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

165 posts in this topic

7 minutes ago, PandaMunich said:

 

Let's nip this in the bud.

You would only have a problem if your purchase contract 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 you case you have in your rental profit calculation:

  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) * purchase price converted into € with exchange rate valid on purchase day

 

 

thanks an absolute million as always @PandaMunich - 

we don't deserve you sometimes.

 

have a nice day and take care

VLG
Danny

 

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12 minutes ago, murphaph said:

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).

 

@murphaph - 

cheers buddy - really made me laugh out loud with the bit about David Davis....Indeed.

nice one.

 

8 minutes ago, PandaMunich said:

 

Let's nip this in the bud.

You would only have a problem if your purchase contract 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 you case you have in your rental profit calculation:

  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) * purchase price converted into € with exchange rate valid on purchase day

 

 

thanks an absolute million as always @PandaMunich - 

we don't deserve you sometimes.

 

have a nice day and take care

VLG
Danny

 

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How to know the "value of the land" for UK properties🤯😭?. As you probably know, properties there are always sold as a combo "land + house", as if it was a single thing.

Asking around, even surveyors or agents or constructors, you probably get wildly different estimates...

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If all else fails, this article says 20% is often accepted as the land value - so maybe try that?

 

https://helfer-in-steuersachen.de/index.php/inhalt/10-tipps-zur-anlage-v-einkünfte-aus-vermietung-und-verpachtung/300-tipp-1172-beim-hauskauf-aerger-mit-dem-boedenwert.html

 

nb. The other pages on this site are quite helpful for some of the detail on box filling along with the guide here on Toytown

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18 hours ago, PandaMunich said:

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.

Thanks once again Panda for all your fantastic information.

 

House Number 1, Granny's house, cost 431 pounds in 1939 when she bought it, so that's long past the point of depreciation.

 

House Number 2 that my parents gave me in 2008 was bought by them in June 1984 for 29.500 GBP. I am having a bit of a struggle with the CSV file above but will work on it tomorrow on my work computer which might behave better.

 

In searching my paperwork for the values of the house I looked through a huge folder my late father had put together with all the information for Capital Gains Tax if I ever sold it, and found an email he sent me with some information. The penultimate paragraph is rather interesting, seeing as I didn't move to Germany until 2014!!!

 

https://www.auntiehelen.co.uk/wp-content/uploads/2022/01/CGT-Germany.jpg

 

Sorry, can't add it as an image for some unknown reason. Haven't used the Toytown forum software very much and it's pants!

 

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1 hour ago, Auntie Helen said:

In searching my paperwork for the values of the house I looked through a huge folder my late father had put together with all the information for Capital Gains Tax if I ever sold it, and found an email he sent me with some information. The penultimate paragraph is rather interesting, seeing as I didn't move to Germany until 2014!!!

 

https://www.auntiehelen.co.uk/wp-content/uploads/2022/01/CGT-Germany.jpg

 

Sorry, can't add it as an image for some unknown reason.

 

Only images up to 240 KB in size can be added:

61ed5deb66a32_2022-01-2314_53_35-UKrenta

 

You can use an online service to make it smaller, e.g. : https://www.resizepixel.com/

Upload the image you want to make smaller.

Then specify 240 KB output size:

61ed5cc5e6825_2022-01-2314_47_58-Modifyi

 

Then click on the green "Download" button in the bottom-right corner of the window:

61ed5d17e150e_2022-01-2314_49_27-Modifyi

 

Then click on the green button "Download Image" that just appeared:

61ed5d619256e_2022-01-2314_50_49-Preview

 

--> you will find the downloaded file in your "Downloads" folder, which is located at: C:\Users\your_name\Downloads

 

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

 

Here is the relevant section of your father's letter:

61ed58f7f1ee5_2022-01-2314_31_40-CGT-Ger

 

Sadly, he is wrong.

All double taxation agreements assign the taxation right on the profit from selling real estate to the country the real estate is located in.

 

In the Germany/UK double taxation agreement, that is laid down in article 13 (1): 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

 

So no matter where in the world you move to, should you sell your UK real estate, you will always have to tax the profit from the sale in the UK: https://www.gov.uk/capital-gains-tax/what-you-pay-it-on

 

Germany won't care.

According to German tax law (§23 (1) Nr. 1 EStG), if you sell real estate that you have owned for more than 10 years (and since it was gifted to you, you were also gifted your granny's/parents' "old" purchase date, so the 10 years are up for you for sure), the profit is not taxable.

--> The profit from selling your UK real estate will not appear in your German tax return at all, not even as the "lesser evil" of income subject to Progressionsvorbehalt in Anlage AUS line 36 (which is where your UK rental profit has to be declared).

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3 hours ago, Gambatte said:

How to know the "value of the land" for UK properties🤯😭?. As you probably know, properties there are always sold as a combo "land + house", as if it was a single thing.

Asking around, even surveyors or agents or constructors, you probably get wildly different estimates...

I looked into this for a while now. A UK surveyor would probably have to follow the DE model of land valuation. Long story short….that’s very unlikely to be possible! The verbal estimates from surveyors, estate agents etc of my land value are generally under 13% though there’s no realistic means of proving this. 

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2 hours ago, Auntie Helen said:

Thanks once again Panda for all your fantastic information.

 

House Number 1, Granny's house, cost 431 pounds in 1939 when she bought it, so that's long past the point of depreciation.

