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UK resident with German rent income queries UK tax

Difference between UK and German allowable property expenses turns loss in Germany into UK profit

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I took on a new client in time to file his 2019-20 tax return. He’s German but UK resident for many years. He bought a rental property in Germany during 2019-20, and via an accountant there filed a German tax return. He gave me all the necessary information on the property and I duly completed the foreign pages of his UK return using normal UK property accounting rules. Because of the difference in allowable expenses between Germany and the UK, his small loss in Germany became a taxable profit in the UK. Specifically, capital costs and depreciation are allowable against income in Germany. As a result, the double tax treaty between the two countries is effectively meaningless because there is no German tax to offset against UK tax. Going forward, his profits in the UK will always be greater than in Germany.

He is now querying this just out of curiosity, not in any critical way. He spoke to his German accountant who told him the income did not need to be reported or taxed in the UK.

My view, having read the relevant treaty, is that while it’s clear that the income has to be reported in Germany, under UK tax rules because of his residency here, it also has to be reported here and taxed accordingly.

Am I wrong or missing something?

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By sarahg
29th Sep 2021 10:46

You're not wrong unless he is claiming the remittance basis

And yes, I often have issues with the differences in the rules and clients not understanding why

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Replying to sarahg:
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By coleprice
29th Sep 2021 10:53

Many thanks, Sarahg. Remittance basis not relevant here. I began to wonder if it was time to hang up the calculator.

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