Under the Germany-U.K. tax treaty, gains arising from the sale of U.K. real estate held by a German resident taxpayer is only exempt from tax in Germany if the gains are subject to tax in the U.K. This requirement is generally met if the taxpayer is classified as a “trader” and, therefore, subject to U.K. taxation on the gains as trading profits (i.e. subject to income tax or corporation tax).
It has been unclear, however, whether the requirements of the subject-to-tax clause of the treaty are met if the taxpayer is only subject to tax in the U.K. on any “claw-back of capital allowances”. This would be the case if capital allowances had been claimed on certain fixtures, which are part of a building, and the fixtures are sold for more than their tax value at the time the building is sold. In a decision dated 28 April 2009, the lower court of Düsseldorf ruled it is sufficient if there is any taxation in the U.K. regardless of whether the taxation is limited to certain parts of the gain (e.g. fixtures) and amounts (e.g. prior allowances). The decision is subject to review by the Federal Fiscal Court (BFH).
