Gary C

Hi David, Example 1 is correct. In that case the DTA awards taxing rights only to the UK so exempts the income from being taxed in Austria. In such cases Article 21(1)(b) of the DTA says, "Where [...] income derived by a resident of Austria is exempt from tax [in Austria], Austria may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income." What that means is that the tax rate applied to your other income will increase to the rate that would be applicable to a person who had the same amount of total income arising only in Austria. So, if you had 30,000€ taxable in Austria and 10,000€ exempted by the DTA and taxable only in the UK, your worldwide income would be 40,000€ and the rate of tax applied to your 30,000€ that is taxable in Austria would be the same as that applied to a person whose taxable income was 40,000€. This referred called Progressionsvorbehalt and the 10,000€ exempt income will go into a special box on, or an "Anlage" to the tax return. You'll need to ask the Austrian FA or your tax advisor how to do that. Example 2 is correct if you mean that you receive the income without UK tax because the DTA awards taxing rights only to Austria. In that case, the income is simply part of your worldwide income and will go on your Austrian tax return as foreign income and be subject to Austrian taxation. Progressionsvorbehalt is not relevant here because the sum is fully taxed in Austria. Does this help?

David, You may already know this but income that is not taxable in Austria because it is exempted under the DTA, must be included in your tax return as it feeds into the rate at which you pay tax on your income that is taxed in Austria. See Article 21 (1)(b).

If his savings income takes him above £11,310, or £12,570, would he not qualify for the Starting Rate for Savings on up to £5,000 of savings income above his personal allowance and thus not need to worry about cancelling MA?

Indeed - that is what we have been saying, albeit that JohnMunich's pension has been paid into for less than 15 as I understand him, so 17(3) is simply not in point and the pension would be taxable only in Germany. Can I resurrect my question from a few days ago? If Article 17(3) would apply because a person has paid into a pension for more than 15 years, etc etc my understanding is that Germany would still consider the 17(3) test to be failed, and therefore retain its taxing right, if the person has taken a 25% tax-free (from the UK's perspective) lump sum. This is because the UK exempts that 25% from tax, meaning the pension as a whole is not "effectively taxed", i.e. not subject to tax. Since asking that question a tax adviser in Germany has suggested that Germany's view may differ depending on the nature of the pension arrangement, e.g. a lump sum from, say, a DB pension may mean the test is failed (or the overriding "effectively taxed" clause in Article 23(1) for a government service pension lump sum) because the pension is viewed as a single thing, whereas a lump sum taken from a SIPP would be tested independently from the remaining 75%. It would be interesting know how HMRC views the "effectively taxed" clause in Article 17(3) (and in Article 23(1)) when a tax-free lump sum has been taken from a pension. Does HMRC consider the pension as a whole is/is not effectively taxed, despite exempting 25% from tax, or does HMRC consider the 25% and the remaining 75% are tested separately, so the 25% would fail the test but the 75% would pass it?

But would it not be the case that the Executor would then provide the beneficiary of the interest with a form R185 to indicate that tax had been suffered on that element of their inheritance and that the tax suffered can be deducted from any tax due for that year, or reaid accordingly?

I am struggling to see the problem. The SRS sets a tax rate of 0% on up to £5,000 of savings income above your personal allowance, so if you have transferred £1,260 of you personal allowance then you have £11,310 left. If your non-savings income is less than, or equal to, £11,310, then you can receive £5,000 of savings income without paying any tax on it, plus, of course, your personal savings allowance of £1,000. The recipient of the transfer does not get an increased personal allowance but gets a tax reduction of £252 against their overall tax burden (£1,260 @ 20%). Their personal allowance remains at £12,570 and the SRS still provides 0% tax on up to £5,000 of savings income, plus of course their PSA of £1,000 too. If their total income exceeds these amounts, such that tax would be payable, then the £252 is deducted from that final tax liability. The maths works out just fine.

Alan Wilkinson, Surely, if you have dual citizenship, your Army pension is taxable only in Germany, so unless you have other income arising in the UK that is not taxable in Germany, why are you required to obtain the certificate?

JohnMunich, My understanding is that if you have made contributions for less than 15 years, Article 17(3) does not come into play to override Article 17(1). This means the full amount of your pension will be taxable only in Germany - both the 25% lump sum and the regular pension from the remaining 75%. Germany does not recognise the concept of a tax-free pension lump sum, so you simply receive a large taxable amount in one year (the lump sum) and small regular payments falling into the tax years in which they are paid...

