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

82 posts in this topic

Thanks once more @GaryC

 

 

 

In case anyone else is in the same boat as me, I attach some very interesting links I found myself, in case it helps

Tips on Buy-to-let Mortgage in Germany | Blog | LoanLink

 

German Taxes On Property: Rental Income And Capital Gains (welcome-center-germany.com)

Taxes on Foreigners' Real Estate Rental Income in Germany (globalpropertyguide.com)

How Does Renting/Owning/Selling Property Affect My German Taxes? – Expat Tax

 

 

 

I summarize  (based on the above 4 links):

For ‘German tax purposes’ (i.e. particularly for the calculation of ‘Progressionsvorbehalt’), the income from a foreign rental property is calculated according to German tax rules , and follows the German tax year (i.e. 1st Jan 20xx to 31st Dec 20xx)

Under German tax rules, allowable expenses appear to include:

  • any interest payments you have on an existing mortgage connected to the property,

  • a 2% annual depreciation on the original purchase price of the building,

  • and any other expense in relation to the property against the rent you receive (Owners can deduct any expenses from the gross receipts, which were incurred to produce, maintain and safeguard that income.)

  • one interesting consequence of this => this could ‘potentially’ lead to negative ‘Progressionsvorbehalt’, in some cases.

 

 

Purely as background info:

  • previously, the UK was part of the EU – therefore, due to the ECJ ruling from circa 2008, all income from a UK rental property was previously ignored from the perspective of the German Finanzamt.

  • in the eyes of the Finanzamt, the UK becomes (from 1st January 2021) a ‘third country’, like the USA or Canada.

  • If you work in Germany and are paid by an German employer, any negative ‘Progressionsvorbehalt’ from UK rental income could be taken into account alongside your German employment salary, thus potentially lowering your overall tax rate in Germany.

 

 

just to say - all feedback is still genuinely  most welcome, in case i have overlooked something important!

@PandaMunich  - as a very skilled and experienced Steuerberaterin in this area, may i just politely ask your opinion on this please (but only if you have time.)

 

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Thanks. Some questions.

 

1) Say you are due to receive UK rental income on 30.12.2021, but you end up receiving it on 01.01.2022. In which German tax year should this income count, in 2021 because that's when the income was theoretically due, or in 2022 because that's when it de-facto arrive?

 

2) How does the FA want you to convert from pounds to EUR?

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10 minutes ago, Gambatte said:

Thanks. Some questions.

 

1) Say you are due to receive UK rental income on 30.12.2021, but you end up receiving it on 01.01.2022. In which German tax year should this income count, in 2021 because that's when the income was theoretically due, or in 2022 because that's when it de-facto arrive?

 

2) How does the FA want you to convert from pounds to EUR?

 

1) i personally would say look at it from a 'cash' accounting basis, rather than an 'accruals' accounting basis =>

it is based on when you receive it i.e. 2022 in this case, in my humble opinion.

(i could be wrong however on this, so i stand to be corrected)

 

 

2) this is what i have tended to use myself:

http://www.bundesfinanzministerium.de/Web/DE/Themen/Steuern/Steuerarten/Umsatzsteuer/Umsatzsteuer_Umrechnungskurse/umsatzsteuer_umrechnungskurse.html

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Thanks Danny.

Maybe a typing mistake? I think the link you posted on Umsatzsteuer has nothing to do with the original question 2)

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10 minutes ago, Gambatte said:

Thanks Danny.

Maybe a typing mistake? I think the link you posted on Umsatzsteuer has nothing to do with the original question 2)

i take your point about it being 'Umsatzsteuer', sure.

 

However, speaking more generally, aren't these just monthly EUR to GBP conversion rates, which are officially published by the Bundesfinanzministerium? 
i compared the rates the Bundesfinanzministerium published here to some currency exchanges e.g. XE.com

i stand to be corrected, but i think if you used these rates here from the Bundesfinanzministerium as a reference point, it would still give you a fairly accurate picture and not be a million miles off, right?

 

 

Umsatzsteuer-Umrechnungskurse, Monatlich fortgeschriebene Übersicht 2020 (bundesfinanzministerium.de)

 

if you know if any better links, please let us know.

