UK rental income on German tax returns (post-Brexit)

207 posts in this topic

5 minutes ago, GaryC said:

Yet another amending protocol.  Nothing changes re Article 6, or Article 23.

 

This is the treaty itself  2010_double_taxation_convention_as_amended_by_the_2014_and_2021_protocols.odt (live.com)

 

And this is the place to look to get the version relevant to the year(s) one is considering  Germany: tax treaties - GOV.UK (www.gov.uk)

 

Yes, thanks Gary.  Was doing this in my lunchbreak and a bit too quick.

 

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1 hour ago, GaryC said:

Yet another amending protocol.  Nothing changes re Article 6, or Article 23.

 

This is the treaty itself  2010_double_taxation_convention_as_amended_by_the_2014_and_2021_protocols.odt (live.com)

 

And this is the place to look to get the version relevant to the year(s) one is considering  Germany: tax treaties - GOV.UK (www.gov.uk)

 

 

I got some question about pensions, which I put here 

German retirement and pensions - Page 4 - Finance - Toytown Germany

 

Maybe somebody knows something about it

 

Thanks for any Help

 

 

 

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2 hours ago, emkay said:

We just visited our tax advisor regarding our 2021 income. This now includes my UK property income for the first time. She said she’d dealt with all kinds of rental property incomes in several countries though this is her first UK property. Her first comments were that 1), my  UK rental should always have been declared since 2011.

Dear me.

Please send your tax advisor this article (in German) written by Prof. Gerrit Frotscher (who has also written a book on international taxation): https://www.haufe.de/finance/haufe-finance-office-premium/brexit-natuerliche-personenertragsteuern-fall-81-progressionsvorbehalt_idesk_PI20354_HI11465945.html

It explains that British rental profit has to be declared in the German tax return only starting with the 2021 tax return and why, including all legal sources.

 

If your tax adviser has been declaring EU or EEA rental income as income subject to Progressionsvorbehalt in her other clients' German tax returns for 2008 or later, she has a lot of reporting to do to her professional liability insurance.

Because unless those old Bescheide were left "open" by the Finanzamt (unlikely), i.e. had either § 165 Abs. 1 Satz 1 AO on page 1, or Vorbehalt der Nachprüfung § 164 Abs. 1 AO (which sadly vanishes automatically at the end of the 4 year Festsetzungsfrist as laid down in AEAO zu § 164 Nr. 7, so even if it is on page 1, it won't help her in the older Bescheide since the Bescheid will have become set in stone in the meantime), these old Bescheide can no longer be changed, i.e. the Finanzamt will not give back that overpaid tax.

Which means that your tax advisor is liable for it.

 

2 hours ago, emkay said:

I’ve seen the DE Gesetz quoted here on TT before though my powers of TT search have eluded me.  

 

While the Germany/UK double taxation agreement does give Germany the right to apply Progressionsvorbehalt in article 23 (1) d), German national income tax law then voluntarily waives this right, by exempting EU (and the UK was considered part of the UK until the end of 2020) rental income from Progressionsvorbehalt through § 32b (1) Satz 2 Nr. 3 EStG.

 

2008 was when the law § 32b EStG changed, to include § 32b (1) Satz 2 Nr. 3 EStG, which exempts EU rental income from Progressionsvorbehalt: 

And via the pointer in § 32b (1) Satz 3 EStG to § 2a Absatz 2a EStG, to also exempt EEA (= Norway, Iceland and Liechtenstein) rental income from Progressionsvorbehalt.

 

Source of the old/new law comparison: https://www.buzer.de/gesetz/4499/al15022-0.htm

You can see the old version on the left, and the new version on the right.

6323079e6137a_2022-09-1513_05_53-Fassung

 

Note: Spain rental income gets treated differently, since that double taxation agreement (DTA) is different, it has a "tax credit clause", i.e. Germany gets to tax Spanish rental profit directly and double taxation is then avoided by Germany lowering your German tax on that Spanish rental profit by the Spanish income tax that you had already paid to Spain on it (Anrechnungsmethode).

The other exception is Finland up to 2017, since the the new DTA between Germany and Finland, which has a "progression clause" (= uses the  Freistellungsmethode that all other EU/EEA DTA use), only came into force in 2017. Under the old Finnish DTA, which had a "tax credit clause" (Anrechnungsmethode), Finnish rental income was treated like Spanish rental income still is.

