This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

German Pension taxed in the UK

maths
Posts: 7517
Joined: Wed Aug 06, 2008 3:25 pm

Re: German Pension taxed in the UK

Postby maths » Sun Oct 01, 2017 3:15 pm

Robbob states:
Just out of interest - does anyone know if this German arrangement of not having to declare German pension income to the UK authorities is very unusual? are there any/many of other situations like this where similar types of income simply don't need to be reported to the UK tax authorities?
It is not correct to state that a German source pension does not need to be reported to the UK HMRC. It does need to be reported.

Reporting is required even if under the relevant DTA the foreign source pension is exempt from UK tax.

If the UK exempt the foreign source pension then there is no foreign tax credit for any tax levied in the overseas source country and hence completion of the Foreign Supplementary Pages is in practice not necessary. However, the pension must be disclosed.

The Notes to the Foreign Pages states:

"If you’ve a pension that is not taxable in the UK because of a DTA, give full details of the pension payer, pension and the relevant DTA in ‘Any other information’ on page TR 7 of your tax return."

mfs2710
Posts: 7
Joined: Thu Sep 28, 2017 4:32 pm

Re: German Pension taxed in the UK

Postby mfs2710 » Tue Oct 03, 2017 11:33 am

Thanks everybody for their really helpful comments! I had not realised, for instance, that it is not yet too late to do something about amending my 2015/16 self-assessment, nor the exact way how to report a German state pension on the UK forms.

In a way, the German-British Double Taxation Agreement is unusual in the way it seems, at least for state pensions, to deviate from my personal rule-of-thumb for DTAs, namely that "you always pay the higher of the taxes in the two country involved". Usually, the country where the earnings arise taxes you first, and then the country of residence gives you a credit for that tax. But you never get a refund from either, hence my rule applies!

This rule is, of course, my own lay-person's opinion. In a similar vain, for what it is worth, I'll give you my explanation for the unusual treatment of German social security pensions:

Historically, in Germany, social security pensions ("Altersrenten") were not taxed, in contrast to company pensions ("Werkspensionen") or continuation of salary after retirement ("Ruhestandsbezüge"), which were taxed. Accordingly, state pension contributions were taken off income after income tax had been paid. Taxing pensions would therefore have been taxing the same income twice. But sometime after I left the Fatherland in the late 1970s, this changed. In addition, the German government came up with an accounting trick, arguing that even pension rights acquired with old, taxed contributions could in part be taxed, because "like an investment" they had increased in value over the decades. As a result, people who retire now usually have both a taxed and untaxed element in their pensions. The formula to determine these is apparently so fiendish that when I once asked my brother in Germany whether he knew what it was, he answered "if I did, I would be far richer than I am, and if you can figure it out, you could be, too!" Thus, it seems that the only people in the world who really understand the minutiae of this are the civil servants at the Finanzamt Neubrandenburg.

Given this situation, the typical response of HMRC would be "let's come up with a 'one size fits all' solution", such as simply saying "90% of foreign pensions are taxable". And indeed that is what they did for a decade of more. However, the result of this was that there was a very strong financial disincentive for German pensioners to move to the UK (I know of at least one case, where a lady reluctantly moved back to Germany because she could not afford the tax on her widow's pension). If I may speculate again, I suppose that sooner of later somebody threatened HMRC with the European Court of Justice, because this regime impeded on the EU's "free movement of people" doctrine. (I had in fact contemplated writing to my MEP on behalf of that German pensioner.) If my conjecture is true, it might then well have been sensible for HMRC to throw up its arms and hand the whole mess back to the Germans; hence the new version of the DTA. Does that sound about right?