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36 minutes ago, DannyThru said:

 i think if you used these rates here from the Bundesfinanzministerium as a reference point, it would still give you a fairly accurate picture and not be a million miles off, right?

That's exactly why I think your explanation is wrong. When reporting income to the FA, I believe one must report income in exact amounts in EUR, "fairly accurate" would be ok for me, I guess also for you, but I don't think is accurate enough for the FA.

 

Plus, and here again is my original question, the rates you linked are every day different. The rate of which day should one use? 

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5 minutes ago, Gambatte said:

That's exactly why I think your explanation is wrong. When reporting income to the FA, I believe one must report income in exact amounts in EUR, "fairly accurate" would be ok for me, I guess also for you, but I don't think is accurate enough for the FA.

 

Plus, and here again is my original question, the rates you linked are every day different. The rate of which day should one use? 

The rates i linked are monthly rates, e.g. Jan, Feb, Mar, April, May etc. - they are not different every day =>

' the rates you linked are every day different. The rate of which day should one use? '

 

Personally i think that it would be considered as standard practice to use a monthly rate for reporting income, in my view - Obviously that's just my reasoning and opinion.

Perhaps a Steuerberater can shed some more light on this for all of us.

 

If someone knows of better rates, i.e. how to use them and where to find them, then fair enough, i would be very glad to get that info myself 

 

 

 

1 hour ago, Gambatte said:

Thanks Danny.

Maybe a typing mistake? I think the link you posted on Umsatzsteuer has nothing to do with the original question 2)

i take your point about it being 'Umsatzsteuer', sure.

 

However, speaking more generally, aren't these just monthly EUR to GBP conversion rates, which are officially published by the Bundesfinanzministerium? 
i compared the rates the Bundesfinanzministerium published here to some currency exchanges e.g. XE.com

i stand to be corrected, but i think if you used these rates here from the Bundesfinanzministerium as a reference point, it would still give you a fairly accurate picture and not be a million miles off, right?

 

 

Umsatzsteuer-Umrechnungskurse, Monatlich fortgeschriebene Übersicht 2020 (bundesfinanzministerium.de)

 

if you know if any better links, please let us know.

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19 minutes ago, DannyThru said:

 i think that it would be considered as standard practice to use a monthly rate

Yes, but the one of which month?

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18 minutes ago, DannyThru said:

60045efa0abbe_2021-01-1715_22_16-Umsatzs

 

Thanks Danny.

Ok say I send an invoice to my customer in the UK in Jan 2020. He is due to pay in Feb 2020. He pays in march 2020. I report it to HMRC in April 2020. I move the pounds to Germany in may 2020. I report it to the German authority in June 2020. Or maybe I never even move these Pfunds to Germany, but I should of course still report the earnings. 

 

There are at least six months in my example here. And 12 (of course) in your list. So six different exchange rates. Or 12, as you highlighted.

Which of these 6, or 12, all different, should one use?

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10 minutes ago, Gambatte said:

Thanks Danny.

Ok say I send an invoice to my customer in the UK in Jan 2020. He is due to pay in Feb 2020. He pays in march 2020. I report it to HMRC in April 2020. I move the pounds to Germany in may 2020. I report it to the German authority in June 2020. Or maybe I never even move these Pfunds to Germany, but I should of course still report the earnings. 

 

There are at least six months in my example here. And 12 (of course) in your list. So six different exchange rates. Or 12, as you highlighted.

Which of these 6, or 12, all different, should one use?

 

 

Fair enough, what you have is (in my humble opinion) quite an 'advanced'  / complex example.

Maybe i am not even the best person to try and even answer, as i am not a qualified Steuerberater, so i might have to refer you to someone else.

You mention 'invoicing your customer for rental income' ...it's just that for my rental income, i don't 'invoice my customer for rental income'.

I know several other landlords who live abroad and have rental property in the UK and they don't 'invoice their customers for rental income'.

I have lived in both UK and Germany as a tenant for 20+ years, and i have never been 'invoiced' as a customer for rental income.

