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TonyTax, Tax Consultant
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My adult son has been registered in Germany as a taxpayer since

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My adult son has been registered in Germany as a taxpayer since 2006. He receives dividend payments from shares in a private trading company registered in the UK (income approximately £22,000 annually gross with 10% UK tax withheld at source)
He is a beneficiary of a UK based discretionary trust and I wish to provide him with a distribution of £50,000 net of tax.
How much tax must I pay in the UK to provide the net amount of £50,000?
Will there be any liability to the German tax man on this figure of £50,000? if so, how much will this be and can any claim be submitted to HMRC for a refund from the tax payment made here in the UK?
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Customer: replied 3 years ago.

Dear Nicola

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Thank you for your patience,


I don't profess to be an expert on the German tax system which I certainly find to be one of the more complicated European tax systems (not unlike its language) but I have researched a similar question asked of me by a client in the last six months.


As far as UK tax is concerned, the discretionary trust is a tax paying entity distinct from the beneficiary or beneficiary of that trust. The trust pays tax at the rates set out here, depending on the type of income it has received. So, for example, if a trust receives £8,000 of bank interest net of 20% tax deducted at source, it will have a gross tax liability on the £10,000 of £4,500 (45%). The £2,000 deducted at source will be taken off the £4,500 so the trust will have to pay £2,500 to HMRC. I have ignored the first £1,000 rule for this example.

If the trust makes no distributions, the tax will sit in a "tax pool" (see here) waiting to be imputed to the beneficiary when an income payment is made to him or her. So, you can build up a sizeable tax pool which will reduce any tax that has to be paid to HMRC on the actual income distribution. An income distribution of £50,000 net grosses up to £90,909 at 45% so the tax liability will be £40,909 which may or may not be covered by the tax pool you have accumulated. There is a useful tax pool calculator behind the link I gave you at the start of this paragraph.


Article 21 of the tax treaty between Germany and the UK here deals with trust income. The distributions of trust income will be taxable only in Germany but full relief will be given for the UK tax attributed to the income distribution as you can read here and here. This contrasts with Article 23 of the UK/France tax treaty as far as trust income is concerned.

As you will see from the article here, it is likely that a distribution to a resident of Germany from a trust will trigger not only an income tax charge which will be subject to double tax relief but also gift tax which won't be as there won't have been a corresponding tax payment in the UK.

Take a look here (page 5) for information on German income tax rates. There is information on gift tax here.

As I said at the start of this answer, I am by no means an expert on the German tax system and I would strongly recommend that you seek out some specialist advice on your situation before you make the distribution.

I hope this helps but let me know if you have any further questions.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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