copy of your NI record based on what you write but understanding which years it covers, what you were doing in each of those years and what the NI record “thinks” you were doing/paid will be important to ensure you get things up-to-date and accurate with HMRC’s NIC Team on +44 (0)300 200 3500.  Calls to 03 numbers cost the same as calls to 01 and 02 landline numbers.

 

While I am not sure what “We are checking this year to see if it counts towards your pension” indicates, there is clearly an issue with those years that you will want to discuss with the NIC Team once you have a better idea of what to ask them.

 

That aside, there are reasons why a year may not be "full".  For instance, if you started or finished employment part way through a tax year, you may not have paid sufficient NIC to “fill” the year and may see something like “Paid employment £xxx” along with “You can make up the shortfall”.  If you paid no NIC at all because your earnings were below the lower limit, you will see “Year is not full” and “You did not make any contributions this year”. If the year has been awarded credits to fill it, the explanation will tell you.

 

There is also a known issue with self-employed and Class 2 NIC dating back to a change HMRC made to the way Class 2 is paid from, I think, 2016/17.  I discovered this recently when helping a self-employed friend understand their NI record.  Prior to the change, Class 2 was paid separately from the self-assessment process.  Since then, it is included on the tax return and in the January tax payment.  However, if HMRC’s “NIC computer system” wasn’t told that you are self-employed it won’t “talk” to the “tax computer system” as it doesn’t think you are liable for Class 2 NIC.  Therefore, although you dutifully put the Class 2 on your tax return, the computer system unwinds it meaning you never actually pay it.  My friend had 5 missing years because of this and would have been in a right pickle next year when claiming their state pension had we not discovered the error!  HMRC is aware of the issue, but it is for taxpayers to identify the problem and contact the NIC team on to rectify it.  This may, or may not, be part of your issue… 

 

In a nutshell, if you were employed/self-employed in the UK for 8 years, I would think you should have something on your NI record for between 8 and 10 tax years (April to April) and, at the very least, should still be able to pay any shortfall showing for any of those 8 to 10 years.  That is something HMRC should be able to advise on/confirm by calling the NIC team.  Hopefully, you will be eligible to top-up those 8 to 10 years because that is cheaper than paying for a whole year.

 

In terms of paying NIC voluntarily (Voluntary National Insurance - GOV.UK (www.gov.uk)) for other years (including those since you left the UK and potentially as far back as 2006/07), as mentioned, the amount payable depends on whether, as a non-resident, you can pay Class 2 NIC or whether you must pay Class 3 NIC (in the same way UK residents must generally pay Class 3).  Class 2 currently costs £158.60, while Class 3 is £800.80 for each year you buy.  The NI 38 sets out the criteria for paying Class 2.

 

Subject to meeting the general eligibility criteria, you can generally pay voluntary NIC up to 6 years after the end of the tax year in question, though for some people, that has been extended back to 2006/07 – my understanding is, broadly, if you reach state pension age after April 2016 and already had an NI record before that date, the normal 6 years has been extended.  If you’re paying Class 2 contributions for the previous tax year, or Class 3 contributions for the previous 2 tax years, you pay the original rate for those tax years.  Otherwise, you pay the rate for the tax year in which payment is made. This is why your record shows Class 3 amounts of £780 and £795, not £800.80, which is the current-year rate.  If you do not pay the earliest of those 2 years before 5 April this year, the amount will increase to £800.80 plus the 3.1% increase.

 

If you fall within the Withdrawal Agreement (WA), the EU Coordination of Social Security Systems rules will continue to apply.  I think this will depend on when you moved between various EU/UK countries.  If you are covered by the WA and end up with less than 10 UK NI years, any EU years will be added to the UK years to get you past the 10-year point.  You would then get a UK state pension based on “UK years/35 x £max state pension”, so, if you had 8 years, that would give you 8/35 x £179.60 = £41.05 per week based on 2021/22 rates.  (It could be a little more complicated than this depending on how the 2016 transition from the old state pension to new state pension rules work for you, but DWP can tell you that once you have a state pension forecast. Call the Future Pensions Centre on 0800 731 0181 or +44 (0)191 218 3600). If the December 2020 trade agreement applies to you, then you would need to take a close look at the social security provisions to see whether and for how long the EU coordination rules might apply to your situation but at the moment, you haven’t provided enough information to know where you stand with Brexit!

 

Leaving Brexit and whatever you might end up with from the German system to one side, I would certainly consider paying voluntary NIC for as many years as you can/need to get the maximum UK new state pension possible - as far as I am aware, anyone with a UK NI record can make voluntary contributions but DWP/HMRC will confirm, if relevant. If you can pay Class 2 as a non-resident, then each year costs (currently) £158.60 and adds about £267 per year to your pension – a payback of living about 7 months into drawing said pension.  If you have to pay Class 3, then payback is about 3 years.  Compare that to the German system where you have to live about 15 to 20 years into drawing your pension to make voluntary contributions “worthwhile”.

 

DWP Future Pensions Centre can inform you how many years you need to fill but they can only see the same NI records as you, so try to get your records clarified with HMRC/filled for your 8 to 10 years first.  However, keep an eye on the fact that the extended time limit allowing people to fill 2006/07 onwards ends on 5 April 2023, though this may not be overly relevant if you are not British and moved to the UK and started paying NIC – one to discuss with DWP, I think.

 

In summary, once you have your facts and documents together, you’ll want a couple of in-depth conversations with DWP Future Pensions Centre and with the HMRC NIC Team. 

 

 

 

Looking at Germany

 

I think the outcome depends on when you moved to Germany (or left and returned) and whether you fall under the WA, or the December 2020 trade agreement which includes provision for Social Security Coordination.  I am not up-to-speed on the trade agreement but think, broadly, the application of the EU rules is preserved for at least the next 15 years.  If correct, or if the WA applies, I think you already qualify for a German state pension because they too would aggregate the UK/EU and German years, meaning you would already have the minimum 5 years.  Again, the pension will be pro-rated to your German years but that is a tad more complicated than in the UK because of how the German rules operate, and it being earnings-related, not based solely on qualifying years.  Suffice to say, you may get more than a straight apportionment based solely on your German years.  The EU rules increased my wife's German pension by significant amount compared to looking solely at the German years.

 

You can ask the DRV to recognise any UK education-type years, so talking with DRV and doing a Kontenklärung would seem sensible.  Make sure they know you have UK years, so that they can also provide information on the application of the EU rules. Assuming the EU rules apply, I would expect the DRV to give a Rentenauskunft showing the innerstaatliche (German-only years) and zwischenstaatliche (all German/EU/UK years, pro-rated) Berechnungen.

 

 

 

I don’t think the above answers all the questions you asked and/or need to ask but hopefully gets you started…

 

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@GaryC you're an absolute star and I'm so grateful.

You've been much more clear and detailed than I could hope for... thank you!!

I'll read this again tomorrow with a fresh mind because I'm not sure I understood everything and I'm too exhausted now. I don't want to steal too much of your time, but could I contact you privately? Thanks so much again anyway, I'm really humbled.

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29 minutes ago, Jean Genie said:

@GaryC you're an absolute star and I'm so grateful.

You've been much more clear and detailed than I could hope for... thank you!!

I'll read this again tomorrow with a fresh mind because I'm not sure I understood everything and I'm too exhausted now. I don't want to steal too much of your time, but could I contact you privately? Thanks so much again anyway, I'm really humbled.

 

You are welcome.

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