Top of the list should be whether or not your finances are in order. Germany has a sophisticated tax system which is similar in many ways to other western countries. As a resident of Germany tax is liable on your worldwide income however with the right planning and use of tax efficient Financial Products, the amount payable to your local tax office can be minimised.
Utilising German tax compliant solutions will mean that much of your savings and wealth can be protected and legitimately structured to pay the least amount of tax possible.
Things to consider are:
For residents of Germany, German Succession law applies to your worldwide assets and unlike UK inheritance tax, it also applies when assets are passed to your spouse. This also applies to lifetime gifts. In addition the use of trust structures does not work given that Germany is a civil law jurisdiction that does not recognise the use of trusts.
Many expats moving to Germany often hold PEP's, ISA’s, Premium Bonds etc. However whilst these are excellent products for a resident of the UK, they are not recognised under German Law and therefore are not a tax efficient savings or investment solution. They are likely to be taxed as funds and hence liable to yearly taxation on interest, dividends and realised gains at the rate of 25% Abgeltungssteuer plus 5.5% solidarity tax and church tax (Kirchensteuer) where applicable. In contrast German compliant solutions are available through well-known International organisations that will save tax, and should you require, mirror your existing investment selection, plus offering high degrees of security.
In addition if you are holding an offshore bank account in an offshore centre such as the Isle of Man or Jersey, a tax charge of up to 39% could apply on the interest received under the account.
For returning Germans holding “offshore” investment plans, it is strongly recommended that tax advice should also be taken as severe tax penalties could apply when becoming German tax resident again. Depending on the interpretation of the local tax office, offshore investment plans will likely be taxed on a "see through" basis, hence taxation will apply on the underlying choice of funds. If a fund is not tax transparent from a German tax perspective further tax penalties may be payable.
For many their pension is the largest asset after their home, therefore careful thought should be given to ensuring the tax efficiency and safety of your pension fund. . What's more pension income can be taxed in the UK even if you are resident in Germany. This may mean paying tax at a higher rate in the UK than you would in Germany.
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