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

172 posts in this topic

I LOVE PANDA, seriously.....(just don't tell my wife i said that).....lol.

 

@PandaMunich - thank you so much, you are too kind. Sorry for constantly getting on your nerves. Really appreciated, you have no idea how much.

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8 hours ago, Gambatte said:

This is why everybody here loves Panda.

i couldn't have put it better myself....

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(i have simply added this very useful link here purely for information purposes)

 

 

 

 

Deloitte-Working-and-Living-in-Germany-2021.pdf

 

 

page 6  - 

 

 

Rental income

 

 

Rental income from real estate in Germany is taxable in Germany at the taxpayer’s tax rate.

Deductions, such as mortgage interests, depreciation or other expenses (e. g. maintenance) are allowable. Losses may be offset against other taxable income.

 

Rental income from countries that are members of the European Union/EEA is in most cases exempt from German taxation.

 

Rental income from countries that are not members of the European Union/EEA is mostly exempt from German taxation but will be taken into account when calculating the personal tax rate (progression income).

 

Rental losses from foreign sources cannot be offset against positive income taxable in Germany but could be offset against positive income from the same source in future years

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As UK property rental income is subject to positive Progressionsvorbehalt since 1.1.2021, how has anyone else been able to ascertain the land value of their freehold property?

 

This is relevant in respect of property depreciation that excludes the land value. As I understand it, for DE tax purposes, a property can be depreciated at 2% linear per year over 50 years for property built after 1924. Before 1924, at a rate of 2.5% over 40 years. I believe that the depreciation is based on the purchase value and the relevant euro exchange rate on the date of purchase. 
 

However, the land value is usually unknown in the UK for freehold property purchase. I understand for DE tax purposes, a default of 20-30% land value may be applied. In my case, the land value is most likely to be a much lower percentage. I’ve spoken to surveyors, estate agents, local council, Land Registry and Valuation Office Agency. I’ve been given verbal guesstimates of 9-13% land value. I believe that the Finanzamt would be most likely to accept a land value estimate from a UK RICS surveyor.  Unfortunately, none that I have spoken to so far are willing to provide such an estimate going back to 2001.

 

Has anyone else been able to acquire a professional land value estimate?

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On 1/15/2022, 9:01:03, emkay said:

As UK property rental income is subject to positive Progressionsvorbehalt since 1.1.2021, how has anyone else been able to ascertain the land value of their freehold property?

 

This is relevant in respect of property depreciation that excludes the land value. As I understand it, for DE tax purposes, a property can be depreciated at 2% linear per year over 50 years for property built after 1924. Before 1924, at a rate of 2.5% over 40 years. I believe that the depreciation is based on the purchase value and the relevant euro exchange rate on the date of purchase. 
 

However, the land value is usually unknown in the UK for freehold property purchase. I understand for DE tax purposes, a default of 20-30% land value may be applied. In my case, the land value is most likely to be a much lower percentage. I’ve spoken to surveyors, estate agents, local council, Land Registry and Valuation Office Agency. I’ve been given verbal guesstimates of 9-13% land value. I believe that the Finanzamt would be most likely to accept a land value estimate from a UK RICS surveyor.  Unfortunately, none that I have spoken to so far are willing to provide such an estimate going back to 2001.

 

Has anyone else been able to acquire a professional land value estimate?

 

 

a very interesting question.

Mine is a 'leasehold' flat.

I do not own the freehold (i.e. the actual land).

But for houses where someone owns the freehold then this is definitely a relevant question.

 

 

i found the following link - 

(not sure it tells you a great deal more than you already know yourself, but i thought i would share it for everyone anyway)

 

 

Microsoft Word - Bewertung von Immobilien.DOC (hildebrandt-maeder.de)

 

Page 4

Ausländische Grundstücke werden stets nach dem Verkehrswert berechnet, weil nicht si[1]cher ist, dass es im Ausland entsprechende Bodenrichtwerte gibt, die zuverlässig sind.

 

Page 5

In allen Fällen, in denen das Finanzamt zu vermeintlich zu hohen Werten kommt, kann der Steuerpflichtige mit Einholung eines Verkehrswertgutachtens – allerdings auf eigene Kosten und auf eigenes Risiko – kontern.