 

2 hours ago, emkay said:

I also can’t find any official confirmation that the taxation rules have changed for UK property rental income from 2021. The Finanzamt didn’t know of the change either. 

 

As @GaryC already said, it wasn't the taxation rules that changed.

What changed was the UK leaving the EU because of Brexit, i.e. the UK's status changed from "EU member" to "third country".

 

According to the withdrawal agreement, there was a transition phase up to 31.12.2020, in which the UK was still treated as a EU member.

--> up till 31.12.2020, your UK rental income was very properly not declared in your German tax return, since as a EU rental income, it was not subject to Progressionsvorbehalt.

 

However, you should know that the Germany/UK DTA has a "subject-to-tax" clause in article 23: 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

This subject-to-tax clause (Rückfallklausel) means that if - even before 2021 - you cannot prove that you declared your UK rental profit in your UK tax return (it doesn't matter whether you ended up paying tax on it, because of the UK tax-free Personal Allowance of 12k GBP most people don't), the taxation rights fall back to Germany.

 

So expect the Finanzamt to ask for your old UK tax returns, to check that you really declared that UK rental income all the time, because they have a financial interest here - if you didn't, Germany gets to tax your UK rental income, even the pre-2021 one.

So if anyone on here has "forgotten" to declare their UK rental profit in their past UK tax returns, do that now (for the past 13 years, beyond that, the statute of limitations has run out under German tax law) and only then file your German tax return 2021, which will alert the Finanzamt to the existence of your UK rental property.

 

2 hours ago, emkay said:

When our tax advisor accepted that what I had explained may be true though she will check, she commented that based on 2021 calculations, the outstanding tax would have to be paid in arrears in full and then, for 2022, that sum would have to be paid quarterly in advance. With nearly 3 quarters of 2022 gone, that’s a lot to pay for a very minimal profit. I’ve never heard of this advance payment, is this correct?

 

If through your 2021 German tax return, you end up owing more than 400€ in German income tax, then yes, the Finanzamt can set prepayments for 2022 of the amount you owed for 2021.

The Finanzamt can set this prepayment until 15 months after the end of the year this is about, i.e. the prepayment for 2022 can be set until 31.12.2022 + 15 months = 31.03.2024. So don't even think about filing late - besides, filing late now comes with an automatic late filing penalty of at least 25€ per month, see § 152 AO.

--> take care to file by the deadline.

 

The duty to set prepayments is laid down in § 37 (1), (3) and (5) EStG: https://www.gesetze-im-internet.de/estg/__37.html

  • § 37 Advance payment of income tax

    (1) On 10 March, 10 June, 10 September and 10 December, the taxpayer shall pay advance payments of the income tax which he is expected to owe for the current assessment period. 2The advance income tax payment shall arise in each case at the beginning of the calendar quarter in which the advance payments are to be made, or, if the tax liability is not established until the course of the calendar quarter, at the establishment of the tax liability.
     

    (3) 1The tax office shall determine the advance payments by means of an advance payment notice. 2The advance payments shall in principle be calculated on the basis of the income tax resulting from the last assessment after offsetting the tax deductions (section 36(2) no. 2). 3The tax office may, until the end of the 15th calendar month following the assessment period, adjust the advance payments to the income tax that will probably result for the assessment period;
     

    (5) 1Advance payments shall only be fixed if they amount to at least 400 euros in a calendar year and at least 100 euros for an advance payment. 

 

2022-09-15 13_45_36-Bundesgesetzblatt Teil 2 Nr. 33-min.png

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Hi Panda.  Thanks for the explanation.  So, if you didn't submit the UK tax returns because the profit was too low to exceed the personal allowance, how do you submit them now?

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WOW!

 

Couple of UK-specific points coming out of this.

 

1) If you no longer have copies of your UK tax returns for those earlier years, you might (I am not sure whether this is possible) be able to obtain a copy (well, a letter containing the relevant information) by making a Subject Access Request (SAR) for access to your information held by HMRC  Make a subject access request to HMRC - GOV.UK (www.gov.uk). If they cannot, or do not, offer copies of tax returns I would have thought it should be possible to get details of taxable rental income as it is treated separately from employment income, pensions etc.  If this applies to you, you'll want to read that guidance and open a discussion with HMRC as necessary...  I managed to get details of my NIC position in 2007/8 a couple of years ago, so it is certainly worth pursuing...

