What best options for a UK defined contribution pension pot?

[GMill 6]

@PandaMunich Thank you for that very useful confirmation - yes the contributions were only for 8 years.
On the other issue of the older dormant funds. Mine is a Standard Life pension plan that only received contributions in for a 15 month period in 1998/99 - It was actually a fund in the name of my own company as an "executive plan" with a "Company scheme name" for this brief period I was working as a sole software contractor. Would it be correct for me to understand as follows?
Such a plan is not actually a pension, it only becomes a pension during the process that I believe is called "crystallisation" in the UK i.e. the buying of an annuity or transfer into a UK drawdown fund. But all these options have more or less been excluded for members who are no longer resident in the UK, we are not offered any way to crystallise the investment into an actual pension.
Is this then the reason that cashing in that investment is not considered under the "Renten" section of the Steuererklärung but rather as Kapitalertrag as you describe in the other thread? Because it never got to the stage of being a "Rente"?
If that is so and I can put it under the Anlage KAP §30 "Kapitalerträge aus Lebensversicherung" then it seems as if I might get away with paying no tax at all as I'd be doing it in 2024 when I have a very small income - my tax software lets me put in almost €25,000 and shows no tax to pay! Hoping that is true! (I'll be 62 in 2024)

[PandaMunich 16,909]

>GMill wrote: Such a plan is not actually a pension, it only becomes a pension during the process that I believe is called "crystallisation" in the UK i.e. the buying of an annuity or transfer into a UK drawdown fund. But all these options have more or less been excluded for members who are no longer resident in the UK, we are not offered any way to crystallise the investment into an actual pension.
Is this then the reason that cashing in that investment is not considered under the "Renten" section of the Steuererklärung but rather as Kapitalertrag as you describe in the other thread? 
None of your UK contributions benefited from tax advantages given by Germany, so you never arrive in the first option for an employer funded pension (betriebliche Altersvorsorge = bAV), which is the option "nachgelagerte Besteuerung" described in § 22 Nr. 5 Satz 1 EStG, i.e. that you have to tax 100% of the payout, no matter in what form it is paid, whether as a lump payment, several withdrawals, or as a monthly pension.

--> You will always end up in § 22 Nr. 5 Satz 2 EStG, which means:

• option in § 22 Nr. 5 Satz 2 a) EStG
  --> sends you up to the start of § 22 EStG, i.e. you remain in "sonstige Einkünfte" ("Renten" are a part of "sonstige Einkünfte), so you would declare it in Anlage R-AUS (Anlage R-AUS and not Anlage R, since it is not a German lifelong pension).
  This happens if the pension is tied to your life (= life-long pensions = lebenslange Leibrenten), it is then taxed by table 1 in § 22 EStG if it is a social security pension, which is always paid until you die (in UK-speak, a "State Pension") or by table 2 in § 22 EStG if it is a lifelong private pension.
  
  If it is a private pension that is not paid out lifelong, but an abbreviated annuity (abgekürzte Leibrente), e.g. it is paid out for maximum 10 years or until you die, or an extended annuity (verlängerte Leibrente), e.g. it is paid out for 10 years, even if you should die before then (which means your heirs get it for the remainder, until these 10 years have elapsed) you have to look up the Ertragsanteil in the table § 55 EStDV, see here for examples of how to apply § 55 EStDV for these cases: https://www.smartsteuer.de/online/lexikon/r/renten/#D063066500004
  
  
• options in § 22 Nr. 5 Satz 2 b) or c) EStG
  If it is not a monthly pension, you automatically get kicked out of § 22 EStG "sonstige Einkünfte" and get sent to § 20 EStG "Einkünfte aus Kapitalvermögen" (= capital income) instead, i.e. what you got out of that pension contract gets declared in Anlage KAP.
  

>If that is so and I can put it under the Anlage KAP §30 "Kapitalerträge aus Lebensversicherung" then it seems as if I might get away with paying no tax at all as I'd be doing it in 2024 when I have a very small income - my tax software lets me put in almost €25,000 and shows no tax to pay!
You are mixing up 2 and 3 on your keyboard. 
Before, you wrote §33, when you meant § 22 EStG, and now you write §30 EStG (which doesn't even exist), but mean § 20 EStG.

