Q: Where to pay tax when letting in Germany?

[Lalunya]

Hi all,


I'm thinking of buying an apartment in Germany and rent it out. Where do I have to pay tax on the income from lettings?

FYI, I am a German citizen living and working in the UK. My annual gross salary is between £25,000 and £30,000. I am a first-time buyer. The total annual (gross) income from renting the property in Germany would be €6,000 or less - prior to deducting any mortgage payments or other expenses.

Any help or suggestions are much appreciated.


Thanks!

 

[germanagent]

Hello Lalunya,
if you receive rental income inside Germany, i.e. a German property, you have to declare the tax in Germany for that income (not for your overseas income on which you are not taxable if not resident here in Germany). If the rental income is that small, the tax will be probably next to nil for some time, as you can deduct interest AND depreciation which is usually 2 or 2.5% of the purchase cost minus land value which is not depreciable. Regards, Peter (german too...)

 

[Lalunya]

Hi Peter,

Thanks a lot for your help! One or two further questions:
You say that "the tax will be probably next to nil for some time, as you can deduct interest AND depreciation". I'm very new to all this so: deduct from what? If I'm not earning a salary in Germany, then what can I deduce it from?
Secondly, I heard that if Germany does not tax me at least 20% on my rental income, then England will tax me (the difference towards 20% in total),as that is the standard UK tax rate. Do you know anything about this?

I look forward to hearing your response!

Lieben Gruss,

Ania

 

[kap-C]

Hi Ania - the rental income that you earn in Germany will be subject to German income tax, currently 25%. Your income in the UK is not taken into account in this respect. You can deduct certain expenses from your taxable income, such as property management costs, repairs and - if you qualify - depreciation (you should have a German Steuerberater [tax consultant] handle this for you, at least in the beginning).

Because of double-taxation agreements between Germany and the UK, you will not be taxed on this income again in the UK. BUT - if the tax you would have to pay in the UK on this income would be higher than what you pay in Germany, you will have to pay the balance in the UK.

So let's say you're net rental income is 1000 Euro per year. This will be taxed at 25% in Germany, i.e. 250 Euro.

If your income tax rate in the UK was 40%, the payable tax would be 400 Euros (equivalent) in the UK. But, as mentioned above, your German rental income is not additionally taxed in the UK but only the balance. I.e. you will have an additional tax liability of 150 Euro (equivalent) in the UK.

Taxable income Germany: 1000 Euro
Tax Germany: 250 Euro
Balance Income Tax UK @ tax rate of 40%: 150 Euro (400 Euro minus 250 Euro tax paid in Germany)

If your tax in the UK was only 20%, there would be no tax liability in the UK, as the tax liability at 20% (200 Euro) would be less than your tax liability in Germany.

You may want to verify this with yout accountant in the UK.

 

[planner21]

I have an accountant in Berlin who helps me with all this. I submit any recipes in relation to the property, including any flights to Berlin to deduct from my (small) income and I pay hardly any tax.

 

[kap-C]

I have an accountant in Berlin who helps me with all this. I submit any recipes in relation to the property, including any flights to Berlin to deduct from my (small) income and I pay hardly any tax.

Yes, an accountant (Steuerberater) is very advisable. With just one apartment unit, your tax should be very low, if any. You are generally entitled to deduct two inspections trips per year to your property from the German rental income.

 

[planner21]

Two inspections trips per year? I didn't know this. Thanks for the info.