 

2) If you have "failed to notify" HMRC of your rental income and/or have notified HMRC but made an incorrect return by omitting such income from the return then you will be in penalty territory.  You will also have to pay late payment interest on any tax that is ultimately due, from the date it should have been paid until it is paid.  Penalties are based on the amount of tax unpaid as a result of your actions/inactions and lie between 0% and 100% (or more for the most serious cases) of that tax.  There is a useful article on the Low Income Tax Reform Group (LITRG) website Tax penalties | Low Incomes Tax Reform Group (litrg.org.uk), or the HMRC guidance  Penalties: an overview for agents and advisers - GOV.UK (www.gov.uk), each of which sets out how all HMRC penalties are imposed.  The most likely one in relation to this thread would seem to be "Failure to Notify" and as you can see, the reduction for voluntarily informing HMRC of your shortcoming is higher than it would be if you wait for them to come knocking.  It seems unlikely that anyone in this situation could argue "reasonable excuse", not least because the courts have held on numerous occasions that "ignorance of the law" is not an excuse!  It does, though, seem likely that in most cases you would likely be in the "not deliberate" space, or more accurately a "failure to take reasonable care", but every case would turn on its own facts.

 

3) If anyone is hit by point 2 they may end up in a bit of a quandary, especially if they have been in receipt of UK rental income for more than 6 years.  HMRC can only assess tax outside of the normal 4-year time limit if they can demonstrate that the person has either "failed to take reasonable care", when the time limit increases to 6 years, or, that their actions were deliberate, in which case they have 20 years.  However, the penalty for deliberate actions are significantly higher than for failing to take reasonable care.  Hopefully nobody on here will have to square that particular circle.   

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After a few years of submitting UK tax returns, if you are not liable to any tax, HMRC then tells you not to submit a tax return again.

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10 minutes ago, sluzup said:

Hi Panda.  Thanks for the explanation.  So, if you didn't submit the UK tax returns because the profit was too low to exceed the personal allowance, how do you submit them now?

 

That is a very good question.  

 

Thinking on my feet, as it were, I think I would start by speaking to HMRC (maybe by phone in the first instance) to explain that while I now understand that I should have notified HMRC when I started letting the property and would probably have been required annually to submit a UK tax return and self-assessment showing no tax due (rental profit covered by personal allowance), I didn't realise that was necessary if it was obvious that for all years no UK tax would be due as it would be covered by the Personal Allowance.  However, as a result of Brexit I will now have to satisfy the German tax authority that my UK rental income has been "subject to tax" in the UK and cannot of course achieve that without some sort of confirmation from HMRC that that is the case in the absence of submitted tax returns.  So, my question would be, "Does HMRC now require me to submit tax returns and self-assessments for X years, or is there another way to demonstrate that the income has been subject to tax in the UK.  Ultimately no UK tax will be payable, so there would appear to be neither late payment interest, nor penalty ramifications."

 

Or words to that effect.  I expect you would then be asked to send the issue to them in writing to a specific address... 

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I did submit a UK tax return for a number of years, including only the rental income, but after about 4 years they told me to stop as I didn't owe any money and was never likely to.  I agree the best seems to give them a call and ask maybe for a statement saying something along the lines of 'no tax returns submitted as requested by HMRC as rental profit was not high enough for tax to be payable:

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8 minutes ago, sluzup said:

After a few years of submitting UK tax returns, if you are not liable to any tax, HMRC then tells you not to submit a tax return again.

That is correct but does not lift the obligation to notify HMRC of any new source of income, or changes to the levels of notified sources, so that they can consider whether to require returns again.

 

This is one area where the German and UK tax systems differ significantly.  In Germany you are simply required to submit a return, unprompted, each year. In the UK you are required to notify HMRC of new sources of income, which usually prompts HMRC to send you an annual Notice to file a return and self-assessment, but if they decide that because no tax, or no additional tax, will be due that they do not require a return they will "take you out of Self Assessment" and no longer send you a "Notice to file a return".  Absent such notice there is no legal obligation to file a return.  Clearly, if you know you should file even though you have not been required to do so, you must inform HMRC that their decision is ill-founded. 

