UK ISAs and SIPPs - Tax implications in Germany

[Seu]

Hi all, Happy New Year,

Can someone please help me understand the tax implications in Germany of the stocks and shares holdings in my ISA in the UK? I have a large pot of various index linked funds and investment trusts with Hargreaves Lansdown and AJ Bell I have made no new cash contributions within my ISAs since I left the UK for Germany in Nov 2020. I realise that leaving the ISA open in the UK leaves me exposed to £/EUR fluctuations and I have no intention of withdrawing the money in the near term, but I’m still a bit confused about the tax implications here in Germany. Do I have to declare my entire ISA holdings in my German tax return or the unrealised gains? Let's say 5 years ago I put £8,000 in my ISA, and in that time the index share price went up 25%, so I have £10,000 now. When I declare this on my German tax return, am I declaring the £10,000 or whatever the total sum is at the end of the tax year or the £2,000 of increase in value? Additionally, since 2023, I have earned interest on the cash balance held in my stocks and shares ISA (i.e. the amount not yet invested). I understand I should declare this as well, but is there anything else I may have missed?

Some more details about me:
- I came to Germany in Nov 2020 and have no plans of returning back to the UK, but I prefer not to liquidate my stocks and shares in the UK due to immediate capital gains tax implications. But is there a reason that people move everything over to Germany from the UK before retirement? Doing so means I would need to find German equivalents for my funds and also a suitable platform, which I don't know much about.
- I also have some pensions, i.e. SIPP pots, pension with my old employer. I am 45 years old and prefer not to withdraw before I’m 55.
- My husband is German citizen and we have a Lohnsteuerberater who is helping us file our joint taxes since last 2 years. The only income we have declared is from our employment and rental income from my property in the UK.

Sorry for the length and detail of this but I'm not sure who to ask about this. I realise I need to declare my ISA holdings to the Finanzamt and that I have missed doing so in the last couple of years. And that there could be a penalty for not declaring earlier. The only explanation I can give for this is: having a baby in Germany, stress of returning back to work, and severe health complications. But I am finally back to my old self and want to fix my affairs.

Thanks for taking the time to comment
Ps- I scrolled through some of the old comments in this forum but did not find any threads that really covered the above. Hence, posting here.

Thank you!
Sehar

[Auntie Helen]

I am absolutely no expert but I believe you cannot hold ISAs if you don't live in the UK so you probably should have closed them when you left the UK in 2020. Usually the small print on them says that you are a UK resident.

[Seu]

Hi Auntie Helen, you're allowed to leave your ISA open once you move abroad and stop being a UK resident. You just can't put new money in it. This is directly from the UK govt's website.

[PandaMunich]

Can someone please help me understand the tax implications in Germany of the stocks and shares holdings in my ISA in the UK? I have a large pot of various index linked funds and investment trusts with Hargreaves Lansdown and AJ Bell I have made no new cash contributions within my ISAs since I left the UK for Germany in Nov 2020. I realise that leaving the ISA open in the UK leaves me exposed to £/EUR fluctuations and I have no intention of withdrawing the money in the near term, but I’m still a bit confused about the tax implications here in Germany. Do I have to declare my entire ISA holdings in my German tax return or the unrealised gains? Let's say 5 years ago I put £8,000 in my ISA, and in that time the index share price went up 25%, so I have £10,000 now. When I declare this on my German tax return, am I declaring the £10,000 or whatever the total sum is at the end of the tax year or the £2,000 of increase in value? Additionally, since 2023, I have earned interest on the cash balance held in my stocks and shares ISA (i.e. the amount not yet invested). I understand I should declare this as well, but is there anything else I may have missed?

- I also have some pensions, i.e. SIPP pots, pension with my old employer. I am 45 years old and prefer not to withdraw before I’m 55.

Germany has clarified through the tax law changes effective 01.01.2025 that it considers foreign tax-relieved private pension investments the equivalent of German ones.
This means that they are considered intransparent, i.e. black boxes that will only be taxed when you get payouts from them, which will usually only happen once you reach pension age.

