UK Inheritance and the German Finanzamt

[GaryC]

you do not have to use the Scheme unless you’re told to do so by HMRC.

This is the key point!

Sorry but you need to read the whole sentence/paragraph, not just cherry-pick a few words that you think support your case. And if you think the text is ambiguous, it would be incumbent on you to acquaint yourself with the relevant statutory provisions because, from a UK tax law and tax penalty perspective, if you ended up failing to notify HMRC of your source of income, and/or failed to properly return and self-assess your tax liability arising from that source, claiming "ignorance of the law" is not a valid excuse.

The paragraph you have lifted those words from is aimed at tenants in cases where you, as landlord, do not employ an agent to manage the property for you. The paragraph reads:

"If the landlord does not have letting agent, you will need to operate the NRLS. If you’re a tenant who pays rent of £100 a week or less, you do not have to use the Scheme unless you’re told to do so by HMRC"


So, unless your tenant pays less than £400 per month rent, they must operate the scheme and withhold tax at 20% from the rent they are paying you. They must then account for that tax to HMRC.

If they are not required to operate the scheme, you still remain liable to self-assess your UK income, albeit having been received gross, rather than being received net of basic rate tax, which would be given as a credit in your tax calculation. In all circumstances, you remain liable to return the UK rental income, calculated in line with German tax law, for the purposes of setting the rate at which you pay tax on your income that is taxable in Germany.

[Escafusa]

unless your tenant pays less than £400 per month rent, they must operate the scheme

Understood. They each pay more than £400 pcm naturally. But given that neither we nor our tenants have even heard of the scheme and the current arrangement suits us just fine and has served us well over the last couple of decades or so, I'll think we'll take our chances.

[GaryC]

Up to you but as I said, "ignorance of the law is not a valid excuse" and has been upheld in judicial dicta across many, many, tax cases that have landed in the courts.

[PandaMunich]

The more we look at gift/inheritance taxes in the UK and Germany the more these sorts of complications come out of the woodwork. Add to that, the fact that Inheritance Tax is not actually covered by the UK/Germany DTA, so one has to fall back on domestic law or Unilateral Relief, of is there provision in the treaty that comes to ones assistance when gift/inheritance tax is involved?

I just found this HMRC page, which is interesting in this context https://www.gov.uk/guidance/inheritance ... ion-relief

Like the UK, Germany only has DTAs on inheritance tax with very few countries, only with 6 countries (please scroll to end of that section): https://expertise.tax/en/faq-german-tax ... tance_gift

Yes, for lack of a DTA on gift/inheritance tax, we have to fall back to national tax credit rules.
Which in German inheritance tax law would be § 21 ErbStG: https://dejure-org.translate.goog/geset ... r_pto=wapp

§ 21 ErbStG has its own pitfalls, since it only covers "Auslandsvermögen".
And a bank account of a German resident in a non-German bank is not Auslandsvermögen, see this Haufe commentary on the ErbStG (by the way, the UK is also mentioned in there, at the end): https://www.haufe.de/recht/deutsches-an ... 56988.html

So if a German resident who has a bank account in a Spanish bank dies, if the heirs are unlucky, that Spanish bank is in a region of Spain that also charges inheritance tax on non-residents' bank accounts and the heir will end up paying inheritance tax on the money in that account to both Germany and Spain, with Germany not giving a tax credit for the Spanish inheritance tax that had been paid, i.e. that heir will be double taxed:

• https://erbschaftspanien-com.translate. ... r_pto=wapp

• https://www-erbrecht--spanien-de.transl ... r_pto=wapp

This is why a Steuerberater gets very nervous when a client who is already of an advanced age keeps money in an account outside Germany.
It may even be that the client doesn't realise his money is actually in Spain, there are German portals which operate completely in German, where people can get easy-access accounts (Tagesgeld) or fixed deposits (Festgeld) at higher interest rates - but these offers are mainly from non-German banks, amongst them Spanish banks.
For example, WeltSparen is such a portal: https://www.weltsparen.de/

And depending on the inheritance tax rules in that country, keeping money in a bank account there can lead to double taxation with inheritance tax.

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But you brought CGT (capital gains tax) into play.
That is income tax, so it will be covered by the DTA between Germany and the UK on income tax.

[alma.freya]

Up to you but as I said, "ignorance of the law is not a valid excuse" and has been upheld in judicial dicta across many, many, tax cases that have landed in the courts.

What if they make a face at the judge during their defense?

[Escafusa]

just don’t want to make the tax return next year more complicated than it needs to be and I don’t want a fine or to create any reason for the Finanzamt to delve deeper into the situation.

Then don't declare it all. At this stage it is the only way to avoid massive hassle and headaches all round, as you can see from the amount of rules and regulations surrounding this.

What if they make a face at the judge during their defense?

For that to happen there has to be a case. It is very unlikely that there would ever be one.

[LeonG]

Finanzamt just told me to stop filing taxes. Is it a get out of jail free card?

Screenshot 2024-03-23 104632.png (319.75 KiB) Viewed 721 times

[Escafusa]

Finanzamt just told me to stop filing taxes.

I know of at least 5 people who have been here for a very long time and have never filed one, since the Finanzamt has never told them to start filing! One has been here since the late 1980s and another couple since the early 2000s.