This does indeed have nothing to do with Brexit; there has been talk for some time that the "people in Neubrandenburg" (where the relevant German tax office is domiciled) are in the process of toughing up chasing German Tax on pensions received by "Steuerausländer" (non-residents for tax purposes).
Dorothea's case matches mine almost exactly: it looks like she, like I, was born in Germany in 1947 or perhaps a couple of years later - I believe German women of our generation can still get their pensions at 63 - and came to the UK many decades ago. Like her, I paid UK tax on 90% of my German state pension from 2012 onwards (though I never figured out where to enter this on the self assessment - I simply wrote it into the notes). And I now got a tax demand from the Germans. Still have to figure out how possibly to claim back the overpaid UK tax in 2012/13, 13/14, 14/15 and 15/16!
Darthblingbling, however, is not correct with his assertion that pensions under €8000 would not be taxed in Germany. German personal allowances (other than a small "Werbungskostenpauschale" - an expenses allowance) are not applied unless the tax payer has elected to have *all* his/her income taxed in Germany ("unbeschränkt steuerpflichtig"). And that is only possible if all non-German income is either less than approx. €8000 (depending on the year) or constitutes less than 10% of total income.
Nevertheless, at least for relatively small pensions like mine, it is still advantageous to have them taxed in Germany. In Germany, a considerable proportion of very old pension rights like mine and Dorothea's is deemed to have had tax paid on the contributions and is now tax free. In my case, it turns out that for the three years for which they sent me assessments so far, the German tax is about 11% of the gross, compared to 18% in the UK (20% basic rate on 90% of the pension).
Now my question:
Whereas a German pension may not be taxable in the UK, does this mean that we can simply "forget about it" (i.e. treat the income similar to ISA interest), or do we still have to add it into the taxable amount to determine the "tax bracket" and then take it off again? In other words, assuming a total UK income of £38000 and a German state pension of €10000, does this result in being a Higher Rate Taxpayer or not?
My personal parsing of the wording of various documents, particularly where they state flatly that "German social security pensions are ... not taxable in the United Kingdom" - see https://www.gov.uk/hmrc-internal-manual ... ief/dt7909
, would indicate that in this case one would remain a basic rate payer.
This may seem a moot question, as the total tax payable might for many end up the same, but it becomes important once you have considerable income from savings interest, where the allowance drops from £1000 to £500 once you are a penny over the basic rate limit, costing you up to £200 in tax. Also, the UK government seems set to make that income boundary more and more important in the future: we might soon lose our bus passes and Winter Fuel Allowance for that one extra penny of income!