Letter from Finanzamt!

[scook17 292]

On 15/06/2021, 17:37:31, GaryC said:

This has absolutely NOTHING to do with Brexit, other than in terms of reporting foreign rental income for the progression rule that sets the rate of tax you pay in Germany, the UK has become a third country, not an EU MS from the end of 2020.

 

Situation pre-brexit was you neither had to declare or pay any additional tax as a result of renting property in the UK.

However, earning money in the UK from a job, self-employment, business etc did result in an additional tax amount here in Germany despite it not being 'taxable', providing you were tax resident in Germany at the time.

Post-brexit UK rental income is considered not as EU rental income, but foreign rental income. Thus it will now count like any other income from the UK.

 

Through this lovely progression clause they don't tax foreign income, yet add it to the bottom slice of your income, often making any personal income tax allowance in Germany disappear. As the income tax rate goes from 14% to 44%!!!, as soon as you they effectively tax the German income more. Thus you pay more tax but it's not double taxation.

[GaryC 394]

As I said, nothing to do with Brexit OTHER than UK rental income.  Brexit changed neither the treaty nor the relevant laws - it is just that the status of the UK changed from being an EUMS to being a "third country" and that changes how income from immovable property, aka rental income, is treated in the tax Act.  And, for the record, not all other sources of income arising in the UK are subject only to progression.  You need to identify the particular source/type of income in the double tax treaty and see who retains taxing rights and how relief for any tax paid in the other state might be relieved. 

 

And as for the progression clause, we can moan till the cows come home but the simple fact is, German tax policy is to look at worldwide income when setting its tax rate even if it has given up the right to tax said income under a treaty.  Personally, I could make the tax policy argument both ways - well that was my job before retiring - but German politicians have decided on what you see on the statute book.  Until enough people lobby for change and/or vote in a government whose manifesto includes wording on changing that position, it is, unfortunately, what it is.  As a non-resident with German-source income, I could moan equally about how limited liability works because I do not get access to the Grundfreibetrag and every Cent of my German-source income is taxed.  Again, it is, what it is.