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2 minutes ago, sluzup said:

I did submit a UK tax return for a number of years, including only the rental income, but after about 4 years they told me to stop as I didn't owe any money and was never likely to.  I agree the best seems to give them a call and ask maybe for a statement saying something along the lines of 'no tax returns submitted as requested by HMRC as rental profit was not high enough for tax to be payable:

 

This is in line with HMRC policy of requiring tax returns from as few people as possible to reduce costs. 

 

Not wishing to put words in HMRC's mouth, but if they are prepared to give you a simple letter, I think they may say something like "While HMRC confirms that sluzup's UK rental income has been subject to UK taxation, HMRC lifted the obligation on them to annually submit a UK tax return and self-assessment of the tax liability because it was clear that for all foreseeable years such profit would be covered by the customer's personal allowance".   

 

Will be interesting to see what they say when you contact them...

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4 hours ago, sluzup said:

After a few years of submitting UK tax returns, if you are not liable to any tax, HMRC then tells you not to submit a tax return again.

 

No income from UK rentals here but a UK state pension which is subject to taxation by HMRC & Progression in DE.

 

During a phone conversation with HMRC back in April 2018 (not long after I retired) HMRC stated that as long as my

UK state pension is under the UK allowance (its not even 50% of the allowance) I pay no (UK) tax and do not have to submit

anything to HMRC - even if the German tax office says that I should!

 

Its entered into Anlage AUS in DE.

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On 9/15/2022, 3:29:40, sluzup said:

they told me to stop as I didn't owe any money and was never likely to

I've been submitting HMRC returns for several years, rental income, never owning them any money, and they have not told me to stop. Not yet at least.

Maybe I'll give them a call...

..or would it be better to write...?

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Im my case its UK state pension only - yours is rental income which could be a different matter. 

I'd suggest calling HMRC and if necessary following up in writing.

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6 hours ago, Gambatte said:

I've been submitting HMRC returns for several years, rental income, never owning them any money, and they have not told me to stop. Not yet at least.

Maybe I'll give them a call...

..or would it be better to write...?

I’ve submitted HMRC self assessments in paper form since moving to DE in 2011. Former online submissions weren’t then allowed after moving abroad. There maybe still be some benefit from these submissions. I won’t be asking not to submit despite never paying any UK tax and unlikely to. After all, the forms only take a few minutes to complete as practically the same as in previous years.  
 

It’s been useful for me as my daughter can claim for Bafög for her uni student loan. Step parent‘s income does not qualify. Natural/adopted parent‘s income does. Divorced parents paying maintenance requires more info. Copies of the UK self assessment are required for Bafög and have been easily accepted without any translation.

 

I guess all this changes anyway from 2021 when UK property rental income submissions are required in DE 

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On 12/09/2022, 18:14:35, emkay said:

Just received this from my UK letting agent. Has anyone else had anything like this? Just over 2 weeks of opt out of an automatic insurance. Doesn’t seem quite right? Or, is this a good deal in these times?

 

‘We have been working with XXXX to agree terms on a Rent & Legal Protection policy for XXXX as we are concerned about the risks faced in the next few months. 

 

Whilst businesses are still recovering from the impact of the pandemic, we are now facing further risks to rental payments due to occupier costs rising exponentially. 

 

The energy crisis is one of the biggest contributors to our outgoings, with gas and electricity prices increasing by 54% in April, and confirmation that further rises are to follow later in the year. 

 

In addition to this, the cost of fuel is at a record high and the cost of the weekly food shop is increasing along with clothing and transport.

 

As such we have to be prepared that some tenants may face financial difficulties and struggle to meet their rental payments.

 

To protect our landlords against this risk, we have negotiated with XXXX to provide a policy which can be triggered quickly and offers preferential terms for dealing with rent arrears. 

 

These terms are as follows;

• Monthly rent paid for up to a maximum value equivalent to fifteen months of arrears, plus 3 months’ rent paid at 75% following Vacant Possession

• No Excess -100% of your rent is paid

• Paid immediately - unlike many other policies this can be paid when the tenant is 31 days in arrears.