I always had a contract set up as a tenant, and paid them as a landlord via a standing order.

i was never once in over 2 decades 'invoiced as a customer for rental income' as a tenant.

But hey...

 

 

 

Personally, i would simply go on the basis of when you either received money from a 3rd party, or paid out money to a 3rd party.

For instance, in my own very simply case, i have just the one 2 bedroomed flat in the UK.

I employ a Managing agent who deals with the tenant directly.

i get the rental income paid directly into my bank account each month by the Managing agent,  so i don't have to invoice anyone. 

 

Most months, i also have costs i need to pay out, relating to my flat, as a landlord, which are my responsibility.

 

Therefore, for any given calendar month, i consider the income i physically received, less any costs i physically paid out,  and then use the relevant exchange rate relating to that specific calendar month.

 

 

Like i said,  i am not a qualified Steuerberater, so i might have to refer you to someone else who is one.

 

But my reasoning is that if your customer pays you in march 2020, then this is absolutely key, as you have received money from  a 3rd party.

 

Whether you transfer the money back to yourself (from GBP to EUR) from the UK to Germany, or not, to be honest, is that even relevant for the Finanzamt?

 

sorry that i maybe can't help further at this stage....

 

27 minutes ago, Gambatte said:

Yes, but the one of which month?

 

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9 minutes ago, DannyThru said:

Therefore, for any given calendar month, i consider the income i physically received, less any costs i physically paid out,  and then use the relevant exchange rate relating to that specific calendar month.

Thanks Danny.

 

Anyone knows what is the FA view on which exact exchange rate to use?

 

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20 minutes ago, Gambatte said:

Anyone knows what is the FA view on which exact exchange rate to use?

 

Panda certainly knows.

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15 hours ago, HEM said:

 

Panda certainly knows.

agree 100% - would be really really great if we can finally get to the bottom of this issue once and for all.

 

 

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I am pretty sure the VAT official rate tables linked above are those to use for tax purposes generally.  It's on this forum somewhere if your search technique is good enough...  And, as it's only for Progressionsvorbehalt purposes on what sounds like a relatively small amount, I imagine the FA will be content with using those tables.

 

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On 1/18/2021, 1:53:25, GaryC said:

I am pretty sure the VAT official rate tables linked above are those to use for tax purposes generally.  It's on this forum somewhere if your search technique is good enough...  And, as it's only for Progressionsvorbehalt purposes on what sounds like a relatively small amount, I imagine the FA will be content with using those tables.

 

Thanks a lot @GaryC  - always appreciate your input.

 

 

@PandaMunich  

 as a very skilled and highly experienced Steuerberaterin in this area,

may i just politely ask your opinion on this please?

(but only if / when you have time.)

 

 

 

 

The UK now has a trade agreement with the EU.

As at 11pm GMT  / midnight CET on 31st December 2020, the UK will now be classed as a ‘third country’ in the eyes of the EU (e.g. like Japan, Canada, Australia, China, etc) – i.e. completely outside of the EU / EEA.

 

For the German tax year of 1st January 2020 to 31st December 2020, the previous rules still apply (due to the Transition period applying from 31st January 2020 to 31st December 2020):

i.e. any profit (or loss) you generate on rental property in the UK was completely ignored by the Finanzamt, and did not need to be considered at all in your personal annual German income tax return.

 

For the German tax year of 1st January 2021 to 31st December 2021, the rules are now quite different, now that the Transition period is over)

i.e. any profit (or loss) you generate on rental property in the UK will now need to be reported to the Finanzamt, and therefore need to be declared in your personal annual German income tax return.

It will not ‘directly’ be taxable, i.e. you will not pay 25% of any profit as tax, as such.

However, it will potentially still ‘indirectly’ be taxable, as it will now be considered as part of your ‘Progressionvorbehalt’, i.e. thus potentially raising your overall tax rate, from say 42% to 44% (just a fictive example).

