Are you a UK resident receiving income from a German pension?

The provisions in the UK-Germany Tax Treaty relating to German pension income received by UK resident taxpayers may be beneficial to those who have paid into a German pension for a period of at least 15 years. In this brief article, we set out the key points you need to know about the UK taxation of German pensions.  

Do you pay tax on pensions? 

UK resident individuals will typically pay UK income tax at progressive rates of 20%, 40%, and 45% on the income they receive (although dividends and some other sources of income at taxed at different rates) in excess of the personal allowance which is currently £12,570 in the 2023/24 tax year.  

This is subject to two main provisos. Firstly, certain non-UK domiciled individuals can elect to be taxed on any offshore income and gains only to the extent that they are brought into the UK (the remittance basis of tax). Secondly, the personal allowance may be abated, or withdrawn entirely, in certain cases. 

The basic position, therefore, is that UK resident individual will generally pay UK income tax on their pension income, regardless of whether this derives from UK or non-UK pension schemes. 

Receiving non-UK pensions in the UK 

As well as being subject to UK income tax under the rules set out above, non-UK pensions may also by default be subject to tax in the source country.  

This can give rise to “double taxation” on the same income, in which case the onus will typically be on the taxpayer to make a claim for double tax relief, either in the UK or the source country depending on the particular circumstances.  

The process of claiming double tax relief will be administratively burdensome, and will in many cases lead to the taxpayer ultimately being subject to the higher of the tax charges levied in the relevant jurisdictions. 

Effect of the UK-Germany Tax Treaty 

The UK-Germany Tax Treaty provides a specific set of rules which override the general position described above and which may prove beneficial to UK residents that receive German pensions. 

Under the Treaty, German pension income paid to a UK resident will be taxable only in Germany (and not in the UK) if the pension relates wholly or partly to pension contributions which, for more than 15 years: 

• Did not form part of the taxable employment income in Germany, or 
• Were tax deductible in Germany, or 
• Were tax-relieved in some other way in Germany. 

This is subject to the fact that these rules will not apply if: 

• Germany does not effectively tax the pension; or  
• Germany has already clawed back tax relief for the contributions paid; or 
• The ’15-year condition’ is fulfilled in both Germany and the UK. 

There are also complexities that can apply to those who started receiving their German pension before 30 December 2010.  

The UK-Germany Tax Treaty also provides that German social security pensions are taxable only in Germany, and not in the UK. 

The information set out above provides a summary only of the relevant rules. If you need advice on German pension income, particularly as a UK resident, then we would be pleased to discuss how we can help you.