 

House Number 2 that my parents gave me in 2008 was bought by them in June 1984 for 29.500 GBP. I am having a bit of a struggle with the CSV file above but will work on it tomorrow on my work computer which might behave better.

 

In searching my paperwork for the values of the house I looked through a huge folder my late father had put together with all the information for Capital Gains Tax if I ever sold it, and found an email he sent me with some information. The penultimate paragraph is rather interesting, seeing as I didn't move to Germany until 2014!!!

 

https://www.auntiehelen.co.uk/wp-content/uploads/2022/01/CGT-Germany.jpg

 

Sorry, can't add it as an image for some unknown reason. Haven't used the Toytown forum software very much and it's pants!

 

Might it be an option to sell one property to your spouse and reset the depreciation clock to a current price. I think it's pretty common practice in Germany.

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I think you need to be careful with that suggestion as you may find the acquirer is liable for Stamp Duty Land Tax in the UK. The amount depends on the value transferred and any consideration given, including taking on some or all of any borrowing secured against the property.  Also, if the acquisition means the acquirer has an interest in more than one property, wherever that other property is located in the world, then an additional 3% SDLT is payable on the total value. 

 

I would look very carefully at the rules and the maths to establish whether I'd end up paying a fortune to save virtually nothing - don't forget that in the cases you are all talking about the saving in Germany is through a reduction in the amount feeding into the calculation of the tax rate, not the amount subject to tax at that rate, so you savings are likely to be fractions of one percent on the tax rate. 

 

So, how much do you save on progression if you can set-off, say, £3,000 in the rental income calculation? Maybe about 0.5 to 0.75% difference in your German tax rate, if other income is about 50,000€?  So, perhaps 250 to 350€ in tax?  (I may not have my numbers quite right here but you get the point).  Compare that to shelling out perhaps £8,750 (£225,000 property valuation as an interest in a second property gives 2% on £100,000 and 3% on the full £225,000) in hard cash in relation to the change of ownership?  If the property is valued at more than £250,000 then you can add another 3% to the SDLT calculation for amounts over £250,000.  Time to get your spreadsheet out!  

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Ah ok. There's no stamp duty in Ireland on transactions between spouses which is why I completely forgot about it.

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Having major trouble with the quote feature here so have given up.

 

It was weird I couldn't attach the image as it was only 125kb but I gave up in the end.

 

The reason I included that image was not really about the CGT but that my Dad commented that "if I went off to live in Germany". This was in 2008, years before I decided to decamp to Germany, so a bit spooky! 

 

In no way will I sell or give my property away to anyone, it is in my will to go to my sister/nieces when I die, and only if I absolutely have to sell it because i have run out of money will I do so. And then I will pay the CGT of course, which is only fair! My husband and I did an Ehevertrag before we married last August to keep our money entirely separate and that's how I want it, but I see why Murphaph suggested it. 

 

I think I confused the issue with the quote from my Dad's email - it was all about "disappearing to Germany", not about avoiding CGT.

 

Anyway, I THINK I may have made some progress with the tax return and my Brexit Bonus Extra Tax Burden due to Progressionsvorbehalt is about 2200 EUR which is not the end of the world. This is not including any depreciation figure in the properties as I think it's just too complex to prove values etc as I have no official document with the purchase price, just notes from my parents. This was all yonks ago and no-one knew then that the Germans might be interested! 

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22 minutes ago, murphaph said:

Ah ok. There's no stamp duty in Ireland on transactions between spouses which is why I completely forgot about it.

This may also be the case in the UK but it is a "depends", so worth checking and, I am not sure how the 3% second property interest rules would then work - I am sure it is documented somewhere on GOV UK...

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24 minutes ago, Auntie Helen said:

Anyway, I THINK I may have made some progress with the tax return and my Brexit Bonus Extra Tax Burden due to Progressionsvorbehalt is about 2200 EUR which is not the end of the world. This is not including any depreciation figure in the properties as I think it's just too complex to prove values etc as I have no official document with the purchase price, just notes from my parents. This was all yonks ago and no-one knew then that the Germans might be interested! 

Not my area of expertise but an extra 2,200€ per year, just for the progressionsvorbehalt?  That seems a lot.  Are you sure you have the numbers in the correct boxes?  

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@Auntie Helen

"my Brexit Bonus Extra Tax Burden due to Progressionsvorbehalt"  - 

 

this is what it should be 'officially renamed' to by the Finanzamt, in my opinion!

brilliant!

so true as well

 

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I skimmed your blog as I find blogs to be tedious reading. LOVE the rings - good rubies aren't pink. Those are the cheap ones.

 

We went through our private little hell getting married in Germany. The Standesamt told us which papers to bring but it was never enough. We went there many times. In the end, I didn't change my last name as it was just more paperwork. I did that some years later.

 

Happy that you persevered and gotterdone.

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To get 2,200€ extra tax because of Progressionsvorbehalt in the Splittingtarif (= filing jointly), you would need something like 90,000 taxable family income, i.e. income after deduction of your health insurance and 92% of your public pension contribution and 16,500€ in UK rental profit: https://www.finanzamt.bayern.de/Informationen/Steuerinfos/Steuerberechnung/Progressionsvorbehalt/

 

@Auntie Helen

Have you tried looking in your tax software's Berechnung document and there on the page "Vergleich der Veranlagungsarten"?

Because it may show you that "filing separately" is more advantageous.

 

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Just now, fraufruit said:

I skimmed your blog as I find blogs to be tedious reading. 

I love the cake photos on Auntie Helen's blog, mmmh! 

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