I hope you had fun reading my musings, as far as accountancy can be fun!

krautman
Posts: 1
Joined: Thu Jan 04, 2018 5:11 pm

Re: German Pension taxed in the UK

Postby krautman » Thu Jan 04, 2018 5:51 pm

I too declared and paid tax to HMRC for my German state pension, never occurred to me that it was taxable only in Germany.
Received demands for 2012, 2013 and 2014 so far
Emailed an objection to Neubrandenburg tax office but was told to pay up and ask HMRC for a refund.
You get 2 months to reply and accept the German demand and pay your Euros.
Phoned the HMRC on 0300 200 3300, who are getting plenty of similar enquiries, they assured me a refund will be no problem.
You need to make a claim in writing to
PAYE - Self Assessment,
HMRC,
BX9 1AS

1) advise the start date of the German state pension
2) enclose copies of the German tax assessments
3) state the amounts you claimed for each year in Pounds Sterling (HMRC will actually read them out to you if needed)
4) advise the German tax reference

This only applies to German state pensions, German company pensions are taxable in the UK.
Was told you do not need to mention the German state pension in your next self-assessment.

mfs2710
Posts: 7
Joined: Thu Sep 28, 2017 4:32 pm

Re: German Pension taxed in the UK

Postby mfs2710 » Fri Jan 05, 2018 11:13 am

However, also remember to amend your tax return for 2015/16, which you can do only until the end of this January; after that you need to claim refunds. (You probably included your German pension in 15/16 as well.) I had a very friendly chat with the lady in Neubrandenburg whose phone number was on the assessment form, and it appears that they only send out assessments every few years, in batches. Apparently, it is not necessary to file an "Einkommensteuererklärung" every year. If your (German) tax liability is more than about EUR 300 per year, you can apply to pay on account in the meantime, so that it doesn't hit you big time.

Coburg
Posts: 2
Joined: Wed Apr 11, 2018 9:59 pm

Re: German Pension taxed in the UK

Postby Coburg » Wed Apr 11, 2018 10:43 pm

I lived for over 20 years in Germany and now live in the UK.I receive a German state pension.When I returned here I was unsure how to declare the German pension . I spoke to HMRC who seemed to think that I should declare it as UK income. I realised that they did not have a clue and asked to speak to someone who knew about such things. After speaking to a second person I realised that they did not really know either. I demanded to speak to someone who knew about Double taxation and the German/UK treaty. 2 days later I was phoned by someone in Liverpool who advised me that under no circumstances should I declare it as income. He advised me to mention that under the terms of the double taxation agreement the tax was only payable in Germany. He referred to their document DT 7909 where this was stated.
In Germany they have 2 categories of tax-one is translated "unlimited tax liability" the other"limited tax liability".My German tax is only based on my pension which comes under the "limited tax liability" catgeory. This means that one does not get any personal allowance and pays roughly about 14% but the liability. However because of the way in which the contributions to the German state pension were made and what proportion were tax deductible, the German State pension is taxed according to the date as to when the pension was drawn. This means that for me I am only taxed at about 60% of the pension. This works out far better than what one would have to be paid in the UK.This % varies and is probably now at 100% since the contributions have been tax deductible for a longer period.Just wanted to give my experience on this matter.

Coburg
Posts: 2
Joined: Wed Apr 11, 2018 9:59 pm

Re: German Pension taxed in the UK

Postby Coburg » Fri Apr 13, 2018 12:57 pm

Is your German state pension above or below €8000?

If you've been declaring this in the UK you should be due a refund, but you will need to make the correct treaty claims on your return.

If the pension is below €8000 then likely you'll also have no tax to pay in Germany as this will be your only taxable income in Germany and it will be below the personal allowance that you are entitled to. I have no idea if they require a return to be filed or not for this.

If paid assistance is out of the question then you should hit up http://taxaid.org.uk/ as treaty reliefs can be a bit complex for some.

Ultimate outcome of all this is that you should get a refund for some of the delinquent returns, and going forward the German state pension is 'effectively' tax free income. You just need to make sure the correct forms are filed.
I am sorry to say that there is no tax allowance in Germany if you have limited tax liability. You only get an allowance if you have unlimited tax liability

mfs2710
Posts: 7
Joined: Thu Sep 28, 2017 4:32 pm

Re: German Pension taxed in the UK

Postby mfs2710 » Fri Apr 13, 2018 3:06 pm

I am sorry to say that there is no tax allowance in Germany if you have limited tax liability. You only get an allowance if you have unlimited tax liability
... as indeed I stated in my post of 28 September last year. And to repeat: one can only choose to have such unlimited tax liability in Germany (and with it a personal allowance) if any non-German income is pretty much negligible.

