UK-Germany tax treaty: owning property in Germany

What the treaty is and which version applies

The convention was signed on 30 March 2010 and entered into force on 30 December 2010. GOV.UK states that it took effect in Germany from 1 January 2011 and in the UK from 6 April 2011 for income tax and capital gains tax. Two protocols have amended it: one signed on 17 March 2014 (in force 29 December 2015) and one signed on 12 January 2021 (in force 17 December 2021). HM Revenue and Customs publishes a consolidated text as amended by both, last updated on 8 September 2022. The articles discussed here are read from that consolidated text; check the GOV.UK page for anything published later.

The taxes covered (Article 2) are, for the UK, income tax, corporation tax and capital gains tax, and for Germany, income tax (Einkommensteuer), corporation tax, trade tax and the capital tax, including surcharges. The convention applies to a person who is a resident of one or both states (Article 1). The transfer tax and the annual property tax (Grundsteuer) are not in that list.

Who counts as resident

Article 4 defines a resident as a person liable to tax in a state by reason of domicile, residence, place of management or a similar criterion. When an individual is resident in both countries, the tie-breaker applies in this order: the state where he or she has a permanent home; if homes in both, the state of closer personal and economic ties (centre of vital interests); then habitual abode; then nationality; and finally the two tax authorities agree.

Germany’s own test comes first. Under § 1 EStG a person with a Wohnsitz or habitual abode in Germany is fully liable. A Wohnsitz exists where a person has a dwelling in circumstances that suggest it will be kept and used (§ 8 AO); habitual abode is assumed from the start for a continuous stay of more than six months (§ 9 AO), unless the stay is purely for a visit, recreation or a cure and lasts no more than a year. A home that you keep available in Germany may therefore create a German residence on its own, and the treaty tie-breaker then decides which state is the home state. Take advice before you assume you are a UK-only resident.

Rent from a German property

Article 6(1) says income that a resident of one state derives from immovable property in the other may be taxed in that other state, and Article 6(3) extends this to income from direct use, letting or any other use. For a UK resident who lets a flat in Germany, Germany is therefore entitled to tax the rent.

The German domestic rule that applies the treaty is § 49 EStG: income from letting and leasing counts as German income of a non-resident when the property lies in Germany. How the German tax is calculated and filed is a matter for the German tax office; see the guide on renting out as a non-resident in Germany.

Selling the property

Article 13(1) says gains from the sale of immovable property in the other state may be taxed there. Article 13(2) goes further for shares or similar interests in a company or other body that derive more than 50 per cent of their value, directly or indirectly, from property in the other state: those gains may be taxed there too, unless the shares are actively and regularly traded on a stock exchange. Gains from other assets are taxed only in the seller’s state of residence (Article 13(5)).

The German side: § 49 EStG brings private sales of German land into the German tax net for non-residents, and § 23 EStG treats a sale as taxable if no more than ten years separate purchase and sale. A property used exclusively for your own residential purposes between purchase and sale, or in the year of sale and the two years before, is excluded. The guides on the ten-year rule and on selling as a non-resident go through it. A home you let in that period does not meet the condition of exclusive own residential use.

How the UK removes double taxation

Under Article 23(2), the German tax payable in accordance with the convention on income or chargeable gains from German sources is allowed as a credit against UK tax computed by reference to the same income or gains. The article makes the credit subject to the UK’s own law on foreign tax credit, so its limits and the forms to claim it are UK matters that this guide does not describe. Article 23(3) deems such income and gains to arise from sources in Germany. How and when to claim the credit is a question for HMRC or a cross-border adviser.

If you instead become resident in Germany, Article 23(1) works in the other direction: Germany exempts or credits income taxed in the UK, and keeps the right to take exempt income into account when setting the rate on the rest.

Non-discrimination

Article 25(1) forbids either state from imposing on nationals of the other state any taxation or related requirement that is other or more burdensome than that imposed on its own nationals in the same circumstances. It is a protection against nationality-based rules, not a promise of the same treatment as a resident.

Which professional to consult

A tax adviser (Steuerberater) in Germany files the German return, and a UK adviser familiar with foreign tax credit relief handles the UK side. A notary (see the notary profession page) drafts the purchase or sale contract but does not advise on your income tax. Payotte states published rules and does not give personal tax advice.