 

 

 

 

 

 

in terms of the depreciation per month in EUR:

  • i took the original purchase price in GBP (of the flat) on the date i bought it back on 15th December 2006.
  • I multiplied the original purchase price in GBP by 0.02,  to give me the annual depreciation in GBP.
  • i divided the annual depreciation in GBP by 12,  to give me the monthly depreciation in GBP.
  • i then use the official monthly GBP to EUR exchange rates to work out the monthly depreciation in EUR. ( Bundesfinanzministerium - Umsatzsteuer-Umrechnungskurse)

 

 

If this is complete rubbish from my side, definitely feel free to correct me at any time, no worries!

 

 

 

 

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Mine are also leasehold which I think correspond to Erbpacht. I haven't found specific rules for the depreciation of that yet but for Erbbaurecht (where you own the building but not the land) you seem to take the price of the lease divided by the number of lease years. I guess ground rent is equivalent to Erbbauzins and therefore allowed under Werbungskosten.

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I’ve just received yet another reply from a UK RICS surveyor suggesting that there is no model for this kind of land value calculation. He thought that my own research might be useful as a guide price. Yet, it’s probably not sufficient for Finanzamt acceptance. 
 

As an example, for my house location, HMRC land valuation reports show ‘post building permission’ per hectare prices. Compared with overall property valuations of my house and those of neighbour’s sold prices with the same style house, during the relevant year, suggest that the land value is under 13% for the last 6 years. Certainly a likely lower percentage going back to 2001. The land of my property  is very small…ca. just over 100sq metres. The surveyor also suggested that the higher than average build quality is likely to be relevant too.

I’m sure for some, a 20% default land value is fine, even beneficial. Yet, maybe not for all. I’d be very grateful  for any other suggestions on how to acquire a land value estimate.

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On 1/15/2022, 9:01:03, emkay said:

As I understand it, for DE tax purposes, a property can be depreciated at 2% linear per year over 50 years for property built after 1924.

 

With depreciation of 2% / year, every property built more than 50yr ago has now ZERO value.:rolleyes:

This is the case for our UK rental. Which means I don't have any depreciation left, pity as we'll pay more taxes than otherwise (although very very slightly), but it makes all the calculations easier.;)

Am I right?:unsure:

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15 minutes ago, Gambatte said:

With depreciation of 2% / year, every property built more than 50yr ago has now ZERO value.:rolleyes:

This is the case for our UK rental. Which means I don't have any depreciation left, pity as we'll pay more taxes than otherwise (although very very slightly), but it makes all the calculations easier.;)

Am I right?:unsure:

Nope, the 50 year period (40 years if built in 1924 or earlier) restarts every time the property gets sold, i.e. the depreciation would only be used up, if you had already owned it for 50 years (40 years).

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1 hour ago, Gambatte said:

 

With depreciation of 2% / year, every property built more than 50yr ago has now ZERO value.:rolleyes:

This is the case for our UK rental. Which means I don't have any depreciation left, pity as we'll pay more taxes than otherwise (although very very slightly), but it makes all the calculations easier.;)

Am I right?:unsure:

No. I believe I’m right in saying….from the time of YOUR purchase, YOU have 40 or 50 years of a linear depreciation depending on when the property was built. 50 years post 1924 build @ 2%, 40 years pre 1924 build @2.5%.
 

Here’s a quick example…

 

In 2001, you buy a UK freehold property built after 1924 for £200,000 including allowable purchase fees (legal, stamp duty etc).

 

On the exact date of title transfer/payment, the pound to euro exchange rate is 1.5. The euro price therefore is 300,000€.

 

300,000€ depreciated linear over 50 years @ 2% gives an annual sum of 6,000€ that is tax deductable against rental income. BUT a percentage of that sum must be reduced to reflect the non depreciable land element of your property.

 

So, if 20% land value is acceptable to the Finanzamt, your overall 6000€ annual depreciation reduces to 4800€.

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1 hour ago, Gambatte said:

I see, I was wrong, thanks a lot.

Always nice to know you need to pay less tax than you thought :)

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I have just started the whole Tax Return Experience as a post-Brexit German-resident Brit with rental income from the UK.

 

I have read about the 2% depreciation for 50 years, and my WISO software is very keen on me including it, but I suspect I am not able to claim it at all. The reason is that my two UK properties were both gifted to me - one by my grandmother in 1987 and the other by my parents in three tranches (to avoid capital gains taxes) with the final tranche in 2010. So I did not actually pay anything for either property.

 

I am assuming from this that I must ignore the 2% depreciation (which I doubt I could prove anyway as I have no official-looking UK documents with values on, just handwritten notes from my now-deceased father). But am I missing something here?

 

I have had to ask both sets of tenants to measure the rooms for me so I can have the square-meterage of the property as it seems WISO is very keen on that info. 