This is not an HMRC question and I am not sure that you have quite finished the "hard work" you mention. RiA is the German tax office and, unsurprisingly, deals only with tax, not claims for state pensions - that is dealt with by the Deutsche Rentenversicherung (DRV) Bund in Berlin, BUT if you are UK resident you claim that pension via DWP International Pension Centre in the UK. They send you a form CFN901, which, once returned, enables them to pass your claim and UK NI record to Germany. If you have at least 35 years of UK and German social security records, then you can claim your German pension at 63, albeit reduced by 0.3% for each month it is taken before normal pension age. All a question of maths... You might also find that your German pension will be higher than you think because of how their pension system interacts with the EU regulations on pensions but that depends on your work/non-work history and is for DRV to explain. I fear also, that you have misconstrued the German tax rules. The starting point is that you are subject to limited liability taxation as a non-resident. This means that 100% of your income arising in Germany is taxed without recourse to any allowances or reliefs, other than a Werbungskostenpauschal für Rentner of 102€, i.e. the Grundfreibetrag is irrelevant as you do not qualify to get it. The 102€ will be deducted automatically from the taxable element of your pension when your tax assessment is issued each year. Deferring your UK pension is, in my view, generally not a good idea as you forego 100% for the deferral period in return for 1% more pension per 9 weeks of deferral going forward. Again, a question of maths but payback is the best part of 17 years... As far as German tax is concerned, there is a special rule which says that if at least 90% of your income is German-source, OR your income that is not subject to German taxation is less than the Grundfreibetrag, then you can elect to be treated as if you were tax resident in Germany (a tax fiction) and thus gain access to all allowances and reliefs. However, this is an annual election based on your income in each German tax year, which is of course January to December, not April to April. Also, all of your UK income would then feed into the rate at which you pay tax on your German-source income, even though it would not be taxed, and it uses up the Grundfreibetrag in the process, so any tax saving can be tiny. You only need to prove your UK income if you are making this election because it is otherwise of no interest whatsoever to the German tax authority. So, whatever it is you think you may gain by deferring your UK pension to somehow gain an advantage looks to me like a complicated and potentially fruitless nightmare. Subject to the aforementioned election, Germany has no interest in your UK income and simply takes the taxable element of your pension, deducts 102€ and sticks the balance into their tax calculator. There are plenty of German tax websites that give you tax calculators but as a non-resident, you have to add the Grundfreibetrag to the taxable part of your pension for them to work - the same goes for the official tax office calculator on their website. This is because the German tax tables assume you have access to the Grundfreibetrag, even if you don't. I would respectfully suggest you have another read of the RiA website (the German version is more comprehensive but the English version gets better every year) to understand the tax issues you will be facing. I would also suggest having a chat with the International Pension Centre to move you forward in terms of the hard work... As to your bonus question, the answer is "it depends". A Euro account is good if you want to spend some of the money in Euros, or want to manage when you convert it to pounds but neither has a bearing on your tax.

You should of course check this with a German tax adviser but my understand is that where Article 17(3) does not apply to override Article 17(1), i.e. you have not paid into the pension for at least 15 years, etc etc, the full pension amount is taxable in only Germany by virtue of Article 17(1) and reportable on Anlage R-AUS to your German Tax Return - Germany does not recognise the concept of a tax-free pension lump sum, irrespective of how the UK may choose to tax pensions. If Article 17(3) would apply because you have paid into the pension for more than 15 years, etc etc my understanding is that Germany would still consider that test to be failed, and therefore retain its taxing right,s if you have taken a 25% lump sum. This is because the UK exempts that 25% from tax, meaning the pension as a whole is not "effectively taxed", i.e. not subject to tax. It would be interesting know if the UK considers that the Article 17(3) conditions would not be met in those circumstances, meaning the UK has to give relief on the full pension, or whether the UK position is that the lump sum and the remaining 75% are treated separately for treaty purposes - this is a hot topic on some forums I read and the view of German tax advisers is that Germany would consider that Article 17(3) does not apply in those circumstances to override Article 17(1), i.e. the pension must be viewed as a whole and is part is exempted from tax by the UK then the effectively taxed test is failed.