• Legal expenses up to £100,000 to cover eviction costs if the tenant is in breach of their tenancy agreement or following an expired section 21 notice. Professional court attendance on your behalf.

 

*Please be aware we can not offer this service to those clients with rents in excess of £2500 pcm.

 

This means you can rest in the knowledge, that you have the right level of cover in the event your tenant falls into arrears or breaches their tenancy agreement. 

 

Should this happen, we will make a claim to pay your rent and help you obtain vacant possession of your property, subject to the terms and conditions of the service. 

 

Is there an extra cost for this service?

 

Yes. The cost of this service is 3% plus VAT of the monthly rent, per property, deducted monthly from your rental statement. For example, a typical rent of £800 pcm would see a deduction of £24 plus VAT.

 

What you need to do? 

 

If you want to benefit from this protection and our service, you do not need to take any action.

 

The service we offer will automatically ‘opt in’ all our landlords for all their properties from 1st October 2022.

 

What to do I do if I DO NOT want this service?

 

If you do not want this protection as part of your management service or you already have it elsewhere, please tell us by 1st October 2022 by simply sending us an email to xxxx or give us a call xxxx

 

Any other questions?

 

Please contact your property manager to discuss in more detail.’


I’ve got until 1st October to decide on this legal insurance offered by the managing agent. In light of the recent financial changes, I’m now wondering if it could be a good idea after all. My current tenancy runs until May next year. Whilst the tenants seem to be high earners,, who knows? The couple moved to the area due to their jobs though they own and let a property elsewhere. Lots of ‘what ifs’. Maybe their mortgage costs become astronomical etc etc. Rejecting insurance always feels like tempting fate! Does anyone else feel like this could now be a good idea after all?

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Seeing the premium of this insurance, I think this is a good deal. Just my opinion.

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1 hour ago, Gambatte said:

Seeing the premium of this insurance, I think this is a good deal. Just my opinion.

This seems to be very odd. When I pressed the agent for underwriter and policy details, this is their response that they got from the insurer:-

 

I have attached a document you can provide the landlord. They will not have an insurance T&C’s and they will not be taking out an insurance policy, instead it’s a service provided by xxxLETTING AGENTxxx. In my opinion, this is better as you have an invested interested in your relationship with the landlord.

 

We pay claims a month in arrears, however as discussed, we have just launched ‘same day payments’  for the first month only. This means qualifying criteria, we’ll be able to make a  payment on the same day for claims received before mid-day.

B63F209C-1632-4E71-ACCE-43AB59805AD4.jpeg

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Document referred to.  I couldn’t add to my post.

B969FE05-A384-4B95-8D00-C26EE2237C41.jpe

 

 

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So, the letting agent is entering some sort of insurance policy/scheme/service with LetAlliance and then allegedly going to pass on benefits to you when they claim under the policy.  You are not insured and if they decline to make a claim on the basis that this may push up costs for all next year, then you are stuck and your only option would be to sue them for breach of contract if the contract for that service you signed (or are deemed to have signed by not opting out!) shows they should have acted in your favour.  In essence you could be doubling your necessary legal action as you would still pursue the tenant and then try to get the costs back under this scheme!

 

And this will all be as an "enhancement" to the services they already provide (not a personal insurance policy) for which they are going to stuff you with an EXTRA 3.6% incl. VAT on top of your 10% or whatever you pay them already for their service.  Nice additional income for them!  Will they be paying the full 3.6% as premium for the insurance they are taking out, or is there a profit tucked away in there for them?  I expect it is the latter!

 

Personally, I would opt out and if I felt there might be benefit from taking out rent insurance, look around at prices and terms.  You could then either opt back in or just buy an insurance policy.  If your gross rent is, say, £10,000 pa, would a rent protection policy cost £360 pa?  No idea but worth researching.  If they won't let you opt back in, then change agents at the earliest opportunity.

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@GaryC, thanks so much for your comments. I just emailed asking for if not insurance policy details then their own T&Cs for this additional ‘service’. As I now pay 8.5%, an additional 3% is just over a 35% extra. All plus VAT. This all seems quite questionable without proper terms. I can’t help thinking that if I refuse this extra service, the normal service will decline. New agent probably necessary soonest. 

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