With such UK tax-relieved private pension investments, there is an addition wrinkle in that if, by the time you moved to Germany, you had already profited from more than 15 years of tax relief on the contributions into them in the UK, Germany only gets to tax any payouts that the UK chooses not to tax itself, namely the 25% lump sum paxout, which will happen come pension time.
For details, please read this: viewtopic.php?p=5236#p5236

Which means that you did everything right by not declaring them in your present German tax returns, since they will only need to be declared in your future German tax returns, when you will actually take money out of them.
They will have to be declared then, because either Germany will get to tax that payout directly, or even if the UK gets to tax it, because of the lesser evil of Progressionsvorbehalt, i.e. because the UK payout will raise your German income tax rate on your other income, just like your UK rental profit does so even now.

******************************************************************************************************************************

Please also read this regarding Germany's new interpretation of what constitutes a currency gain (not relevant for your UK SIPP and ISA, but relevant for your other UK accounts): viewtopic.php?p=3057#p3057

[GaryC]

While that new treatment would apply to a SIPP (Self-Invested Pension Plan), a Stocks and Shares ISA is just a UK tax-advantaged savings vehicle, not a pension vehicle.

As already mentioned, you are allowed to retain an ISA when you move abroad but cannot subscribe new money to it. Would that mean that the annual re-invested dividends and interest would be taxable in Germany (not that it would be easy, or even possible, to get that information for a S&S ISA...

[PandaMunich]

a Stocks and Shares ISA is just a UK tax-advantaged savings vehicle, not a pension vehicle.

The question is whether an ISA "fits" article 17 (3) of the double taxation agreement (DTA) between Germany and the UK: https://www.bundesfinanzministerium.de/ ... onFile&v=1

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Is the ISA payout a "similar remuneration", which is "in part attributable to contributions which, for more than 15 years in that State (UK) were tax-relieved in some other way"?
The main contributions were after-tax, but what about the interests/dividends by which that ISA grew over the years?
They were tax-free and after all, they will also form "part" of the payout.
--> I think we could subsume an ISA under article 17 (3) of the DTA, but only if these tax-advantages in the UK (growth in it was tax-free) were for more than 15 years.

And what about the Lifetime ISA?: https://www.unbiased.co.uk/discover/pen ... difference
You can only get at the money if you're over age 60, which sounds like a retirement investment to me.

[GaryC]

In my view ISAs have absolutely nothing to do with pensions and therefore do not fall within Article 17 at all. They are nothing more than a tax-advantaged savings account, funded out of taxed income of up to £20,000 per year. There is no tax relief in any shape or form for those contributions (subscriptions). Also, "growth" is not a "contribution", so cannot fall under the text "in part attributable to contributions which, for more than 15 years in that State (UK) were tax-relieved in some other way".

Interest on a cast ISA can be paid out or retained in the account in the same way as interest on a normal, taxable, savings account, and, in the same way, dividends from an investment portfolio or fund can be paid out, or accumulated, but are still dividends. And any gains on changing a share portfolio, or realising the investment, would just be exempt under the ISA rules, so in DTA terms, my view would be that one has to look at the Interest, Dividend and Capital Gains Articles as appropriate but not the Pensions Article.

I don't think the Lifetime ISA is any different, except the government pays a bonus. You can get money out to buy your first home, or at 60, but lose the bonus and incur a penalty if you take money earlier or for any other reason. That is perhaps a little closer to being arguably within Article 17(3) but I doubt the Competent Authorities in each country would agree.

[PandaMunich]

Ok, you have convinced me

Summary of new rules:

• all income in an ISA (individual savings account), no matter what kind of ISA, has to be declared every year as capital income in your German tax return. If the ISA contains investment funds, then even if there was no income in it, it still has to be declared since you have to tax a "fictive profit" (= Vorabpauschale) just because you owned investment funds on December 31st.

• if your contributions into a SIPP (self-invested personal pension) were tax-advantaged in the UK for 15 years or less, then you will not have to declare the ongoing income and "fictive income" every year, but you will have to tax the payouts in your German tax return.
  100% of the part of the payout that pertains to tax-relieved contributions will be taxed as "sonstige Einkünfte" with your own variable income tax rate of up to 42%.
  If a part of the payout pertains to contributions to the SIPP that were not tax-relieved, you will only have to tax the "growth" of that part of the payout in your German tax return, as "Einkünfte aus Kapitalvermögen" (= capital income, which gets taxed with a flat rate income tax rate of 25% or with your own personal, variable income tax rate if that should be under 25%. Though whether that advantageous tax treatment for capital income will still be in place when you retire is anybody's guess)
  sorry, the following was still the "old" rule, i.e. what was valid up to 31.12.2024: then the income in the SIPP and the "fictive profit" (Vorabpauschale) of all investment funds in the SIPP have to be declared every year as capital income in your German tax return.

