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TAXES

Hundreds of thousands of pensioners in Germany ‘not liable for tax this year’

Almost a quarter of a million pensioners will no longer have to pay tax this year, according to new government figures.

Published: 15 April 2024 12:20 CEST
Pensioners sit on a bench in Dresden
Pensioners sit on a bench in Dresden. Photo: picture alliance/dpa/dpa-Zentralbild | Sebastian Kahnert

Around 244,000 pensioners will no longer be liable to pay tax in 2024 because they are to benefit from the increase in the basic allowance for income tax.

This figure was confirmed by a spokesperson for the Finance Ministry following a report in the Süddeutsche Zeitung newspaper. However, 114,000 pensioners are also to be added as new taxpayers this year due to the upcoming pension hike in July.

Pension pay outs in Germany will increase by an average of 4.57 percent on July 1st this year. For 2024, there will still be around 6.3 million people in Germany who are considered “taxpayers with pension income,” the spokesperson explained. In total, there are around 21 million pensioners in Germany, making up about a quarter of the population.

READ ALSO: Here’s how much more pensioners in Germany can expect to receive this year

The basic tax-free allowance applies to all taxpayers and refers to the annual income up to which no income tax has to be paid. It stands at €11,604 for the current year. To compensate for inflation, it was increased by €696 euros from €10,908 at the turn of the year.

Finance Minister Christian Lindner (FDP) is aiming for an even greater retroactive increase – although this is currently still being discussed within the coalition government. According to the spokesperson, this has not yet been taken into account in the Finance Ministry’s figures.

The taxation of pensions was reorganised with a reform in 2004. Gradually, more of people’s pensions will becomes taxable, while contributions in the working phase are tax-free.

The later the start of the pension, the higher the taxable portion of the pension income. Many pensions remain tax-free if pensioners have no other income.

In 2024, the pension adjustment will be above four percent for the third year in a row, and, for the first time, it will be the same nationwide.

Pensions are also likely to increase in future, but not to the same extent as this year, according to a recent report on pensions.

The report assumes an average rate of increase of 2.6 percent per year until 2037. At the same time, the pressure on the pension pot is increasing due to the wave of ‘baby boomers’ heading into retirement and fewer people in the workforce. 

According to the report, the pension level is likely to fall from the current 48.2 percent to 45.0 percent in 2037 without legislative intervention. This means that pensions will generally no longer increase as much as wages.

The government wants to counteract this with a second pension package and guarantee a pension level of 48 percent for the future. As part of the reform, it also wants to invest at least €200 billion from federal funds on the capital market by the mid-2030s.

Currently someone who receives an average salary for 45 years of their working life gets just over 48 percent of that salary paid to them each month upon retirement. 

READ ALSO: Six things to know about Germany’s pension reforms

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READER QUESTIONS

EXPLAINED: Do I have to declare income from foreign sources on my German tax return?

If you're a resident in Germany, you will typically have to declare and pay tax on your worldwide income. But there may be some exceptions in certain cases.

Published: 3 May 2024 11:11 CEST
EXPLAINED: Do I have to declare income from foreign sources on my German tax return?

If you’re filling in a German tax return, you are generally legally required to declare and pay tax on all income you earn – wherever in the world you earn it. This is true even if you keep the money abroad.

In most cases, your worldwide income is subject to what’s called “unlimited tax liability” – which means that there’s no exemptions or discounts on your taxes for money earned abroad – whether its from work or capital gains like the sale of stocks. This is generally even true if Germany doesn’t have a Double Taxation Agreement (DTA) with the other country in question.

If, however, Germany does have a DTA – some of your tax might end up getting limited in Germany. This is generally providing that you’ve paid it in the other country.

For example, the US may apply a withholding tax to payments made to you for freelance services you provide in the US, for example. In this case, the DTA between Germany and the US would allow you to submit documentation proving that you’ve already paid tax on this payment in the US. That’ll prevent you from having to pay tax again in Germany on the amount that actually gets wired to your account.

READER QUESTION: How can I find a German tax advisor?

Who has a double taxation treaty with Germany?

Germany has concluded double taxation agreements with numerous – but not all – countries and territories. You can check out the German government’s dropdown menu here to see which countries are on the list.

German residents earning money in other EU countries should still check this list, as certain tax provisions may be unique to the two countries in question.

READ ALSO: Everything you need to know about paying taxes in Germany

What about rental income?

As a general rule, rental income is taxed in the country where the property is located, meaning you don’t have to declare or pay it in Germany. There are some notable exceptions – for example if the property is located in Spain. In this case, you would report this income in Germany.

What about inheritance?

Some double taxation agreements have clauses that specifically govern what tax rules there are around inheritance that a German resident might get from abroad.

In general, the inheritor will still have to pay inheritance tax in Germany, but could see their tax liability reduced if tax already has to be paid abroad.

There are also other exceptions possible, such as if a child receives a property in their parent’s will and then proceeds to live in it for at least 10 years after they acquire it. In this case, they may not need to pay any tax on it.

In certain complicated cases – or if you have any doubt – it may be a good idea to seek out the services of a professional tax advisor who can make sure you don’t get in trouble with the Finanzamt (tax office). 

READ ALSO: Do foreigners owe tax in Germany on money that is inherited from overseas?

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