 

 

 

 

PART i)

Could you possibly ‘sense-check’ my summary below:

 

 

 

 

I summarize  (based on the above 4 links):

 

For ‘German tax purposes’ (i.e. particularly for the calculation of ‘Progressionsvorbehalt’), the income from a foreign rental property is calculated according to German tax rules , and follows the German tax year (i.e. 1st Jan 20xx to 31st Dec 20xx)

Under German tax rules, allowable expenses appear to include:

  • any interest payments you have on an existing mortgage connected to the property,

  • a 2% annual depreciation on the original purchase price of the building,

  • and any other expense in relation to the property against the rent you receive (Owners can deduct any expenses from the gross receipts, which were incurred to produce, maintain and safeguard that income.)

  • one interesting consequence of this => this could ‘potentially’ lead to negative ‘Progressionsvorbehalt’, in some cases.

 

Purely as background info:

  • previously, the UK was part of the EU – therefore, due to the ECJ ruling from circa 2008, all income from a UK rental property was previously ignored from the perspective of the German Finanzamt.

  • in the eyes of the Finanzamt, the UK becomes (from 1st January 2021) a ‘third country’, like the USA or Canada.

  • If you work in Germany and are paid by an German employer, any negative ‘Progressionsvorbehalt’ from UK rental income could be taken into account alongside your German employment salary, thus potentially lowering your overall tax rate in Germany.

 

 

 

PART ii)

Everyone was wondering ‘which official EUR / GBP exchange rates’ from the Finanzamt should be used for converting rental income in GBP from the UK back into EUR:

I found these rates below myself online, and I appreciate that they relate to VAT (Umsatzsteuer).

However – could they theoretically still be used (in general terms) please, or is there another (better) resource available somewhere?

 

 

 

 

PART iii)

Which kind of accounting basis is allowed / sensible / acceptable in the eyes of the Finanzamt, for the calculation of the Progressionsvorbehalt?

(e.g.  I only have one flat in the UK which i rent out.)

 

 

‘Cash accounting basis  - i.e. the date i physically received money or i physically paid money out is therefore relevant for tax purposes.

e.g.

    • I have an incoming invoice dated 10th November 2020.

    • I finally paid the invoice on 15th January 2021.

    • Therefore, I should consider this as an expense in period 1 of 2021

       

 

‘Accruals accounting basis - i.e. the period the income or expense actually relates to is therefore relevant for tax purposes.

e.g.

    • I have an incoming invoice dated 10th November 2020.

    • I finally paid the invoice on 15th January 2021.

    • Therefore, I should consider this as an expense in period 11 of 2020

 

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Thanks for posting Danny. Very interesting.

The Abschreibung for rented property was not on my radar. In fact for many properties 2% is not too far off the rental amount...

 

Actually I find it weird, unlike most other stuff properties increase value more often than not, yet the taxman gives you a tax discount as they were losing value. Never mind, life is too short to argue on the fairness of taxes...

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It turns out, that the rules regarding NEGATIVE Progressionsvorbehalt seem to be actually incredibly specific:

 

Rental losses from properties located outside of Germany and outside of the EU/EEA cannot be set-off against German taxable income, but will be assessed in a special assessment notice.

It can only offset positive income from the same source and from the same country.

Rental income received from properties located outside of Germany and outside of the EU/EEA will, however, be used to calculate the German applicable tax rate (progression clause).

 

 

I NOW interpret this as meaning:

should you make a loss on your UK Rental income => this loss unfortunately CANNOT be offset against the overall tax you would pay on your normal German salary.

 

 

 

 

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@PandaMunich

 as a very skilled and highly experienced Steuerberaterin in this area,

may i just politely ask your opinion on this please?

(but only if / when you have time.)

 

 

 

 

The UK now has a trade agreement with the EU.

As at 11pm GMT  / midnight CET on 31st December 2020, the UK will now be classed as a ‘third country’ in the eyes of the EU (e.g. like Japan, Canada, Australia, China, etc) – i.e. completely outside of the EU / EEA.

 

For the German tax year of 1st January 2020 to 31st December 2020, the previous rules still apply (due to the Transition period applying from 31st January 2020 to 31st December 2020):

i.e. any profit (or loss) you generate on rental property in the UK was completely ignored by the Finanzamt, and did not need to be considered at all in your personal annual German income tax return.