• if your contributions into a SIPP (self-invested personal pension) were tax-advantaged in the UK more than 15 years, then you will not have to declare the ongoing income and "fictive income" every year, but you will have to tax the payouts in your UK tax return and at the same time declare them in your German tax return, where they will not be taxed again but will drive up your German income tax rate on your other income, this is called Progressionsvorbehalt. Progressionsvorbehalt is laid down by article 23 (1) d) of the double taxation agreement between Germany and the UK: https://www.bundesfinanzministerium.de/ ... onFile&v=1

  

  2025-01-04 20_19_46-Bundesgesetzblatt Teil 2 Nr. 33.jpg (18.56 KiB) Viewed 2277 times

[GaryC]

Great summary for those who retain ISAs or SIPPs in the UK. I do worry though, that it will be challenging to get the Fictive Profit for ISA S&S funds

[PandaMunich]

I do worry though, that it will be challenging to get the Fictive Profit for ISA S&S funds

It's inconvenient, but doable.
There is always a calculation scheme in the tax form itself, i.e. in Anlage KAP-INV: https://www.steuertipps.de/finanzamt-fo ... lvermoegen

You have to remember that the "fictive profit" (Vorabpauschale) for that year only accrues on January 2nd of the following year.
So the following screenshot is the calculation of the Vorabpauschale 2018, which was done in Anlage KAP-INV 2019.

2025-01-04 21_16_07-2 - long, grey version - ESt 2019 - Adobe Acrobat Pro.jpg (158.45 KiB) Viewed 2268 times

For the years 2021 and 2022, the interest rate (Basiszins) which is a factor in the "fictive profit" calculation was negative, which means that the Vorabpauschale was automatically 0€.
Which is why there was no Vorabpauschale section in Anlage KAP-INV 2022 and Anlage KAP-INV 2023.

--> the next "fictive profit" calculation will be the Vorabpauschale 2023, which will happen in Anlage KAP-INV 2024.
For which you will need:

1. market price in € on 01.01.2023 (or whatever market date was nearest to it in 2023).
   
   To find out the ISIN (International Securities Identification Number, google the name of the investment fund with the word ISIN.
   Hargreaves Lansdown, for example, is a pain in that regard, they do not state it in their account statements.
   If there is more than one candidate, spot check the value of the fund you found by comparing values from the HL statements against the historical values of the fund you found.
   For UK funds, use the Financial Times website, it has a tab "Historical Prices", there, click on the funnel symbol to set the period you're interested in) and print the page to PDF as proof: https://markets.ft.com/data/funds/tears ... B71H80:GBP

   

   2025-01-04 21_53_52-Vanguard FTSE Developed Europe ex-U.K. Equity Index Fund GBP Acc, GB00B5B71H80_G.jpg (10 KiB) Viewed 2268 times

   To classify the fund according to § 2 InvStG as an "Aktienfonds" (invests more than 50% in stocks=Aktien) / "Mischfonds" (25% ≤ stocks ≤ 50%) / "sonstiger Investmentfonds" (stocks < 25%) / "Immobilienfonds" (invests more than 50% in German real estate) / "Ausländischer Immobilienfonds" (invests more than 50% in non-German real estate), use the tab "Summary" on the FT site and scroll down to the section "Asset type" and don't forget to print the page to PDF as proof (this one is an "Aktienfonds").

