UK Tax-exempt MD pension, but living in Germany

#1
Has anyone any experience of the taxation of tax-exempt medical pensions for ex-pats in other EU states? I'm specifically asking about Germany and want to know if my pension, tax-free here, would be taxed there. I'm assuming that medical insurance will be based on total income including the pension, but hopefully income tax may not be.

Surprisingly the usually helpful veterans agency gave an utterly useless 'no comment' answer even though this question must have come up many times over the years.
 
#2
Have you tried the FPS? they know everything, even more than stacker...
 

Mr_Fingerz

LE
Book Reviewer
#3
Try giving HMRC a call. They should be able to point you in the right direction. Failing that (if you're still in the UK) try the German Embassy.
 
#5
Thanks for the responses. Labrat that link is about double taxation. That's not an issue as the UK doesn't tax my pension. It's actually single taxation I'm worried about in this case and nothing I've read in double taxation treaties seems to deal with tax that's not paid in the home country.
 
#6
this other forum has the answers sort of

Medical Pension Question and Forces ExPats

basically keep it paid into your uk bank account and it stays tax free, if you shop around for a bank in the uk that offers you a cash point card whith a zero widrawl fee you can also avoid the expensive iban transfer costs
 
#7
Thanks nanotm, but I also found that one and it doesn't answer the question.

Regarding your point about a UK bank account, just because your income, of whatever sort, is kept in one country it does not exclude it from tax in your country of (tax) residence. That is a complex subject, but my understanding is that if you spend most of your time in XLand, own a house in XLand, your kids go to school in XLand, then you'd be on weak ground when trying to justify YLand as your tax residence. My question was not specific enough about that perhaps, but I have no doubt that my tax residence would be Germany.

Also I think the "don't tell" advice when dealing with issues between EU states, especially fairly switched on ones, is not a good idea. For example German medical insurance requires disclosure of all income and lying to your health insurance company then getting caught out when it matters would not be ideal.

The answer I want may be deep in EU law somewhere, but I expect the answer is "cough up, Herr Good CO"
 
#9
Also I think the "don't tell" advice when dealing with issues between EU states, especially fairly switched on ones, is not a good idea. For example German medical insurance requires disclosure of all income and lying to your health insurance company then getting caught out when it matters would not be ideal.

The answer I want may be deep in EU law somewhere, but I expect the answer is "cough up, Herr Good CO"
So it's not just medics who get you by the nuts and say "cough", then?
 
#11
Your best bet would be advice from a German tax-advisor but normally, as a German resident, you will be assessed for tax on your worldwide income (including income from investments) by Germany. IF you have income in the UK then this would first be assessed by the UK Inland Revenue and then assessed by the Germans on any amount left over, which may mean paying some to Germany (eg: UK rate is 15%, German rate is 20% then you'd pay 15% in the UK and 5% in Germany). Your income in the UK is taxed but at 0%, which means it may attract tax from Germany BUT there may be a deal between the UK and Germany that such non-taxable awards in the UK are also treated at 0% in Germany. Note that EU countries (including the UK) share bank account information.
I'll see if I can find out anything here (I live in Germany) about your particular type of income.
 
#12
Offer appreciated, but I've already had a somewhat useless answer from SPVA - "I can only advise you regarding UK tax laws". It's not clear from the letter where that came from within SPVA though. Still think it's worth a stab through your connection there?
 
#13
Your best bet would be advice from a German tax-advisor but normally, as a German resident, you will be assessed for tax on your worldwide income (including income from investments) by Germany. IF you have income in the UK then this would first be assessed by the UK Inland Revenue and then assessed by the Germans on any amount left over, which may mean paying some to Germany (eg: UK rate is 15%, German rate is 20% then you'd pay 15% in the UK and 5% in Germany). Your income in the UK is taxed but at 0%, which means it may attract tax from Germany BUT there may be a deal between the UK and Germany that such non-taxable awards in the UK are also treated at 0% in Germany. Note that EU countries (including the UK) share bank account information.
I'll see if I can find out anything here (I live in Germany) about your particular type of income.
That would be really appreciated. The answer would probably be valuable to quite a few as Germany is a reasonably common place for ex-military to settle. I'm sure the "don't tell" approach has been used by many, but I think this is less and less sensible as time goes on and financial information flows ever better between states. I don't doubt that someone will be caught out sooner or later and face a large tax bill.
 
#14
Your normal military pension which is taxed at source (even if at 0%) will fall under the "progressionsvorbehalt" in that it will be added to your yearly income and your tax band will be based on the total amount. This is how the miserable Finanzamt gets round the double taxation treaties.

If you have a tax free income and you declare it to them then I would think that it would be treated exactly the same way.

Just thought I would add that if you commute your pension then the lump sum is also subject to the progressionsvorbehalt and if you have a taxable income in Germany in the year you get your lump sum then you will end up paying them some of it in tax - despite it being a tax free grant in the UK

Cost me a few Euros in court fees to find that out.
 
B

bryansmith

Guest
#15
No such thing however if you have to pay the Tax of the Country you are residing in and retain your main residence in the UK and therefore pay tax on any income, you can ask for TAX BACK at the point of taxation e.g. Germany in your case. This is irrespective of the type of income. The same applies to EU citizens in the Uk you generally find the Polish asking for TAX BACK in the job centres as their retain their home residence in Poland.

Basically you have to relinquish your residence status here otherwise you pay tax for both countries.

I find the other EU countries are not so favourable in giving tax back other than the UK, Good luck !

P.S. Don't put in public forums that you are not paying tax. I pay tax on my army pension and despite it being well below the allowance, the only difference is I choose to have a proportion of my taxable allowance on my pension and not my salary. Remember nothing is exempt tax in the EU including the UK. So watch what you put on here.

