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 Early Retirement Scheme

ATZeit
Posts: 3
Joined: Fri Feb 03, 2017 4:51 pm

German Early Retirement Scheme

Postby ATZeit » Fri Feb 03, 2017 5:22 pm

German companies are incentivised to offer employees early retirement by setting up schemes whereby employees contribute gross into a savings plan which is taxed normally when paid out and contributes about half annual gross income. Employers then make up the resulting net to maximally 85% of the employees pre retirement net income. The Employers contribution is subject to minimal taxation. Effectively the result is that an employee can retire up to 3 years prior to their normal retirement age and the employer is paying only about 25% of the employees previous cost.
I have asked HMRC to honour the terms of this scheme. Their initial response, if I am tax resident in the UK, however is to tax the employers contribution at the full UK rate. This effectively results in me being double taxed because these schemes are not specifically covered in the Double Taxation Agreement between the UK and Germany.
Does anyone have any experience of these schemes and of course a rather more positive outcome of any submission made to HMRC.
Thanks

AmanSood
Posts: 215
Joined: Mon Jan 09, 2017 4:12 pm

Re: German Early Retirement Scheme

Postby AmanSood » Wed Feb 08, 2017 9:58 am

Unfortunately I would agree with HMRC. As a UK tax resident, the UK would have taxing rights under the double tax treaty. Likewise, in Germany, on the basis that the pension contributions have been tax relieved i.e. you haven't paid any German tax on these (assuming this is fore more than 15yrs in Germany), then Germany will also have the right to tax your pension. The UK should however give you a credit for any tax paid in Germany but this would be capped at the UK tax rate.
Advising on UK employment, expatriate and personal taxes
aman.sood@e-taxconsulting.com.
+44 (0) 207 846 0155

bd6759
Posts: 3109
Joined: Sat Feb 01, 2014 3:26 pm

Re: German Early Retirement Scheme

Postby bd6759 » Wed Feb 08, 2017 10:08 pm

Germany will also have the right to tax your pension. The UK should however give you a credit for any tax paid in Germany but this would be capped at the UK tax rate.
No. The pension will be taxed only in the UK.

ATZeit
Posts: 3
Joined: Fri Feb 03, 2017 4:51 pm

Re: German Early Retirement Scheme

Postby ATZeit » Mon Feb 13, 2017 10:34 am

Thanks for your replies. Interestingly these schemes are not pensions. Recipients remain on their original work contracts but are not allowed to work! Indeed I have learned that it may be possible to argue that because of this, these are in fact deferred payments for work done whilst actually working for the company and tax resident in Germany and therefore taxable only in Germany. Does this make any sense?

bd6759
Posts: 3109
Joined: Sat Feb 01, 2014 3:26 pm

Re: German Early Retirement Scheme

Postby bd6759 » Mon Feb 13, 2017 5:34 pm

The DTA refers to pensions, annuities and similar payments. Annuities are ...:
"..certain amounts payable periodically at stated times, for life or for a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or money's worth."
If the contributions into the scheme were for 15 years or more, the pension will be taxed only in Germany (but only if Germany actualy tax it, otherwise the UK can tax it).

ATZeit
Posts: 3
Joined: Fri Feb 03, 2017 4:51 pm

Re: German Early Retirement Scheme

Postby ATZeit » Tue Feb 14, 2017 3:40 pm

Thanks for your help with this even though the answer is not what I had hoped.


Return to “International Tax”

cron