The software shows no tax to pay, since it either:

• assumes that this is a life insurance contract entered into after 31.12.2004, i.e. in 2005 or later, which means that if it gets paid out once you are 60 or older and the contract ran for at least 12 years, you only tax 50% of the difference between what was paid into it and what was paid out of it, with your own personal, variable income tax rate of up to 42%, which is laid down in § 20 (1) Nr. 6 Satz 2 EStG: https://www.gesetze-im-internet.de/estg/__20.html
  The fact that it has to be taxed with your own personal, variable income tax rate of up to 42% - and not with the "standard" tax rate for capital income of 26.375% (= 25% Abgeltungsteuer + 1.375% Soli) of § 32d (1) EStG - is laid down in § 32d (2) Nr. 2 EStG: https://www.gesetze-im-internet.de/estg/__32d.html
  
  Of course, if you cannot prove what was paid into it, the Finanzamt will simply assume that it was 0€, i.e. you will end up taxing 50% of the payout with your own personal, variable income tax rate of up to 42%.
  --> because of those 25,000€ you entered into the field for "§ 20 (1) Nr. 6 Satz 2 EStG" (which is line 30 in Anlage KAP 2022, that line number can change future versions of Anlage KAP), you have to tax 12,500€. 
  
  --> If you have no other income that year than those 12,500€ and taking into account what you pay for health insurance, which lowers your taxable to under the personal tax-free allowance (Grundfreibetrag) of 11,604€ in 2024: https://de.wikipedia.org/wiki/Grundfreibetrag_(Deutschland)
  
  
• it assumes that this a life insurance contract:
  a) entered into up to 31.12.2004 and
  b) which ran for at least 12 years (that is a given, since it is over 12 years between 2004 and the payout 2024) 
  and which is therefore subject to the "old" version of § 20 (1) Nr. 6 EStG, which said that if all the above conditions are met, the growth is tax-free: https://www.smartsteuer.de/online/lexikon/a/ablaufleistung-aus-versicherungen/#D063105500009
  According to the BFH ruling of 01.03.2005 (BFH Urteil v. 01.03.2005 - VIII R 47/01 BStBl 2006 II S. 365), if the above conditions are met, the growth is tax-free, even if the life insurer wasn't German: https://datenbank.nwb.de/Dokument/168056/
  
  --> in this case, your tax software ignored the 25,000€ that you had entered entirely, i.e. the life insurance payout didn't make it into your taxable income at all, which explains why you see 0€ tax to pay.

[GMill 6]

Sorry for the confusion with the numbers. But I wasn't mixing up things - I was referring to the line numbers in the relevant sections of the Steuerklärung because that is all that I know about and what also the tax software uses to reference things.
I'm just trying to understand what the situation is for those of us who have no options for these investments in the UK, no possibility whatsoever to turn them into a lifelong pension or any kind of pension. I can prove in black and white that £9000 were paid into it - its in the policy documentation and that it is now worth about £27000. There is no fixed date when it matures, or rather there is but I can change it at any time as I want. It will never get "crystallised" in the UK except as a complete pay out of the whole amount in one go. That is the only option within the UK system for those who live outside the UK.
The relevant help section for this input says
"Zu den Kapitalerträgen aus Lebensversicherungen gehören der Unterschiedsbetrag zwischen derVersicherungsleistung und der Summe der darauf entrichteten Beiträge im Erlebesfall (bei Vertragsabschluss ab dem 01.01.2005= oder die rechnungsmäßigen und außerrechnungsmäßigen Zinsen aus Sparanteilen (bei Vertragsabschlüssen nach dem 31.12.2004. Wird die Leistung der Versicherung nach Vollendungdes 60 Lebensjahres (... bzw 62 ab 31.12.2011) und nach 12 Jahren Vertragslaufzeit ausgezahlt, ist nur die Hälfte des Unterschiedsbetrags zu besteuern (§ 20 Abs. 1 Nr 6 Satz 2 EStG)

Not sure what "rechnungsmäßigen und außerrechnungsmäßigen Zinsen" means

[PandaMunich 16,909]

>GMill wrote: The relevant help section for this input says
"Zu den Kapitalerträgen aus Lebensversicherungen gehören der Unterschiedsbetrag zwischen derVersicherungsleistung und der Summe der darauf entrichteten Beiträge im Erlebesfall (bei Vertragsabschluss ab dem 01.01.2005= oder die rechnungsmäßigen und außerrechnungsmäßigen Zinsen aus Sparanteilen (bei Vertragsabschlüssen nach dem 31.12.2004. Wird die Leistung der Versicherung nach Vollendungdes 60 Lebensjahres (... bzw 62 ab 31.12.2011) und nach 12 Jahren Vertragslaufzeit ausgezahlt, ist nur die Hälfte des Unterschiedsbetrags zu besteuern (§ 20 Abs. 1 Nr 6 Satz 2 EStG)
Ok, your software assumed the first option I presented.

