March 28, 2007 7:06:46 PM CEST
Hello, I think i know the answer to this but would welcome some other views..
Here's the situation.
I am British and always lived in UK until I moved to Germany in 2003.
In 1998 I bought a flat in the UK and lived in it as my sole residence until 2003 when I moved to Germany. I moved of my own accord and not because my employer wanted me to.
I then rented the flat out from 2003 until 2007 when I sold the flat, making a gain of £100k. I am using the money to directly build a house in Germany which will be my sole residence.
What tax do I pay and where?
My current understanding (having ploughed through the double taxation agreements) is that the Capital Gains Tax is payable in the UK because the flat is an immovable asset.
The amount of tax I have to pay is calculated by comparing the amount of time I rented out the flat compared to the amount of time I owned the flat, minus the 3 year "being abroad" allowance, multiplied by the gain of the flat's value upon sale. For me, this is practically nothing in total.
I don't have pay CGT in Germany, however I MAY (i.e. Germany 'reserves the right') have to pay a higher level of income tax on my normal german income (salary) for a year, because they calculate my income tax rate based on the income as if the income had been supplemented by the gains resulting from the sale of the flat - called "Progressionsvorbehalt". This means about an extra €6k tax for me.
Obviously having to pay the tax in germany would be a nightmare beacuse they would tax it at normal income tax rates of over 40%, costing me €40k!!
That would be a lovely "welcome to Germany" present!! I can't believe that would be the case because I was selling my home simply to move to Germany and buy another one. I rented out for a 3 year period whilst I decided if I wanted to stay or not.