 

For the German tax year of 1st January 2021 to 31st December 2021, the rules are now quite different, now that the Transition period is over)

i.e. any profit (or loss) you generate on rental property in the UK will now need to be reported to the Finanzamt, and therefore need to be declared in your personal annual German income tax return.

It will not ‘directly’ be taxable, i.e. you will not pay 25% of any profit as tax, as such.

However, it will potentially still ‘indirectly’ be taxable, as it will now be considered as part of your ‘Progressionvorbehalt’, i.e. thus potentially raising your overall tax rate, from say 42% to 44% (just a fictive example).

 

 

 

 

PART i)

Could you possibly ‘sense-check’ my summary below:

 

 

 

 

I summarize  (based on the above 4 links):

 

For ‘German tax purposes’ (i.e. particularly for the calculation of ‘Progressionsvorbehalt’), the income from a foreign rental property is calculated according to German tax rules , and follows the German tax year (i.e. 1st Jan 20xx to 31st Dec 20xx)

Under German tax rules, allowable expenses appear to include:

  • any interest payments you have on an existing mortgage connected to the property,

  • a 2% annual depreciation on the original purchase price of the building,

  • and any other expense in relation to the property against the rent you receive (Owners can deduct any expenses from the gross receipts, which were incurred to produce, maintain and safeguard that income.)

  • one interesting consequence of this => this could ‘potentially’ lead to negative ‘Progressionsvorbehalt’, in some cases.

 

Purely as background info:

  • previously, the UK was part of the EU – therefore, due to the ECJ ruling from circa 2008, all income from a UK rental property was previously ignored from the perspective of the German Finanzamt.

  • in the eyes of the Finanzamt, the UK becomes (from 1st January 2021) a ‘third country’, like the USA or Canada.

  • If you work in Germany and are paid by an German employer, any negative ‘Progressionsvorbehalt’ from UK rental income could be taken into account alongside your German employment salary, thus potentially lowering your overall tax rate in Germany.

 

 

 

PART ii)

Everyone was wondering ‘which official EUR / GBP exchange rates’ from the Finanzamt should be used for converting rental income in GBP from the UK back into EUR:

I found these rates below myself online, and I appreciate that they relate to VAT (Umsatzsteuer).

However – could they theoretically still be used (in general terms) please, or is there another (better) resource available somewhere?

 

 

 

 

PART iii)

Which kind of accounting basis is allowed / sensible / acceptable in the eyes of the Finanzamt, for the calculation of the Progressionsvorbehalt?

(e.g.  I only have one flat in the UK which i rent out.)

 

 

‘Cash accounting basis  - i.e. the date i physically received money or i physically paid money out is therefore relevant for tax purposes.

e.g.

    • I have an incoming invoice dated 10th November 2020.

    • I finally paid the invoice on 15th January 2021.

    • Therefore, I should consider this as an expense in period 1 of 2021

 

 

‘Accruals accounting basis - i.e. the period the income or expense actually relates to is therefore relevant for tax purposes.

e.g.

    • I have an incoming invoice dated 10th November 2020.

    • I finally paid the invoice on 15th January 2021.

    • Therefore, I should consider this as an expense in period 11 of 2020

 

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On 2/13/2021, 11:13:01, DannyThru said:

It turns out, that the rules regarding NEGATIVE Progressionsvorbehalt seem to be actually incredibly specific:

 

 

 

Rental losses from properties located outside of Germany and outside of the EU/EEA cannot be set-off against German taxable income, but will be assessed in a special assessment notice.

 

It can only offset positive income from the same source and from the same country.

 

Rental income received from properties located outside of Germany and outside of the EU/EEA will, however, be used to calculate the German applicable tax rate (progression clause).

 

 

 

 

 

I NOW interpret this as meaning:

 

should you make a loss on your UK Rental income => this loss unfortunately CANNOT be offset against the overall tax you would pay on your normal German salary.

 

 

 

 

 

 

 

 

 

Deloitte-Working-Living-in-Germany-2020.pdf

(page 6)

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