>Not sure what "rechnungsmäßigen und außerrechnungsmäßigen Zinsen" means
Those are terms specific to German life insurance contracts, you can just assume they mean "growth", because that is what they are: https://www.haufe.de/steuern/haufe-steuer-office-excellence/littmannbitzpust-das-einkommensteuerrecht-estg-20-a-ermittlung-der-stpfl-zinsen_idesk_PI25844_HI6441749.html#:~:text=Der%20sog%20au%C3%9Ferrechnungsm%C3%A4%C3%9Fige%20Zins%20ist,an%20den%20Versicherungsnehmer%20auszusch%C3%BCtten%20ist.

[GMill 6]

Thanks very much for your help

[hamsterberlin 10]

Very informative thread - thanks. My related question is about a UK pension (defined contribution) that would be treated here as just a foreign based brokerage account (because I can buy & sell funds). When working out the profit on a fund sale, can I take the valuation of it when I became resident in germany (2016) as the cost or do I have to go back to all the original purchases (and convert each to euro at the purchase date)?

[PandaMunich 16,909]

The latter.

[GMill 6]

One more question if I may. We now seem to be clear that closing out of a UK pension investment is not that of a "betriebliche Altersvorsorge" as understood in German tax and that it will be handled according to the Kapitalertrag.
What does that mean for liability to Krankenversicherungsbeiträge? In my case I am currently freiwillig versichert in the gesetzliche Krankenversicherung , but after my official Rentenbeginn in about 18 months time will switch to being plichtversichert in the KVdR (Krankenversicherung der Rentner) - I already fulfil the conditions for that
My guess is that a Kapitalauszahlung would trigger the 10 year division of the Kapitalertrag into 120 fictive monthly amounts liable to Beiträge for as long as I am freiwillig versichert but not sure if that would then continue after I join the KVdR as pflichtversichert
- not sure whether that question is within your area of expertise as well

[GMill 6]

And also, I am still not quite clear. Under the Anlage R-AUS there is a section for "Leistungen aus ausländischen betrieblichen Altersvorsourgungseinrichtungen, die mit inländischen betrieblichen Altersvorsorgungseinrichtungen vergleichbar sind" and in line 39 "Einmalleistungen aus einer ausländischen betrieblichen Altersvorsourgungseinrichtungen, soweit diese auf im Inland nicht geförderten Beiträge beruhen"
Could you possibly give an example of something that WOULD have to be entered there?

[PandaMunich 16,909]

>GMill wrote: We now seem to be clear that closing out of a UK pension investment is not that of a "betriebliche Altersvorsorge" as understood in German tax and that it will be handled according to the Kapitalertrag.

What does that mean for liability to Krankenversicherungsbeiträge? In my case I am currently freiwillig versichert in the gesetzliche Krankenversicherung , but after my official Rentenbeginn in about 18 months time will switch to being plichtversichert in the KVdR (Krankenversicherung der Rentner) - I already fulfil the conditions for that

My guess is that a Kapitalauszahlung would trigger the 10 year division of the Kapitalertrag into 120 fictive monthly amounts liable to Beiträge for as long as I am freiwillig versichert but not sure if that would then continue after I join the KVdR as pflichtversichert

The Krankenkassen do not care about what income is classified as by the Finanzamt, they do their own classification.
So you can probably expect to have them say that it is betriebliche Altersversorgung, which even members in the KVdR (Krankenversicherung der Rentner) have to pay contributions on, i.e. they will split the lump payment into those 120 monthly parts and make you pay extra contributions on it for the next 10 years: https://www-test-de.translate.goog/Betriebsrente-Entlastung-bei-Krankenkassenbeitraegen-fuer-Betriebsrenten-5147958-0/?_x_tr_sl=de&_x_tr_tl=en&_x_tr_hl=en-US&_x_tr_pto=wapp

See the column "Pflichtversichert" (= mandatory member of German public health insurance, which you are, as soon as you are eligible for the KVdR) in this table:

[PandaMunich 16,909]

>GMill wrote: Under the Anlage R-AUS there is a section for "Leistungen aus ausländischen betrieblichen Altersvorsourgungseinrichtungen, die mit inländischen betrieblichen Altersvorsorgungseinrichtungen vergleichbar sind" and in line 39 "Einmalleistungen aus einer ausländischen betrieblichen Altersvorsourgungseinrichtungen, soweit diese auf im Inland nicht geförderten Beiträge beruhen"

Could you possibly give an example of something that WOULD have to be entered there?

