UK Pension Transfers for British Expats in Germany and German Expats Returning from the UK
QROPS Germany: If you have worked in the UK, you can transfer a UK final salary pension or personal pension to a Recognised Overseas Pension Scheme in Malta or New Zealand to minimise taxation and minimise effects of currency fluctuations.
UK pension transfers to Germany are not always possible for British expats and German expats who have worked in the UK returning home, however you can still avoid UK taxes through a transfer to a QROPS in Malta or New Zealand, both of which have a Double Taxation Agreement with Germany.
“The resultant pension would grow tax-free and would only attract tax in Germany at retirement when taking income or benefits from the QROPS.”
British expats living in Germany or wishing to retire in Germany can now transfer their pension into a QROPS in Malta to maximize pension tax relief. British expats living in Germany can take advantage of their offshore status and transfer their UK pension offshore to somewhere secure like Malta or New Zealand which both have a Double Taxation Agreement with Germany and means your UK pension will be transferred out of the UK tax net and you won’t be taxed in Malta if you are drawing income in Germany.
Transferring a UK Pension to a Malta ROPS for a Resident in Germany
German expats who have worked in the UK can also transfer their UK pensions to Malta to avoid UK taxes. Their pensions would be paid into Germany and taxed in Germany with no UK or Maltese taxation deducted.
Any pension transfers to Malta avoid the 45% tax upon death after 75 years of age in the UK and UK income taxes of up to 45%. The pension will grow tax-free in the QROPS in Malta. Any pension income remitted into Germany then gets taxed in Germany.
The taxation is covered under the Germany-Malta DTA under article 18 and article 21
PENSIONS, ANNUITIES AND SIMILAR PAYMENTS
1. Pensions and similar payments or annuities paid to a resident of a Contracting State from the
other Contracting State shall be taxable only in the first-mentioned State.
2. Notwithstanding the provisions of paragraph 1, payments received by an individual being a
resident of a Contracting State from the statutory social insurance of the other Contracting State
shall be taxable only in that other State.
3. Notwithstanding the provisions of paragraph 1, recurrent or non-recurrent payments made
by one of the Contracting States or a political subdivision thereof to a person resident in the other
Contracting State for damages sustained as a result of war or political persecution or of military or
civil service (including restitution payments) shall be taxable only in the first-mentioned State.
4. The term “annuities” means certain amounts payable periodically at stated times, for life or
for a specified or ascertainable period of time, under an obligation to make the payments in return
for adequate and full consideration in money or money’s worth.
5. Maintenance payments, including those for children, made by a resident of a Contracting
State to a resident of the other Contracting State shall be exempted from tax in that other State.
This shall not apply where such maintenance payments are deductible in the first-mentioned State in
computing the taxable income of the payer; tax allowances in mitigation of social burdens are not
deemed to be deductions for the purposes of this paragraph.
1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the
foregoing Articles of this Agreement shall be taxable only in that State.
The ROPS in Malta in this case comes under Article 21, which means your pension income is taxed in Germany.
Transferring a UK Pension to a NZ ROPS for a Resident in Germany
An NZ ROPS is an excellent inheritance tax solution as there is no maximum age as to when you want to draw benefits, so you could wrap all your investments up, let compound interest do its job and pass on the entire pension pot upon death to your heirs.
A NZ ROPS is a secure, safe pension which is made up of pooled investments based on your risk profile. These are large investment funds which invest in secure bonds and mutual funds.
You can take a 30% tax-free cash lump sum at 55 an the rest must provide an income for life.
Your ROPS will be held in GBP and invested in GBP.
100% gets passed on to your named beneficiaries upon death.
The NZ-German DTA dictates where your pension is taxed.
1.Subject to the provisions of paragraph 2 of Article 19, pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment shall be taxable only in that State.
2.Periodic or non-periodic social security pensions and other similar allowances received from a Contracting State, a “Land”, a political sub-division, a local authority or a governmental instrumentality thereof, shall be taxable only in that State.
3.Periodic or non-periodic payments received from the Federal Republic of Germany, or a “Land” or a governmental instrumentality thereof as compensation for an injury or damage sustained as a result of hostilities or past political persecution shall be taxable only in the Federal Republic of Germany.
In other words, your pension will be taxed in Germany at retirement on pension income, but it avoids tax on growth and tax on death as long as you remain tax resident outside the UK.
What Income Tax Would I Pay on My QROPS in Germany?
A HK ROPS attracts German income tax, but no HK or UK tax.
A NZ ROPS attracts German income tax, but no HK or UK tax.
Income taxes change from year to year, so you would need to check with a German tax attorney.