VLyn
Posts: 1
Joined: Sat May 05, 2018 10:59 am

Re: German Pension taxed in the UK

Postby VLyn » Sat May 05, 2018 11:08 am

Hi
I have just received my letter from Neubrandenburg and panicked of course so I was greatly relieved to read previous posts (not just me). I started receiving my pension in 2013. I did not apply for it directly but simply indicated on my UK state pension application form that I had worked in Germany for 6 years. So I will be sending off the info to show that I have paid tax in the UK in the first instance and be contacting the UK tax authorities. It seems logical that if Germany is making the payment, it should have any tax due and from the letter it seems that this will be the case going forward.

mfs2710
Posts: 7
Joined: Thu Sep 28, 2017 4:32 pm

Re: German Pension taxed in the UK

Postby mfs2710 » Fri Jun 08, 2018 4:01 pm

[....] So I will be sending off the info to show that I have paid tax in the UK in the first instance and be contacting the UK tax authorities. It seems logical that if Germany is making the payment, it should have any tax due and from the letter it seems that this will be the case going forward. [...]

I thought I share the essentials of a letter that I received from HMRC in reply to my doing what everyone here recommends, namely write to them and request correction of past UK Tax Returns. I had written to them requesting re-opening of my 2012-13, 2013-14 and 2014-15 self-assessment.

HMRC wrote that German State Pension is now dealt with under Article 17(2) of a UK-German double taxation agreement, which came into force in the UK on 06/04/2011, and that this "awards Germany with the sole right to tax this pension" and that it is therefore exempt from UK tax. They then told me that I was due a refund. This has already happened for 2014-15 - it was paid in late May - but not yet for the earlier years.

HMRC then pointed out that "UK domestic legislation only permits HMRC to review the previous 4 financial years for any taxes incorrectly paid." As we are now in 2018-19 and I wrote to them only in April, the fourth year back is indeed 2014-15. However, they continued, "there are provisions within the UK/Germany double taxation agreement which, in certain circumstances, may allow HMRC to review the previous 6 financial years in cases where there has been (or will be) taxation that is in contravention of the double taxation agreement", and that this applied to me. Since I had provided "sufficient information" for them to initiate this process (I had sent them copies of the German Einkommensteuer-Festsetzung and stated that I had paid the German tax due in November) they will take "unilateral action to relieve double taxation for the years 2012-13 and 2013-14", which may, however, take up to six weeks.

So, nothing really to complain about, and I personally think HMRC are handling this very well!

Finally, you may all be interested to know that there is a specific address for queries like this:

BAI - Personal Tax International
HM Revenue and Customs
BX9 1AU (no city!)

Tapdancer
Posts: 1
Joined: Sat Oct 27, 2018 11:31 am

Re: German Pension taxed in the UK

Postby Tapdancer » Mon Oct 29, 2018 3:30 pm

Thank you mfs2710 for your information on this subject. I started to get my pension from Germany in 2013 and was told by HMRC that I would need to complete a Self Assessment Tax Return each year because of it. I would not need to complete a return otherwise.
Having found this forum I felt much better after the shock of the letter from Neubrandenburg telling me that I now owed tax in Germany.
I wrote to HMRC and gave all the information and was shocked when they said they cannot refund 2013-14 year as that year is out of date. How could I make a claim on time when I was unaware that tax was being wrongly deducted in the first place? How can they refuse to repay tax that was wrongly deducted by them and paid by me in good faith? Error or Mistake Relief has apparently been replaced by Overpayment Relief and I will apply under that for the 2014-15 and 2015-16 years.
I was wondering if you were successful in recovering tax paid for out of date years and if so under which provision this was done. This would be very helpful.
For the years in date I need to apply by basically re - hashing everything I have told them already but put it into a different format to claim Overpayment Relief. Such a waste of time. I'm sure this has caused stress and worry to lots of people but this forum has helped a great deal. As I only worked in Germany for a few years the amounts are not great in my case but all this could have been avoided if HMRC had got it right in the first place!


Return to “Income Tax”