CGT/ Double tax treaty with Germany

[della]

I need some advise, my tax advisor is completely confusing me and giving me inconsistent advise.
We are currently working in Germany for 2.5 years now and have another 2.5 years to go. We moved out of our property in the UK and started to rent it out. We have had some trouble with tenants and letting company that as the second lot of tenants are moving out we decided to sell it.

We have been told that we can consider that we receive relief according to allowable period of absence for private residence relief in the UK. Therefore, our tax advisors in Germany have decided that Germany are eligible to claim CGT on the profit. Although they can only claim if the gain is not taxable in the UK.

Is getting tax relief the same as 'not taxable' or 'subject to tax'?? does anyone have any experience of this? We have already put our house on the market as our tax advisors took so long to get backto us that we decided to get on and start marketing it on the strength or our relief in the UK.

[Tax Accountant]

I need some advise, my tax advisor is completely confusing me and giving me inconsistent advise.
We are currently working in Germany for 2.5 years now and have another 2.5 years to go. We moved out of our property in the UK and started to rent it out. We have had some trouble with tenants and letting company that as the second lot of tenants are moving out we decided to sell it.

We have been told that we can consider that we receive relief according to allowable period of absence for private residence relief in the UK. Therefore, our tax advisors in Germany have decided that Germany are eligible to claim CGT on the profit. Although they can only claim if the gain is not taxable in the UK.

Is getting tax relief the same as 'not taxable' or 'subject to tax'?? does anyone have any experience of this? We have already put our house on the market as our tax advisors took so long to get backto us that we decided to get on and start marketing it on the strength or our relief in the UK.

You may be liable to tax in Germany on your gain according to their law.

UK will also calculate your tax on the gains according to the UK law. However, UK will only charge you Capital Gains Tax which is in excess of any tax you have already been charged by Germany.

It appears that there is no UK tax due on the gains because it was your only or main residence and all the gains is covered by PPR relief. If so, there is no UK tax to pay.

However, you are still responsible for the tax on the gains to the German tax authorities according to their law.

Ramnik

[della]

Thanks
but we are clear about the situation in Germany, the difficulty is the double tax treaty between UK and germany and what that means to our situation.

Regards

[Tax Accountant]

Thanks
but we are clear about the situation in Germany, the difficulty is the double tax treaty between UK and germany and what that means to our situation.

Regards

I think I have already answered your question in my reply above which stated:

''It appears that there is no UK tax due on the gains because it was your only or main residence and all the gains is covered by PPR relief. If so, there is no UK tax to pay.''

If there is no UK tax due, there is no relief to claim under the double tax treaty. Relief under the treaty can at best only cover any UK tax charge; it cannot reduce or refund any tax charged by other countries.

Ramnik

[Tristan]

Della

I've not had lots of experience with double tax treaties, but I believe the position is that they only really come into play if you are considered resident in both jurisdictions. The treaty then decides which country taxes you.

If you've been out of the UK for 2.5 years and intend to be out longer you will be treated as not-resident in the UK for tax purposes. Therefore you are not liable to UK CGT on any gain you realise on the sale of any assets, even a UK property.

If you are treated as resident in Germany under their domestic law, then they likely tax you on worldwide gains, so the sale of a UK property could give rise to german tax. I'm don't know whether the Germans have an equivalent to the PPR rules we have in the UK which might reduce your gain.

The treaty would come into play if you lived between the two countries, and were treated as resident in both. I.e. both countries would look to tax you initially, but the treaty would state who had the right - probably the UK since the property is located here.

I said above that you are not liable to UK CGT on assets sold whilst non-resident. This is only true if your period of absence from the UK last at least 5 complete tax years. If you are going to return within the 5 tax-year period, the gain may come back into charge in the year of return.

If it does you would need to consider whether you are entitled to claim PPR on the gain that reappears (I'm not certain on the interaction between the temporary non-residents rules and the PPR rules). Assuming you are, then the PPR rules would reduce your capital gain probably to nil. If any gain remains chargeable, you can claim relief for the German tax you've paid.

You used to be able to argue that you'd paid tax overseas so the gain couldn't come back into charge if you returned to the UK within the 5 tax years, but this was closed down last year.

As I said, not an expert on treaties, but hope this helps. The main message is what Ramnik has already told you - there shouldn't be any tax in the UK, but there may be in Germany.

Tristan

[jonblair123]

Under double taxation regime, what happens in effect is that you end up paying the higher of the tax. You calculate the tax due in each jurisdiction. You will end up paying the highest amount calculated. It does not matter who you pay. Each jurisdiction will allow you a reduction in their tax bill for what you have paid the other jurisdiction. The result is the higher taxing authority will get their share. Avoid if you can, the sale of your property for the next 2.5 years! Alternatively, cut short your trip to Germany, return to UK. Work out how much you will pay them if sale goes thru, how many months work that is gonna go down the drain, see if it is worth your while.Alternatively, if you can do so, see if you can go to Belgium to work there when the house is sold.

Dont know if I have explained it very well, but I have worked in Germany. Their tax system is a nightmare in addition to being expensive.

[jenniferedwards]

You defiantly pay higher while following the Germany taxation system, and you r rite its really a nightmare

[Telometer]

If you were defiant, would you really pay?

[TaxationPete]

You do not state how long you owned the UK property. Under German tax regulations there is no CGT on property if owned for more than 10 years. Also the double taxation arrangement override German regulations and PPR, I believe, will be honoured. Regards Peter