 

I will post any updates if I find I make progress...

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I don’t know with any certainty though I believe that in your circumstances, depreciation could well be appropriate. Are the title deeds in your name now since the properties were gifted/inherited? Maybe the date of transfer to you starts a new 40 or 50 year depreciation? The Land Registry/Title Deeds should give you the overall land size and building size. I got copies of these documents from the Land Registry website. 

 

I hope that you can get more specific advice. All the best.

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The title deeds for the more recent property are in my name, for the older property they are not available at the Land Registry as the transfer was so long ago and I don’t have the deeds myself (lost at some point in time by my family) so that will be an issue for my executors and those who inherit it when I am gone. For both properties we have a ball-park valuation in my father’s handwriting but nothing that the Germans would consider as official. And I paid nothing, so I can’t see how I would depreciate it.

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If you were gifted the property, the depreciation starts on the date it was purchased by the person who gifted it to you.

So if your granny had gifted you in 1987 a house built after 1924, which she had bought in 1975, then the house would be "depreciable" until 2025, i.e. you would use as an expense each year until 2025 (assuming 20% of the purchase price were for the land):

  • 2% * 80% * granny's_purchase_price_from_1975

If granny's house had been built before 1925, the depreciation period would only be 40 years, i.e. 2.5% per year, and the depreciation period would have already ended in 2015.

 

Granny's purchase price in GBP would have to be converted into DM using the exchange rate valid on her 1975 purchase date and the DM amount then converted into € using the exchange rate 1€ = 1.95583 DM.

 

For the old GBP to DM (Deutsche Mark) exchange rates, put the GPB file "Devisenkurse der Frankfurter Börse / 1 GBP = ... DEM / Vereinigtes Königreich" from here: https://www.bundesbank.de/dynamic/action/de/statistiken/zeitreihen-datenbanken/zeitreihen-datenbank/759778/759778?listId=www_s331_b01011_3

into the cart by clicking on the cart symbol at the right of the table.

Then open the cart: https://www.bundesbank.de/de/statistiken/zeitreihen-datenbanken/datenkorb

and click on the blue button "Zum Download".

--> it will now download a csv-file with all GBP/DM exchange rates back to 1949 to the "Downloads" folder on your computer.

Open the file with Excel and look up the exchange rate on the historic purchase date in 1975.

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@PandaMunich - it goes without saying, a huge thanks a lot for your help so far, i have no clue how we would all cope without you.


 

 

(as @Auntie Helen so eloquently put it  already:

"I have just started the whole Tax Return Experience as a post-Brexit German-resident Brit with rental income from the UK."    

Well quite honestly, i really couldn't have said it better myself in fact - tell me about it!

Just one more (ahem) 'upside' of Brexit, it would appear...(but anyway whatever nevermind, lets not go there....)

 

 

for the record - I found this article the other day, so i thought it might be worth sharing for everyone's benefit:

Abschreibung von Immobilien – 11 wichtige Punkte über die AfA | immoverkauf24

 

 

 

One thing that particularly leaps off of the page immediately is how differently freehold properties are treated compared to leasehold properties: 

 

 

 

from part 4 - 

  • Besonderheit beim Erbbaurecht beachten
  • Wird eine Immobilie mit Erbbaurecht (umgangssprachlich auch Erbpacht genannt) erworben, ist die Ermittlung des Bodenanteils nicht so einfach wie bei einer Immobilie auf Eigenland.
  • Häufig wird im Kaufvertrag dem Erbbaurecht bereits ein Wert zugeteilt, der dann als Bodenanteil berücksichtigt wird.
  • Ist dies nicht der Fall, so muss dieser aufwändig unter Berücksichtigung der Restlaufzeit des Erbbaurechtsvertrages, des Erbbauzinses sowie des Bodenwertes ermittelt werden.
  • Dies sollte vom Steuerberater durchgeführt werden.  
  • Zudem gelten die gezahlten Erbbauzinsen als sofort abzugsfähige Werbungskosten. 
  • Wichtig zu wissen: Werden die Erbbauzinsen auf einen Schlag im Voraus bezahlt, sind sie auf die Nutzungsdauer zu verteilen.

 

 

i am still trying to get my head round it.

there was me, thinking (previously) for my leasehold flat =

  • work out the 'Anschaffungskosten' (i.e. Kaufpreis der Immobilie + Erwerbsnebenkosten (Grunderwerbsteuer, Notarkosten und Maklercourtage. )

  • take 80% of the 'Anschaffungskosten'  as 'Gebäudewert' (i.e. after deducting 20% 'Grundstückswert')

  • multiply the 80% 'Gebäudewert' by the GBP to EUR exchange rate on the exact date I bought it back in Dec 2006

  • as the flat was built in 2006, work out an annual depreciation of 2%.