   

   2025-01-04 21_53_38-Vanguard FTSE Developed Europe ex-U.K. Equity Index Fund GBP Acc, GB00B5B71H80_G.jpg (15.41 KiB) Viewed 2268 times

   To convert US or Canadian CUSIP to ISIN, use this site: https://www.isindb.com/convert-cusip-to-isin/
   For US funds, use the YahooFinance "Historical Data" section and print the page to PDF as proof: https://finance.yahoo.com/quote/EIBIX/h ... equency=1d

   

   2025-01-04 21_54_52-Eaton Vance Income Fund of Boston I (EIBIX) Stock Historical Prices & Data - Yah.jpg (123.99 KiB) Viewed 2268 times

   Use the BusinessInsider site to classify the investment fund, scroll down to "Asset Allocation Top Instruments", and print the page to PDF.
   This one is a "sonstiger Investmentfonds": https://markets.businessinsider.com/fun ... 2779072006

   

   2025-01-04 21_54_30-EATON VANCE INCOME FUND OF BOSTON CLASS I _ Markets Insider.jpg (27 KiB) Viewed 2268 times

   To convert to €, use the historical 2023 daily ECB exchange rate that is nearest to 01.01.2023 (scroll down to bottom of page): https://www.ecb.europa.eu/stats/policy_ ... ex.en.html
2. market price in € on 31.12.2023 (or whatever market date was nearest to it in 2023).
3. total distributions that investment fund made in 2023, converted into €
   Just use the exchange rates that were valid in the calendar month of each distribution: https://www.bundesfinanzministerium.de/ ... kurse.html

This is what the "fictive profit" (Vorabpauschale) section will look like in Anlage KAP-INV 2024: https://www.steuertipps.de/downloads/ar ... v_2024.pdf

2025-01-04 21_51_23-aav_anlage_kap-inv_2024.pdf - Adobe Acrobat Pro.jpg (187.79 KiB) Viewed 2268 times

[GaryC]

WOW! Pleased I don't have to worry about that!

[Seu]

@PandaMunich THANK YOU so very much !!
Fully agree with GaryC ... thank you for a great summary that can hopefully benefit others as well.

I'm not sure I completely understand what Fictiv profit for my S&S ISA is (or how to calculate it) but I will share all the links and info with my Lohnsteuerberater. Hopefully he will just know what to do!

Best wishes,
Sehar

[Andy P]

It's no longer relevant to me personally, as I cashed in my UK SIPP last year - I owe a lot of thanks to PandaMunich for warning about the tax change.

But for my interest, and in case it helps others:

Is there an inconsistency between these statements?

Germany has clarified through the tax law changes effective 01.01.2025 that it considers foreign tax-relieved private pension investments the equivalent of German ones.
This means that they are considered intransparent, i.e. black boxes that will only be taxed when you get payouts from them, which will usually only happen once you reach pension age.

if your contributions into a SIPP (self-invested personal pension) were tax-advantaged in the UK for 15 years or less, then the income in the SIPP and the "fictive profit" (Vorabpauschale) of all investment funds in the SIPP have to be declared every year as capital income in your German tax return.

Or in the case of a SIPP, will you really be taxed on the capital income and then again on the payout? Double taxation?

[PandaMunich]

You're absolutely right, I still had the old tax treatment in there for SIPP that had been tax-relieved for up to 15 years.
Sorry.
Have now edited my above "Summary of the new rules" post accordingly.

[Andy P]

Thanks for clarifying this Panda.

Although it's not personally relevant, for my interest, and in case it's of use to others:

As a SIPP was taxed until 2024 as a normal investment fund (with tax each year on interest, dividends and realised gains, plus Vorabpauschale), and from 2025 as a pension, with benefits taxed in full as income, what happens to all the tax that has already been paid up to 2024?

Is it lost, or would it be credited against the tax on the benefits?

And a final point: I assume that anyone was has retained a SIPP into 2025 must complete their tax declaration for 2024 on the old basis.

[PandaMunich]

As a SIPP was taxed until 2024 as a normal investment fund (with tax each year on interest, dividends and realised gains, plus Vorabpauschale), and from 2025 as a pension, with benefits taxed in full as income, what happens to all the tax that has already been paid up to 2024?

Is it lost, or would it be credited against the tax on the benefits?

It's lost.

That's assuming you paid any tax, which only people did whose capital income exceeded the tax-free allowance for capital income (= Sparerpauschbetrag) which was 801€ per person until 2022, from 2023 it was 1,000€ per person.
A spouse gets to use the "un-used" part of their spouse, i.e. a married couple has a Sparerpauschbetrag of 2,000€.