And here we come to the problem.
Whoever designed these tax forms knew that it matters whether Germany had given tax-breaks on these non-German company pension plans (betriebliche Altersvorsorge) or not.
And he kept the form "easy to use", i.e. left that income in the "pension" form Anlage R-AUS because that is where a layperson would assume that it goes, i.e. he put the burden on the Finanzamt to then draw the correct conclusions and to shift lump payments to the income section "capital income".
Though with that form alone, you still would not be providing the Finanzamt with all the necessary information, since the form does not state that you only have to enter the growth=Unterschiedsbetrag and not the entire payout.
Or if they also want to know the amount of the payout, so as to be able to check it off the list once the get the snitching Kontrollmitteilung from the UK (yes, the UK insurer will snitch on you to the Finanzamt), they should have put in an additional field into which to state what the contributed amount was, so that the Finanzamt caseworker can calculate the difference, i.e. the "growth".

So you would expect, if you filled in everything correctly, i.e. in your case, since you got a lump payment from a UK company pension plan whose contributions were not tax-advantaged by Germany, if you would fill in those 27,000€ into line 39 "Einmalleistungen aus einer ausländischen betrieblichen Altersversorgungseinrichtung, soweit diese auf im Inland nicht geförderten Beiträgen beruhen" of Anlage R-AUS: https://redaktion.lohnsteuer-kompakt.de/wp-content/uploads/sites/24/2022/12/33_Anlage_R-AUS_22.pdf
And you had told them separately, in the free text field in line 45 of the "Mantelbogen" form ESt 1A, that this payout was based on 9,000€ contributions, that the Finanzamt would then tax them as capital income, i.e. since you are over 60, only 50% of the "growth" as laid down in § 20 (1) Nr. 6 Satz 2 EStG, because that is where it is directed to in § 22 Nr. Satz 2 b) EStG and by the BFH ruling of 28.10.2020, X R 29/18: https://www.bundesfinanzhof.de/de/entscheidung/entscheidungen-online/detail/STRE202110086/
Right?

Well, unfortunately, while the lofty lawyer in the German Ministry of Finance, who designed the tax form Anlage R-AUS knows this, the programmers who programmed the Finanzamt software do not (yet), nor does a "normal" caseworker at the Finanzamt.
Though you can get boss of the "normal" caseworker (who usually only has a 3 year apprenticeship after leaving school after the 10th grade), i.e. a person who has attended the Finanzamt's Hochschule and is a Diplom-Finanzwirt (FH), to understand it, by citing the above chain of § and sending them that BFH ruling.

By the way, the Buhl programmers (Buhl issues the WISO tax software) don't know it either, so if you fill it into line 39 of Anlage R-AUS in your WISO software, by going the "Renten" section and then when adding this "Leistungen aus Altersvorsorgeverträgen", you mark that it was paid out by a foreign provider (ausländische betriebliche Altersvorsorgeeinrichtung), and then fill in your lump payment it into the field "Einmalleistungen, die nicht auf im Inland geförderten Beiträgen beruhen".
--> it gets entered into line 39 of Anlage R-AUS, then you will see in the tax calculation that WISO will consider 100% of these 27,000€ taxable income in the section "sonstige Einkünfte", which is of course wrong. The software should have shifted then amount into capital income (Einkünfte aus Kapitalvermögen) and should have only taxed 50% of it.