  • And ‘ta-da’……..End of story……Or at least I thought it would have been.

Now I just suddenly feel a bit lost.

 

Therefore if anyone has any clue, please feel free to share further if you would like to.

I am guessing that there will be several people in this boat potentially.

Man i hate Brexit...

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As David Davis said, "there will be no downsides to Brexit, only considerable upsides" so maybe he'd like to do your tax returns now. I hope you guys can resolve your leasehold calculations. It sounds like an absolute nightmare. 

 

I wonder are there any other third country nationals on here with leasehold properties at home who can offer their experiences? This is not a UK specific thing at the end of the day, it applies to all third countries (and Spain for some reason, probably to do with the tax treaty).

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1 hour ago, DannyThru said:

I found this article the other day, so i thought it might be worth sharing for everyone's benefit:

Abschreibung von Immobilien – 11 wichtige Punkte über die AfA | immoverkauf24

One thing that particularly leaps off of the page immediately is how differently freehold properties are treated compared to leasehold properties: 

from part 4 - 

  • Besonderheit beim Erbbaurecht beachten
  • Wird eine Immobilie mit Erbbaurecht (umgangssprachlich auch Erbpacht genannt) erworben, ist die Ermittlung des Bodenanteils nicht so einfach wie bei einer Immobilie auf Eigenland.
  • Häufig wird im Kaufvertrag dem Erbbaurecht bereits ein Wert zugeteilt, der dann als Bodenanteil berücksichtigt wird.
  • Ist dies nicht der Fall, so muss dieser aufwändig unter Berücksichtigung der Restlaufzeit des Erbbaurechtsvertrages, des Erbbauzinses sowie des Bodenwertes ermittelt werden.
  • Dies sollte vom Steuerberater durchgeführt werden.  
  • Zudem gelten die gezahlten Erbbauzinsen als sofort abzugsfähige Werbungskosten. 
  • Wichtig zu wissen: Werden die Erbbauzinsen auf einen Schlag im Voraus bezahlt, sind sie auf die Nutzungsdauer zu verteilen.

i am still trying to get my head round it.

there was me, thinking (previously) for my leasehold flat =

 

  • work out the 'Anschaffungskosten' (i.e. Kaufpreis der Immobilie + Erwerbsnebenkosten (Grunderwerbsteuer, Notarkosten und Maklercourtage. )

     

  • take 80% of the 'Anschaffungskosten'  as 'Gebäudewert' (i.e. after deducting 20% 'Grundstückswert')

     

  • multiply the 80% 'Gebäudewert' by the GBP to EUR exchange rate on the exact date I bought it back in Dec 2006

     

  • as the flat was built in 2006, work out an annual depreciation of 2%.

     

  • And ‘ta-da’……..End of story……Or at least I thought it would have been.


Leasehold:

Let's nip this in the bud.

You would only have a problem in the very unlikely case that the purchase contract for your leasehold property stated that the "value of the land" was a lump sum of x GBP: https://www.haufe.de/finance/haufe-finance-office-premium/kaufpreisaufteilung-grund-und-boden-undgebaeude-13-afabemessungsgrundlage-bzw-kaufpreisaufteilung-bei-bebauten-erbbaurechten_idesk_PI20354_HI3529538.html
 

Much more likely is the "plain vanilla" case of there being no such clause in your purchase contract, in which case, you will have in your rental profit calculation the following expenses (= Werbungskosten):

  1. Erbaupacht: 12 * monthly ground rent (paid to land owner)
    see here: https://www.haufe.de/finance/haufe-finance-office-premium/werbungskosten-vermietung-und-verpachtung-abc-erbbaurecht_idesk_PI20354_HI7016625.html
  2. Absetzung für Abnutzung: 2% (or 2.5% if house was built before 1925) * loaded purchase price, i.e. purchase price incl. extra costs at purchase like estate agent commission, lawyer, and so on, converted into € with exchange rate valid on purchase day, i.e. on the day on which you (or your mortgage lender, if you took out a mortgage) paid these amounts

Just to be clear: the above only applies if you bought leasehold.

 

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

 

If you bought freehold, you will need to deduct the "value of the land" from your loaded purchase price before doing the 2% per year depreciation (or 2.5% per year if the house was built before 1925).

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