Pensions from foreign counties

Teutonia2023

I am not sure whether I will have to pay tax on OA pension  received from Germany. Do I have to inform HMRC? Any advice would be much appreciated

Bostonerimus1

You should tell HMRC about the foreign pension. Read the UK/UK double tax treaty to see how pensions are taxed, Articles 17 and 18. By OA I assume you mean "Old Age", this might be taxed differently to a workplace pension if it is part of German social insurance. Here is a relevant form to tell HMRC about your German pension and claim relevant tax treaty relief. You will also have to satisfy German taxes.

https://www.gov.uk/government/publications/double-taxation-treaty-relief-form-dtindividual-germany

pinnks

If you are receiving a German state pension (gesetzliche Rente) from the Deutsche Rentenversicherung (which would be my guess) then it is taxable ONLY in Germany by virtue of Article 17(2) of the double taxation agreement (DTA) 2010_double_taxation_convention_as_amended_by_the_2014_and_2021_protocols.odt (live.com).  If it is a different type of pension you'll need to consult the DTA.

I was informed this week by HMRC that receipt of foreign income is a trigger for bringing a person in to Self Assessment, so, if you don't already have the pleasure of filing a self assessment tax return each year, you will now!

When we started receiving our German pensions we didn't do anything more than follow the guidance in FN8 of the Foreign Notes Foreign notes (2022-23) (publishing.service.gov.uk), which say that if the pension is not taxable in the UK, you do not need to complete the foreign income page SA106 and instead add text to the "any other information" box of the return, along the lines of:

"I receive a German state social security pension from Deutsche Rentenversicherung Bund, paid via the German Post's Renten Service, which shall be taxable only in Germany under Article 17(2) of the UK/Germany Double Taxation Agreement. The pension has been in payment since XXX 202X. This statement is made in accordance with SA106 foreign notes, which explain on page FN8 that if you have a pension that is not taxable in the UK because of a DTA, give full details of the pension's payer, pension and relevant DTA in the Any other information box on your tax return."

If you do not currently submit UK tax returns you'll need to contact HMRC to get set up. I would quote the above to them and ask whether you really do need to go into SA, despite what I was told this week via the HMRC customer forum...  You might get lucky, lol.

In Germany, as a non-resident with income taxable in Germany, you will be subject to what is called "limited liability tax treatment", which means that while you are subject to tax only on your German-source income that remains taxable in Germany in accordance with the DTA, you are not entitled to any reliefs or allowances like the personal allowance (Grundfreibetrag) against that income.  The only exception is that all persons in receipt of a pension get a standard allowance of 102€.  Apart from that, every Cent is taxed at the rate that would apply to that amount of income if it fell above the personal allowance.  i.e. if you use an online tax calculator, you add your taxable pension amount to the Grundfreibetrag and use that as your taxable income figure in the calculator.

There is one exception. If at least 90% of your worldwide income is German-source, OR, the amount of your income that is not taxable in Germany is less than the Grundfreibetrag, then you can elect to be treated as if you are resident and subject to "unlimited liability tax treatment" (a tax fiction).  You are still taxed only your German pension but you get access to the Grundfreibetrag and other allowances, so it can be worth doing.  If you make this election and your worldwide income then exceeds the Grundfreibetrg, you enter the Progressionsvorbehalt, meaning that income that is not taxable in Germany still feeds into the calculation of your tax rate.  It is a tad complicated, so only look into it if your income other than your German pension is less than about 10,500€ (you'll need to check the actual numbers for each year if this is relevant).

Your German tax office will be Neubrandenburg (Rente-im-Ausland) and you should make early contact with them even though the DRV is legally obliged to supply them annually with the amount of pension you receive.  Have a look at Rente im Ausland (finanzamt-rente-im-ausland.de).

I would suggest submitting the "email correspondence" form so you can contact them by email and send attachments, along with the form for "Amtsveranlagung" authorising the tax office to assess you without the need to submit an annual tax return (the alternative is to send (unprompted) a paper return every year, which I would not want to get into).  Also, give serious consideration to setting up a SEPA direct debit using the form on their website, so that they automatically collect the tax on the due dates.  So far as I can tell, these dates can change, depending on when they issue the assessment, and you will also have to make payments on account every 3 months after that.  The penalties/interest for paying late are significant.  Try to make your relationship with them as straightforward as possible!

You may have a German bank account, but if not you could have a look at Starling Bank in the UK as you get a £ account and a € account with IBAN etc and a Mastercard debit card that can be linked to either currency.  You could have your pension paid into that account, pay the tax out of it and convert to £ as and when, or spend in € when in Euroland...

You may know this already, so apologies if it is old news, but not all of your pension is treated as taxable income.  This relates to the change in 2005 to "Nachgelagerte Besteuerung" (taxing pensions and allowing a deduction for contributions).  Everyone gets a pension Freibetrag (tax-free element).  This is a fixed percentage determined by the year during which your pension starts but is not an annual tax-free percentage of your pension - it is a percentage of your first part-year pension and then the same percentage of your first full-year's pension fixed as your tax-free amount for life - hmm, complicated.  

An example. 

Let's say you started drawing your pension in July 2022 and it was 1,000€ per month.  Your tax-free % is 18% (see Prinzip der Kohortenbesteuerung (finanzamt-rente-im-ausland.de) which shows the taxable %).

For 2022 you receive 6 x 1,000 = 6,000€.  Your tax-free amount is 1,080€, leaving 4,920€ taxable.  Take off 102€ and multiply by your tax rate for that amount to get your tax.

For 2023 you receive 6 x 1,000 plus 6 x 1,000 x % inflation increase (say 5%).  Total pension income 12,300€.  Your tax-free amount, that is now being set for the rest of your life is 18% of 12,300 = 2,214€.  For this year your taxable income is 12,300, less 2,214, less 102.

For 2024 until death, your taxable income will be 6 x monthly pension, plus 6 x monthly pension increased by inflation, less 2,214, less 102 at the relevant tax rate, until and unless the 102 is increased or something in the law is changed.

I have probably forgotten something, so please fire back any questions this triggers...