Whereas, with foreign tax credits, the taxpayer can never be better off than had he been subject to tax in just one country, with Exemption with Progression, it is possible that the taxpayer can actually save tax overall. This will be the case if the tax rates effectively used up in Germany by the pension income are higher than those used up, actually, in the UK and this is often the case with these two countries. Many individuals will therefore use the Exemption with Progression system to their advantage by getting as much of their income subjected to tax in the UK and, as a result, being effectively disregarded in Germany. For a single taxpayer, the 47% tax rate in Germany starts at income in excess of EUR52,293, i.e., around GBP34,862. The 40% rate in the UK starts at a slightly higher level once personal allowances are taken into account. Therefore, any income above these amounts that was subjected to tax in the UK and 'exempted' in Germany would save tax at 7%. The same applies for lower amounts of income also as the 19.9% tax rate in Germany starts, for a single taxpayer, at income of over EUR12,755, i.e., a much lower level than the 22% rate in the UK.

If you were to manage to pressurise Germany into adopting the same system as most of the rest of the world, i.e., foreign tax credits instead of Exemption with Progression, you would quite likely find yourself paying more tax than you do currently since your UK liability would remain as is, any excess UK credits would not be repayable and, if the German (lower end) liability was higher on the same income then you would have to pay the excess in Germany.

Regards

Nicki Reynolds CTA

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