“If you are a British expat resident in Germany, you will owe tax on your worldwide income including your QROPS. Your pension will grow tax free, but you will pay German income tax at retirement.”
Personal Income Taxes in Germany on QROPS
The first 8,130 EUR (8,260 EUR if you are married) of income that is brought into the country is tax-free. Any higher amount is subject to income tax.
“Income tax is progressive, starting at 18.9% and rising incrementally to 45%.”
The top tax rate of 42% applies to taxable income above 52,882 EUR or 105,763 EUR if you are married. There is a 45% tax applicable for those with taxable income above 250,731 EUR or 501,462 EUR if you are married.
In addition to income tax, everyone has to pay solidarity tax, which is capped at 5.5% of your income tax.
|Tax||Single Income (EUR)||Tax||Married Income (EUR)|
|15%||7.665 – 52.153||15%||15.330 – 104.304|
|42%||52.154 – 250.000||42%||104.305 – 500.000|
How Does a Pension Transfer to a QROPS Work for a British Expat in Germany?
Can I transfer a UK pension transfer to Germany?
There are around 60 QROPS schemes in Germany. You can see a list of QROPS trustees who will accept UK pension transfers in Germany from HMRC’s website on page 28. Unfortunately, most of these are company schemes and not for individuals who wish to transfer their pensions overseas to Germany.
For individuals, the best option may be to transfer your pension to a QROPS in Malta, an EU country, which has a Double Taxation Agreement with Germany or to Hong Kong, as detailed above.. This will give your pension the freedom to invest in whichever currency you want and choose from the top investment fund managers in the world.
Malta and New Zealand have Double Taxation Agreements with Germany which means that your pension will be paid gross overseas free from UK taxes. Then you pay German income taxes if you draw benefits in Germany.
Germany is an EU member state. Malta is also an EU member state. Due to the Schengen agreement which allows freedom of movement of capital and labour, you can park your pension in Maltese QROPS whilst drawing it in Germany. It will grow tax free and it will be out of the UK tax net, so no inheritance tax (IHT) or 45% death tax on your pension after age 70. You also avoid UK income taxes of between 20% and 45%. The whole pot will be passed on as a 100% lump sum pay out upon your death to your spouse or named beneficiaries – you choose who gets your pension pot which you can divide up into whatever percentage you wish.
You can also opt to have your pension moved into EUR to avoid currency fluctuations. This will protect your pension from currency movements which can destroy your pension income if the currency moves the wrong way.
Why live or retire in Germany?
More than 130,000 Brits are estimated to live in Germany, the world’s fourth largest economy by nominal GDP and the fifth largest by purchasing power parity. It is the second largest exporter and third largest importer of goods. The country has developed a very high standard of living and a comprehensive system of social security. Germany has been the home of many influential scientists and inventors, and is known for its cultural and political history.
What are the Benefits of a Pension Transfer to a QROPS Germany
What are the benefits of a Pension Transfer to a QROPS for British expats in Germany?
What is a QROPS Germany?
A Qualifying Recognized Overseas Pension Scheme (QROPS Germany) allows your UK pension to be transferred offshore to reduce your tax burden. Once you have been offshore for 5 years, you can take the benefits paid out gross, free from UK taxes. You would then pay German income taxes on it if you were a British expat resident in Germany. If you are resident in another EU country at retirement, you would pay those relavant income taxes in retirement.
What are the Choices for a QROPS in Germany?
NZ QROPS generally are more restrictive when it comes to investments. Usually, a discretionary fund manager is appointed who pools members’ investments. Please see the video with the link to NZ QROPS.
Malta QROPS structures tend to allow open architecture investing which means a much broader range of investments are allowed by the pension trustees including using ETF’s, shares, mutual funds, bond funds, bank notes, etc.
What Happens to My QROPS if I return to retire in the UK from Germany?
You can keep your QROPS or you can move it back into a UK SIPP. In many instances, as you would have taken many benefits abroad already, there may be little or no inheritance tax to pay upon death if you decide to keep your pension in a QROPS / ROPS. It also would then avoid UK IHT of up to 40%.
Which QROPS jurisdiction should I transfer my pension to if I move to Germany?
You don’t need to transfer your pension to Germany. Often the best jurisdiction may be Malta depending on the size of your pension and depending on your future plans as far as accessing your pension pot. You need to contact QROPS Specialists in order to figure out the best location for your pension to maximize tax efficiency whilst minimizing QROPS fees.
QROPS Germany article written by QROPS Specialists.QROPS Germany | UK Pension Transfers to Germany by Richard Malpass