Strangely enough, WISO does get it right if it is a life-long pension based on a company pension plan whose contributions had not been tax-advantaged by Germany, i.e. if you fill it in WISO into the field "Lebenslange Rente, die auf nicht im Inland geförderten Beiträgen beruht", which then fills the amount into line 33 of Anlage R-AUS --> in that case, WISO will correctly only make you tax the Ertragsanteil, i.e. 22% of it, as laid down in § 22 Nr. 5 Satz 2 a) EStG which sends you up to the table in § 22 Nr. 1 a) bb) EStG which shows 22% if you first received that life-long pension when you were age 60 or age 61: https://www.gesetze-im-internet.de/estg/__22.html


--> if you fill it into Anlage R-AUS, you can expect the Finanzamt to simply tax it 100%, just as if all those contributions into had been tax-advantaged by Germany, i.e. just as if it had a been a payout from a German company pension plan.

This is why Steuerberater are wary of Anlage R-AUS, we do not trust the Finanzamt to draw the correct conclusions, since it is a newly introduced tax form which means that the bugs haven't yet been removed, i.e. not enough people have complained about it yet, to have someone go and explain to the programmers of the Finanzamt software that they have to treat it differently from lump sum payouts from German company pension plans.

We prefer to fill in everything were the law states that it should end up, i.e. where we know it should go, to avoid such mistakes.
See here what a Steuerberater has to say about the Anlage R-AUS: https://www-nwb--experten--blog-de.translate.goog/die-neue-anlage-r-aus-vorsicht-falle/?_x_tr_sl=de&_x_tr_tl=en&_x_tr_hl=en-US&_x_tr_pto=wapp

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So where does that leave you?

You can either fill the payout into line 39 of Anlage R-AUS and fill into the free text section of the tax return in line 45 of the main form ESt 1A, which is where your name and address go, that only the "Unterschiedsbetrag", i.e. the growth is taxable and at that only 50% of that growth since you're at least age 60 and hope that the bugs in the Finanzamt software have been eliminated by then.
But if you then see in the Bescheid that they have mistakenly taxed 100% of it, you need to immediately do an Einspruch (it has to reach the Finanzamt within 1 month and 3 days of the date written on the Bescheid) and explain the legal chain to them:
§ 22 Nr. Satz 2 b) EStG
--> § 20 (1) Nr. 6 EStG
--> if you're 60 or older: § 20 (1) Nr. 6 Satz 2 EStG
and for completeness's sake, also send them a PDF print-out of the BFH ruling of 28.10.2020, X R 29/18: https://www.bundesfinanzhof.de/de/entscheidung/entscheidungen-online/detail/STRE202110086/

Or you fill just the "growth" amount into the correct section in Anlage KAP, line 30 "Kapitalerträge aus Lebensversicherungen i. S. d. § 20 Abs. 1 Nr. 6 Satz 2 EStG" (since you were at least age 60 at the moment of the payout) and skip all that hassle.

It's your choice.

[GMill 6]

Well thanks again! Incredibly useful. I'm preparing myself, nothing cashed in yet but will do it in 2024, so you've certainly forearmed me for all I might encounter! Perhaps it's worthwhile trying to get the Finanzamt to agree in advance how it's going to be handled - But yes, I'll put it directly into the KAP as you suggest.

[GMill 6]

@Panda just an update on the Krankenkasse question. My KK is quoting §3 Absatz 1-1 and § 5 Absatz 3 of the Beitragsverfahrensgrundsätze by which apparently such a liquidation of the pension fund will be calculated on the capital gain ,not full payout which will be split over the next 1 year ie 12 months, not the 120 months that would apply to a betriebliche Altersvorsorge .. that's the current situation being currently "freiwillig versichert"
However, if I wait until drawing my DE pension and pflichtversichert in KVdR then they are now saying there would be zero liability for KK contributions .. Yippee!!

[GMill 6]

@PandaMunich I've just discovered something that possibly complicates or changes the discussion. The German system apparently has something called a "Liquidationsversicherung". If a company has pension obligations to its employees and goes into liquidation, it can offload these pension obligations by transferring them into a life insurance /pension policy in the individual name of the employee with some external company.
This is somewhat similar to the investment I have in the UK with Standard Life except in that case the policy was planned that way from the beginning, and contributions were paid by what at that time was my own company - which only existed for a period of 18 months before being wound up again.
In a Liquidationsversicherung transfer, apparently the contributions paid by an employer are considered as tax-free :
"Nach § 3 Nr. 65 b) EStG sind die Beiträge des Arbeitgebers für die Übernahme der Versorgungs-
verpflichtungen steuerfrei"
Does any of this change the tax situation in Germany as you described above? I imagine it probably makes a difference to the Krankenkasse ie that being in the KVdR would not avoid having to pay contributions.