And a final point: I assume that anyone was has retained a SIPP into 2025 must complete their tax declaration for 2024 on the old basis.

Well, you could argue that now the state has clarified their position on how they see foreign tax-relieved private pension vehicles, that this also applies for the past and simply not declare the SIPP in all open tax returns.

[Seu]

Hi @PandaMunich wrote:

Summary of new rules:
all income in an ISA (individual savings account), no matter what kind of ISA, has to be declared every year as capital income in your German tax return. If the ISA contains investment funds, then even if there was no income in it, it still has to be declared since you have to tax a "fictive profit" (= Vorabpauschale) just because you owned investment funds on December 31st.

What happens if the value of the funds falls? Can one ever get the Vorabpauschale back?
And are only year end values taken to calculate this "fictiv profit" (= Vorabpauschale)? .... which I finally understand as unrealised gains.

I can't believe this is being taxed in Germany! Given the amounts of transactions I've had in my ISA accounts (some of which are set on auto-invest), I think this will be a nightmare for me.

[PandaMunich]

What happens if the value of the funds falls?

If the value of a fund fell that year, the Vorabpauschale is 0€.

Can one ever get the Vorabpauschale back?

When you sell the fund, it gets deducted from the profit you make.
This is why it is called "Vorab", because through it you "prepay" the tax on the profit that you will (hopefully) make should you ever sell that fund.
However, in all other constellations, e.g. if you never sell the fund or move away from Germany before you do, no, you do not get back the Vorabpauschale.

And are only year end values taken to calculate this "fictiv profit" (= Vorabpauschale)?

No, the value at the beginning of the year.
But you only have to calculate the Vorabpauschale if you still owned that fund on 31. December.

The formula is laid down in § 18 InvStG: https://www.gesetze-im-internet.de/invs ... /__18.html
Basisertrag = basic yield = market price per share on 01. January * 70% * Basiszins of that year (in 2023: 2.55%. In 2024: 2.29%)
Mehrbetrag = increase in value per share that year, i.e. between 1. January and 31. December + distributions per share that year
--> choose the lower amount of the above two, i.e. Min(Basisertrag ; Mehrbetrag) and subtract the distributions per share.
Then deduct 1/12 for every full month in which you hadn't owned these fund shares that year (for example, if you bought the shares on 29. August, you deduct 1/7), the result is your Vorabpauschale.

This is the formula as a flow chart:

DWO-FI-Vorabpauschale-mku-Berechnungsweg-jpg.jpg (168.83 KiB) Viewed 1524 times

And these are some scenarios for an Aktienfonds for the Vorabpauschale 2023 which you will have to calculate in your Anlage KAP-INV 2024 (= in your 2024 income tax return):

DWO-FI-Vorabpauschale-mku-Teil1-jpg.jpg (164.21 KiB) Viewed 1524 times

DWO-FI-Vorabpauschale-mku-Teil2-jpg.jpg (150.48 KiB) Viewed 1524 times

I can't believe this is being taxed in Germany! Given the amounts of transactions I've had in my ISA accounts (some of which are set on auto-invest), I think this will be a nightmare for me.

Then you will have to calculate the Vorabpauschale for each "batch" of fund shares.
--> get rid of the ISA.

[9000]

Ok, you have convinced me

Summary of new rules:

• all income in an ISA (individual savings account), no matter what kind of ISA, has to be declared every year as capital income in your German tax return. If the ISA contains investment funds, then even if there was no income in it, it still has to be declared since you have to tax a "fictive profit" (= Vorabpauschale) just because you owned investment funds on December 31st.

Hi, interesting topic.

So do junior ISAs also need to reported in this way?

I have one child with an active jISA and another who closed their account in 2024.

Neither of them have submitted a tax return before in Germany.

[PandaMunich]

So do junior ISAs also need to reported in this way?
I have one child with an active jISA and another who closed their account in 2024.
Neither of them have submitted a tax return before in Germany.

Officially, yes.

But every person has a tax-free saver's allowance of 1,000€ per year (Sparer-Pauschbetrag).
Plus an additional personal allowance (Grundfreibetrag) of over 10k€: https://de.wikipedia.org/wiki/Grundfrei ... utschland)
--> a child will not exceed these levels, i.e. will not reach tax evasion levels.