UK Pension Tax in Germany: DTA Rules, PCLS & 45% Tax Explained

How UK Pensions Are Structured

Before understanding how UK pensions are taxed in Germany, it is important to understand the different types of UK pension and how they work.

The UK pension system consists of three layers:

• The UK State Pension - A government pension paid by the Department for Work and Pensions to individuals who have paid sufficient National Insurance contributions (currently GBP 230.25 per week in 2025/26)
• Workplace pensions - Occupational schemes run by employers, typically either defined benefit (DB, based on salary and service) or defined contribution (DC, a personal fund)
• Private pensions - Self-Invested Personal Pensions (SIPPs) or ordinary Personal Pension Plans set up by individuals

Most British expats moving to Germany have frozen UK workplace pensions from previous employers, which sit dormant until retirement. These are typically defined contribution schemes, where you can access 25% as tax-free under UK law.

For German tax purposes, UK pensions are treated as foreign superannuation (ausländische Renten) and are subject to German income tax without concessional treatment. This is distinct from German retirement accounts (Riester, Rürup), which have specific tax advantages built into German law.

The German Tax System: How It Treats Foreign Pension Income

Germany operates a worldwide income tax system, meaning all income (from any source, anywhere in the world) is subject to German tax if you are a German resident for tax purposes.

For 2025, the German income tax rates on foreign pension income are:

• Up to EUR 11,600: 0% (tax-free allowance, Grundfreibetrag)
• EUR 11,601 to EUR 15,738: 14%
• EUR 15,739 to EUR 62,409: Progressive rates rising to 42%
• EUR 62,409 and above: 42%
• EUR 276,000 and above: 45%

Additionally, the Solidarity Surcharge (Solidaritätszuschlag) of 5.5% applies to income tax above a certain threshold, adding effectively 2.31% to the top rate for high earners. This brings the top marginal rate to approximately 47.31%.

Unlike many jurisdictions that provide exemptions or concessional treatment for foreign pension income, Germany taxes it at the same rates as employment income. This means a UK pension of EUR 50,000 (approximately GBP 42,000) drawn by a German resident would be subject to German income tax at rates between 42% and 47.31% depending on your total income.

The key planning point is that there is no distinction in the German tax code between "pension income" and other income. Your UK pension is treated as ordinary income (Einkünfte aus privaten Renten) and taxed at your marginal rate.

The UK-Germany Double Taxation Treaty: What It Says About Pensions

The UK-Germany Double Taxation Agreement came into force in 2010 (amended in 2014) and provides specific rules for pension taxation between the two countries.

Article 17 of the agreement addresses pensions and makes a critical distinction:

• Private pensions are taxable only in the country of residence
• Government pensions are taxable in the country where the government service was rendered

For UK private pensions (SIPPs, workplace DC schemes), the rule is clear: they are taxable only in Germany (your country of residence). The UK does not tax UK private pensions paid to German residents under the DTA.

For the UK State Pension (a government pension), the treaty provides that it is taxable in the UK (where the service was rendered). However, double taxation relief is available in Germany, so the practical position is:

• The UK State Pension is taxable in the UK at zero rate (below the personal allowance)
• Germany also recognises the UK State Pension as taxable income but provides relief for UK tax paid
• Since there is typically no UK tax owing, there is no UK tax to credit in Germany

The DTA therefore provides clarity on allocation of taxing rights but does not reduce the tax burden. As a German resident, you will pay German income tax on UK pension income at your marginal rate with no exemption or relief available (unless UK tax is actually paid).

This is a key point: the DTA does not provide relief for German residents. It allocates the taxing right to Germany, and Germany exercises it fully.

UK State Pension: How It Is Taxed in Germany

The UK State Pension is a government pension and has a different DTA treatment than private pensions.

Under the DTA, government pensions are taxable in the country where the government service was rendered. The UK State Pension was earned through UK National Insurance contributions, so it is technically taxable in the UK.

