UK ISAs and SIPPs - Tax implications in Germany

[9000]

thanks indeed the amount would be under those allowances. I am inclined not to submit returns.

The effort required to compile the information would also be quite onerous as the statements are only available on paper and go back quite a few years.

[NickSachsen]

Hi PandaMunich and everyone,

I'm in a similar situation to Seu.

I have two UK stocks-and-shares ISAs. When I came to Germany 8 years ago it did not occur to me that these were not also tax-free in Germany (naïve I know). So now I'm trying to find out how to sort it out, get legal and pay whatever I need to pay.
During the 8 years in Germany I have withdrawn money a few times.

Would you suggest that most Steuerberater in Germany would be able to help me, or only ones familiar with foreigners' finances?

Many thanks, Nick

[PandaMunich]

I have two UK stocks-and-shares ISAs. When I came to Germany 8 years ago it did not occur to me that these were not also tax-free in Germany (naïve I know). So now I'm trying to find out how to sort it out, get legal and pay whatever I need to pay.
During the 8 years in Germany I have withdrawn money a few times.

Would you suggest that most Steuerberater in Germany would be able to help me, or only ones familiar with foreigners' finances?

The latter.
For example, you could ask Stefanie Neshyba-Kaiser: https://steuerberatung-neshyba.de/

[NickSachsen]

Thank you, I will contact her.

May I ask a few more questions?
1. How are the withdrawals taxed?

2. If I keep the UK ISAs until I leave Germany, will they be taxed at the time of leaving for the profit that has accumulated during my time in Germany?
Or will Germany just keep the Vorabpauschalen that I've paid?

3. As this goes back 8 years, am I going to pay really big late payment penalties?

Best wishes,
Nick

[PandaMunich]

1. How are the withdrawals taxed?

It isn't withdrawals that you have to tax in Germany with a UK ISA, like they do for real retirement plans, but the income generated within the ISA all along.
--> you have to tax the capital income (which includes the "fictive profit" = Vorabapauschale) within that ISA every year.

2. If I keep the UK ISAs until I leave Germany, will they be taxed at the time of leaving for the profit that has accumulated during my time in Germany?

No, not unless you own more than 500,000€ worth of just one investment fund, please see here for details: https://willipedia-plattes-net.translat ... r_pto=wapp

Or will Germany just keep the Vorabpauschalen that I've paid?

Yes.

3. As this goes back 8 years, am I going to pay really big late payment penalties?

If your total capital income each year was under the Sparer-Pauschbetrag (= tax-free allowance for capital income, which was 801€ per person until 2022, 1,000€ from 2023. If you have a spouse, it's double that, you get to use your spouse's unused part of their Sparer-Pauschbetrag) then you did not commit tax evasion.

If you did commit tax evasion, you need to do a Selbstanzeige and then all you have to pay is the tax of 26.375% (= 25% Abgeltungsteuer, i.e. income tax + 1.375% = 25%*5.5% Solidaritätszuschlag) of the amounts above the Sparer-Pauschbetrag, plus 1.8% per year late interest on this extra income tax amount

[NickSachsen]

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.

Thank you @PandaMunich.

Just so I understand this...

1. When I sell the fund, I calculate the profit I've made, deduct all the Vorabpauschalen that I have paid each year, then pay tax on the remaining profit (if any)?
2. And the profit is simply the increase in value? = (value of fund at selling) - (value of fund on the day I moved to Germany)?
3. What about a withdrawal that I've taken? Is there no tax paid on it? Or is it treated as selling part of the fund, so that the calculation in (1.) must be done on the part of the fund that is sold?

Thanks again Panda, your answers are SO helpful!

[PandaMunich]

1. Yes.
2. No, your profit is the difference between the value when you sell it and the value when you bought it, not the value on the day you moved to Germany.
3. Withdrawals are irrelevant.
   But I assume that in order to be able to withdraw, you will have sold a fund first, to actually have cash to wirhdraw.
   The only things that matter tax-wise are:
   • interest income,
   • dividends from the funds/stocks,
   • owning funds on the 31st of December, which will lead to having to tax the "fictive profit" called Vorabpauschale if the fund grew in value and
   • your profit from selling the funds/stocks.

[SpaceOne]

So, finanzamt in 8 years wasn’t able to find out that capital gains where not reported in tax income?

And they were scaring us since 2017 how they share all information between countries and have some common system in place where all this info is being available.

[PandaMunich]

So, finanzamt in 8 years wasn’t able to find out that capital gains where not reported in tax income?

And they were scaring us since 2017 how they share all information between countries and have some common system in place where all this info is being available.

They have, the information just takes ages to filter down from the Bundeszentralamt für Steuern which receives it from these over 100 countries, to your specific Finanzamt: https://www.oecd.org/tax/automatic-exch ... tories.pdf

Please read here: https://expertise.tax/en/faq-german-tax ... /#resident

• Now, over 100 countries (see list of countries) and the USA (under the bilateral treaty between Germany and the USA on FATCA) automatically send information to Germany about the capital income that German residents earn in their countries:
  - interest
  - dividends
  - income from the sale of shares/mutual funds/…
  - income from insurance contracts
  - the balance of the account/shares portfolio/insurance contract on 31. December of each year

I've seen a Finanzamt letter about UK rental income and capital income that had been earned 5 years earlier.