A granddaughter of Shoah survivors may be forced to repay compensation because Germany believes she owes tax on her family's pre-war property.

Judy Sherwood's family owned an East Berlin apartment which was confiscated by the Nazis. Her grandparents died in the Holocaust, but their six children escaped, fleeing to North and South America, Israel and the UK.

The Claims Conference, which reclaimed and then sold the flat in April 2003, gave the family compensation in 2005, after Mrs Sherwood's father, Moishe, died. She and her three siblings received £4,500 each; the rest went to surviving older relatives.

But in 2006 she received demands from the German tax authorities to pay £4,000 in tax on rental income for the property between 1999 and 2002 - before the flat was recovered.

Hillary Kessler-Godin, spokeswoman for the Claims Conference, said the organisation would try and help Mrs Sherwood sort out the difficulties.

But now Mrs Sherwood, of Derbyshire, faces demands from HM Revenue and Customs under a European Union agreement which means countries recover unpaid tax for each other.

She said: "The flat in East Berlin was a family home, and my grandfather owned a kosher butcher's shop. I grew up hearing the phrase 'money from Germany,' [and the possibility of compensation for the property] but only really understood it after my father died.

"What we got in 2005 wasn't a great deal, but it feels like sacred money because my grandparents died.

"When we received the tax demands, in very complex German, I just wrote back saying we weren't liable. But the demands kept coming.

"I spoke to HM Revenue and Customs when I received demands from them in 2008. I have phoned many times to try and close the case and the demands did stop for a time in 2008. But in the last few months they have begun again.

"It is very weird that they can assert I owe money, and I cannot prove otherwise. My sister in Israel has received the same demands, but my other two siblings have received no demands at all."