However:

• The UK State Pension is currently GBP 230.25 per week (GBP 11,973 per year), which is below the UK personal allowance of GBP 12,570
• As a result, there is no UK income tax owing on the State Pension
• Germany recognises the UK State Pension as foreign income and taxes it at your marginal German rate
• If you are a German resident in the 42% bracket, your UK State Pension of approximately EUR 14,000 would be taxed at approximately EUR 5,880 (42%)

This is a material cost that differs significantly from jurisdictions with tax-free pension regimes. Unlike the UAE or Singapore, Germany does not exempt government pensions from taxation.

The practical consequence is that your UK State Pension is not "free" income in Germany. You will owe German income tax on it, potentially at rates of 42-47%.

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Private and Workplace Pensions: Tax Treatment

UK private pensions (SIPPs, Personal Pension Plans) and workplace defined contribution schemes are treated as ordinary income in Germany under Article 17 of the DTA.

The tax treatment is:

• All income drawdowns are subject to German income tax at your marginal rate
• The 25% Pension Commencement Lump Sum (PCLS) is treated as ordinary income and fully taxable
• There is no concessional tax treatment (unlike some German retirement accounts)
• The income is reported to the Bundeszentralamt für Steuern (German tax authority) as foreign income via Anlage AUS

For most expats, this creates a significant difference between drawing UK pensions and German retirement accounts:

• German Riester rente: Withdrawals above EUR 12% annual allowance are fully taxable, but the account grows tax-deferred
• German Rürup rente: Contributions offer up to 100% tax deduction (for the self-employed), with withdrawals in retirement fully taxable
• UK pensions: All income taxed at marginal rate with no concessional treatment

The interaction is critical if you have both German retirement accounts and UK pensions. Without careful sequencing, you could have UK pension income taxed at 42-47% while German retirement account contributions provide only 42% tax relief, creating a mismatch.

This is where how UK pension structures interact with overseas tax systems becomes apparent. In the UK, pension income would be tax-free or lightly taxed. In Germany, it is subject to full marginal taxation with no relief.

The 25% Tax-Free Lump Sum: Does It Work in Germany?

The Pension Commencement Lump Sum (PCLS) is a significant UK pension benefit: 25% of your total pension value is available tax-free under UK law. However, the German tax treatment is completely different.

Under UK law, the PCLS is tax-free. Under German law, it is ordinary income (Einkünfte aus privaten Renten).

The German tax authority (Bundeszentralamt für Steuern) does not recognise the PCLS as tax-free. Because the DTA allocates private pension taxation rights to Germany (the residence country), the PCLS is classified as ordinary income and is fully subject to German income tax at your marginal rate.

For example:

• You have a SIPP worth GBP 200,000
• You elect to take the PCLS: GBP 50,000 tax-free under UK law
• But you are a German resident earning EUR 80,000 from employment
• Your total income becomes approximately EUR 172,000 (80,000 + 92,000 for the PCLS)
• You are in the 42% tax bracket
• The PCLS is taxed at 42% + 5.5% Soli = 47.55%
• Your net PCLS is approximately GBP 26,000 after German tax

This is a critical planning point. For German residents, taking the PCLS immediately is often tax-inefficient. The alternatives are:

• Defer the PCLS until retirement and lower income brackets
• Spread the PCLS over multiple tax years to minimise the marginal tax rate
• Consider whether a German Rürup transfer might provide better tax treatment

For most German residents still in employment, deferring the PCLS until retirement is significantly more tax-efficient than taking it while earning.

Riester and Rürup: Interaction with UK Pensions

Germany has two primary registered retirement account systems:

• Riester rente - Available to employees and self-employed people. Contributions are made with after-tax money but potentially attract government subsidies. Withdrawals above EUR 12% annual allowance are fully taxable
• Rürup rente (Basis-Versorgung) - Available to the self-employed and high earners. Contributions offer up to 100% tax deduction (rising each year). Withdrawals in retirement are fully taxable

For British expats in Germany with UK pensions, the interaction is complex:

• UK pension contributions do not affect Riester eligibility or subsidies
• UK pension contributions do not reduce the Rürup tax-deductible amount
• UK pension income is subject to German income tax at your marginal rate
• Rürup contributions offer tax relief at your marginal rate

For someone earning EUR 80,000 per year:

• Taking a UK pension of EUR 50,000 would create approximately EUR 23,750 in German income tax
• Making a Rürup contribution of EUR 50,000 would create approximately EUR 21,000 in tax deductions
• Net cost of UK pension: EUR 26,250 after tax
• Net cost of Rürup contribution: EUR 29,000

The UK pension is therefore more tax-efficient on the contribution side. However, Rürup contributions provide long-term tax deferral and compounding, while UK pensions create immediate tax liability.