P.P.S. Mine is an MD Pension and I get taxed as well, suggest you keep quiet if you are not paying tax on it, but I suspect it is below the allowance threshold and depending on your age your taxable allowance could be as high as £9,000pa and you are still not exempt but just not paying tax because it's too little MD pension. The other thing is are you declaring all your income?

P.P.P.S. There are many variables involved in Income Tax, but the rule is if you not paying Income Tax be careful it could be a large repayment you have to make in either country as taxation now travels the borders of the EU including Switzerland, because their will catch up.


P.P.P.P.S. This winter the HMRC are taking on over 2,500 extra tax inspectors to go after ex pats and other non domociles (and not just the rich and famous) who do not pay taxation to this country but have residential status. You will find many ex servicemen falling into that category who have settled particularly in Poland and the former East Germany since the integration of both countries in the EU, unless you have relinquished your residential status in this Country. You have been warned.

An ex HMRC Inspector.

Has anyone any experience of the taxation of tax-exempt medical pensions for ex-pats in other EU states? I'm specifically asking about Germany and want to know if my pension, tax-free here, would be taxed there. I'm assuming that medical insurance will be based on total income including the pension, but hopefully income tax may not be.

Surprisingly the usually helpful veterans agency gave an utterly useless 'no comment' answer even though this question must have come up many times over the years.
 
#16
Thanks nanotm, but I also found that one and it doesn't answer the question.

Regarding your point about a UK bank account, just because your income, of whatever sort, is kept in one country it does not exclude it from tax in your country of (tax) residence. That is a complex subject, but my understanding is that if you spend most of your time in XLand, own a house in XLand, your kids go to school in XLand, then you'd be on weak ground when trying to justify YLand as your tax residence. My question was not specific enough about that perhaps, but I have no doubt that my tax residence would be Germany.

Also I think the "don't tell" advice when dealing with issues between EU states, especially fairly switched on ones, is not a good idea. For example German medical insurance requires disclosure of all income and lying to your health insurance company then getting caught out when it matters would not be ideal.

The answer I want may be deep in EU law somewhere, but I expect the answer is "cough up, Herr Good CO"
the law is that you are taxed on income in each country by each country, so if you recieved the money into a uk account ther ewould be no need to hide it on your declarations to the german state, you will be taxed as its spent anyway, if you get it paid into a german account by XP then it will be taxed at the end of year accounts by the state you reside in


sorry i didnt look clearly at the posts i linked which was my error, i looked very heavily into the laws both eu wise and other areas a few years ago when i was awaiting an MDfor the first time, both fortunatly and unfortunatly the final bord returned me to service as P7Perm to be reviwed on change of circumstance or at 5 years.

anyway i looked at the laws a lot because at that time i could of emigrated on health grounds to al ot of places and had the pension paid to wherever suited me, wihtin the EU your allowed ot hold a bankaccount in any country, if you emigrate or gain ILR status in other places they insist you reliquish your uk assets first.

the situation might very well change though if the uk pulls out of the EU or in some way changes its method of granting EU nationals benefits or nhs treatment, which could well be why the official organisations dont want to give you an answer right now (were being rather squeezed politically it would seem)

i cant exactly go into specifics (i dont know your situation nor do i particularly wish too) and i dont know the specifics of the german law on injury payments (medical pensions) of today but it was a few years ago that provided they were paid wihtin the country of origin then it would remain as tax free income unless it was transfered from the uk account to the german one

i know that there have been several changes to EU legislation since then and additionally there are likely to be several more changes within the german legislation both so far and in the coming months.

the only people that are likely to be able to give you chapter and verse on it are the german central bank tax and revenue department (sorry i cant remember what its called), the uk taxation system will continue not to tax it so long as it remains paid into a uk account regardless of where you live, however should you opt to have it paid outside of the uk i believe it becomes subject to a surcharge, although that rule might not apply or have been removed.

should you change from being a uk citizen to being a forign national there was also clauses about giving up the rights to claim your pension, chapter and verce on this will be in the various pamphlets concering the pension system yours is paid under.

its a bit of a minefield but your safer having it paid to a uk account and then spending that in germany as cash shopping or bill payment in cash at the bank than haivng the funds paid direct to a german account, declaring hte income and then i belive that your not considered as taxable on that portion of your earnings


for actually binding info get it off hte german tax office, but be prepared for it to change and more hoops to appear to get your hard earned
 
#17
Thanks for the responses. Labrat that link is about double taxation. That's not an issue as the UK doesn't tax my pension. It's actually single taxation I'm worried about in this case and nothing I've read in double taxation treaties seems to deal with tax that's not paid in the home country.
I guess the question becomes "is this tax-free" or "is this money that has already been taxed in the UK, but at a zero rate"
 
#18
I guess the question becomes "is this tax-free" or "is this money that has already been taxed in the UK, but at a zero rate"
Doesn't matter. As above the finanzamt add it to your total income and then set your annual tax rate (on a sliding scale) according to how much the total income is - they don't care if you have paid tax on it or not.

This means that you will pay a higher rate of tax (so long as your yearly income is above the minimum allowance level) than if you were only paying tax on your normal income. So in the end despite all the doppelbesteurungsabkommen you still end up giving more of your dosh to them.
 
#19
the law is that you are taxed on income in each country by each country
That is absolutely wrong. Why do you think lots of people earning large tax free wages from overseas contracts are very keen not to become UK residents through the 183 day rule? If you are a UK resident you will not get far explaining to the IR that they can't have a lump of your last mercenary paycheck because it was paid in Libya.

Germany is the same - if you are tax resident in Germany you pay tax on worldwide income.

Double taxation agreements are there to make sure that rules of this sort don't result in over-taxation. If it was as you say there would be no need for such agreements.
 

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