Avoiding Taxes on Your UK Pension in Germany
Both British expats resident in Germany and German expats who are returning to work or retire in Germany can transfer their UK pensions overseas to avoid UK taxes. We will show you how to do this.
A lot of British expats move to Germany to work, then end up getting married or liking Germany so much that they decide to stay. But, what should you do with your UK pension? Thanks to the UK government, you are now allowed full pension freedom and flexibility which allows you to take as much UK pension as you want as either a lump sum or as a pension income.
But, what would this mean from a tax point of view? UK pensions may be taxed in the UK or taxed in Germany. You will pay income tax on your pension and you may usually have to pay the UK death tax after 75.
Transferring to a ROPS to Avoid UK Taxes for German Residents
Other options include transferring your UK pension to a Recognized Overseas Pension Scheme (ROPS) in a tax efficient jurisdiction such as Gibraltar or Malta.
Gibraltar does not have any Double Taxation Agreements (DTA’s), so you would pay income tax twice. .
Malta on the other hand does have a DTA with Germany meaning your pension would only be taxed in Germany, no tax on death, you can choose the currency you want to transfer your pension into and choose how you want to invest in. Plus, if you decide to retire or move to another country in Europe or worldwide, Malta has over 65 DTA’s.
Are UK Pensions Taxed in Germany?
This is not a simple question and depends on what taxes you should pay. Private pensions, generally, will be taxed in the UK if you have had it for less than 15 years, which means 20% – 45% income tax in the UK plus the UK death tax of up to 45%.
How are UK pensions taxed in Germany?
- If you have a social security pension then it’s taxable in the UK, but you will also have to pay 7.3% for the German public health insurance charges (Zusatzbeitrag), 0.8% for state health insurance charges (Techniker Krankenkasse) and 2.3% to 2.6% for the long term care charges (Pflegeversicherung) depending if you have children or not if you moved here before claiming a pension. If you moved here after, then you can get a German public health insurance card for free, e.g. from the Techniker Krankenkasse and the NHS will pick up the tab for you in the UK.
- If you have a civil service pension, then it depends on your citizenship. You can read more about residency status in the Germany-UK DTA guide below. You will also have to pay 14.6% of your pension income for German public health insurance charge (Zusatzbeitrag and Pflegeversicherung).
- If you have a private pension to which you have contributed to for at least the last 15 years out of tax-relieved contributions and the UK chooses to tax it, then it will not be taxed in Germany. You will however have to pay 14.6% of it for the German public health insurance charges.
- If you have a private pension to which you did not contribute to for at least 15 years or if it is one that the UK chooses not to tax, then you you will pay German income tax on it. You will also have to pay 14.6% of your pension income toward the German public health insurance charges.
- If you have a company pension to which only your employer paid into and/or to which you contributed at least 15 years out of tax-relieved income, then the UK has the taxation rights. You will however have to pay 14.6% of your pension income toward the German public health insurance charges.
- If you have a company pension to which not only your employer paid into and to which you didn’t contribute at least 15 years out of tax-relieved income, then you pay German income tax on it. You will also have to pay 14.6% of it to for the German public health insurance charges.
If you are a British expat living in Germany, you can read the terms of the UK-German Double Taxation Agreement in English here. It includes how to determine if you are resident or not as well as detailing the tax agreement on pensions.
If you are a German expat returning to Germany, you can read the German-UK Double Taxation Agreement in German here.
The Problem with Leaving Your Pension in the UK
According to Article 18, if you have a UK pension, it is taxable in Germany, not the UK. Unfortunately, when it comes to death, often you are taxed in the UK.
Pensions in the UK are taxed at up to 45% upon death after 75. Normally, they also kept in GBP and often in low interest bearing pension accounts.
You can transfer your UK pension offshore to Malta, which has a Double Taxation Agreement with Germany. You only pay German income tax and no tax on death.
Plus, you can transfer your pension into EUR and target higher growth rates should you wish. You can also, pay the whole lot as a tax lump sum upon death and if it is written under an insurance policy, it avoids the need for probate (court) upon death. It is automatically distributed once a death certificate has been seen.
Transfer UK Pension to Malta for British Residents in Germany
Malta and Germany do have a Double Taxation Agreement (DTA), so you only pay income tax in Germany.
Many pensioners incorrectly, in my opinion, transfer their pension to Gibraltar. This would incur double taxation.
Gibraltar has no double taxation agreements. Not with Germany, not with anyone.
In Gibraltar, you pay their 2.5% income tax at source and then you would pay the German income tax on your pension as well. So, you get taxed in Gibraltar AND in Germany.
In Malta, you only pay the German income tax. No tax in Malta. No tax in the UK. In our opinion, a pension transfer to Malta gives your pension the most tax-efficient freedom, investment freedom and currency freedom if you are moving to Germany.
Is There Tax on a UK Tax-Free Lump Sum from a Pension in Germany?
You will need to speak to your German tax attorney about the lump sum and whether it is taxable. I know it is taxable in France, but I don’t think it is taxable in Germany, but don’t take our word on it. You need to speak to a German tax attorney. Germany taxes worldwide income and you would need to enter it into your German tax returns even if it is not taxable.
But, you really need to speak to a QROPS specialist and a German tax attorney.
Click here to learn more about why to transfer a UK pension offshore when living in Germany.