For most British expats in Germany, the strategic question is: should you be making Rürup contributions (which offer tax relief now and compound tax-deferred) or drawing UK pensions (which are already taxed in Germany)? The answer depends on your age, income and retirement timeline.

Double Taxation Relief: When Both Countries Claim Taxing Rights

The UK-Germany DTA provides specific rules for double taxation relief, but the mechanism depends on which income type is involved.

For UK private pensions:

• The DTA allocates the taxing right exclusively to Germany (the residence country)
• The UK does not tax private pensions paid to German residents
• Therefore, no double taxation occurs and no relief is needed

For the UK State Pension (a government pension):

• The DTA allocates the taxing right to the UK (the source country)
• Germany (the residence country) applies double taxation relief
• If you pay UK tax on your State Pension, Germany credits that UK tax against your German tax liability
• If you pay no UK tax (which is typical), there is no UK tax to credit

In practice, the double taxation relief mechanism rarely comes into play for most British expats in Germany because:

• Private pensions are taxed only in Germany (no double taxation)
• Government pensions generate no UK tax (below the personal allowance) and therefore no relief is needed

The one scenario where relief matters is if you have significant UK-source income (UK rental income, UK employment income) that is subject to UK tax. In that case, you can credit the UK tax paid against your German income tax liability.

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How Professional Planning Support Actually Fits

For someone with UK pensions relocating to Germany, professional planning is most valuable when it:

• Clarifies your German tax residency status - This determines whether the DTA applies and how your pension income is taxed
• Models the PCLS decision in the German tax context - The cost of the PCLS in German tax (42-47%) is substantial, and deferral is often more efficient
• Evaluates the interaction with Riester and Rürup contributions - The two systems operate on different tax principles and need to be coordinated
• Sequences UK pension access and German retirement account contributions - Drawing pension and making contributions in the right order can optimise overall tax efficiency
• Ensures compliance with both HMRC and the Bundeszentralamt für Steuern - UK pensions must be reported correctly to both tax authorities

The goal is to structure your pension access so that you are complying with both UK and German tax law while minimising the overall tax cost of your retirement income.

The Soft But Decisive Next Step

If you are reading this and thinking:

• "We are moving to Germany with UK pensions but have not understood the German tax implications"
• "We are not sure whether taking the PCLS now or waiting until retirement is more tax-efficient"
• "We have German retirement accounts and UK pensions and are not sure how to coordinate them"
• "We want to understand the double taxation relief mechanisms available"

Then the next step is usually a structured conversation about your specific pension structure and German tax position. Not because something is urgent. But because Germany gives you time (before you become tax resident) to understand the tax impact and plan accordingly.

The best time to understand the German tax cost of your UK pensions is before you take the first payment. The second-best time is immediately after arriving in Germany. The worst time is when you are filing your first German tax return and realising you have taken the PCLS at the wrong time or structured your drawdown inefficiently.

Final Takeaway

Drawing a UK pension in Germany is not about:

• Assuming the PCLS is tax-free everywhere (it is not in Germany)
• Thinking the DTA provides relief from German taxation (it allocates taxing rights to Germany only)
• Hoping German retirement accounts will provide concessional treatment for UK pensions (they do not)
• Neglecting to coordinate with Riester and Rürup contributions (they interact in complex ways)

It is about:

• Understanding that UK private pension income is subject to German income tax at your marginal rate
• Calculating the effective German tax cost of the PCLS and deciding whether to defer it
• Evaluating how Riester and Rürup contributions interact with UK pension taxation
• Sequencing UK pension access and German retirement account contributions to optimise tax efficiency
• Ensuring both HMRC and the Bundeszentralamt für Steuern receive correct notifications

British expats in Germany who plan carefully often discover that the interaction between UK pensions and German retirement accounts creates planning opportunities that are not immediately obvious.