🇩🇪 Capital income tax allowance in Germany — 2026 guide

The allowance is simple. The setup is where many people make mistakes.

The Sparerpauschbetrag allows capital income up to the annual allowance to remain free from capital gains tax withholding. To use it automatically during the year, you normally give your German bank or broker a Freistellungsauftrag. Without it, tax may be withheld first and you may need to reclaim it through your tax return.

The Sparerpauschbetrag applies to capital income, not to your salary.

The allowance is relevant for income from savings and investments. It does not reduce employment income, rental income or business profit.

Income type	Usually covered?	Practical note
Bank interest Savings accounts, fixed-term deposits, call money	Yes	Often the easiest use case for a Freistellungsauftrag.
Dividends Shares, ETFs, funds	Yes	The German broker normally applies your exemption order automatically.
Realised capital gains Selling shares, ETFs or funds at a gain	Yes	The allowance applies when gains are realised, not while they are only unrealised on paper.
Employment income Salary, bonus, wages	No	This belongs to income tax and payroll withholding, not capital income tax.

Your bank needs an exemption order before it can apply the allowance automatically.

A Freistellungsauftrag tells your bank or broker how much of your annual allowance it should use. This prevents unnecessary tax withholding up to the amount you assign to that institution.

1️⃣

Set it up at each bank

Most German banks and brokers let you submit or change the Freistellungsauftrag online. You usually need your German tax ID.

2️⃣

Split it intentionally

You can divide your total allowance across several banks. The combined amount should not exceed your personal limit.

✅

Review it annually

Interest rates, dividends and portfolio size change. A good split in one year may be inefficient in the next year.

Important: If you forget the Freistellungsauftrag, the money is not necessarily lost. You may be able to reclaim overpaid withholding tax later via your German tax return, usually using Anlage KAP.

The best split follows where your returns actually happen.

A common mistake is giving the full allowance to one old bank account while most investment income happens at a different broker.

Situation	Possible split	Why it works
You only have one German bank account	Set the full allowance there.	Simple and usually sufficient if all capital income appears at one institution.
You have savings interest and a broker	Assign part to the savings bank and part to the broker.	This avoids using the allowance only on one side while tax is withheld elsewhere.
Most income comes from ETFs or dividends	Put most or all of the allowance at the broker.	The allowance should sit where distributions, gains or taxable fund income occur.
You change broker or open a new account	Review all existing exemption orders.	Old exemption orders are easy to forget and can leave too little room at the new broker.

Children can have their own allowance — but it is not a loophole for parents.

A child’s account or depot can have its own Freistellungsauftrag. But assets transferred to a child should genuinely belong to the child. Parents should not use a child’s account as a temporary parking place for their own investments.

👶

Own allowance

Each child may have their own capital income allowance for their own account or depot.

✍️

Parents sign

For minors, the legal representatives usually need to submit or approve the exemption order.

⚠️

Watch family rules

Large assets in a child’s name can have tax, family insurance, student aid or legal ownership implications.

When do you need Anlage KAP?

Many people with only German banks and correctly set exemption orders do not need to do anything extra. But Anlage KAP can become important if tax was withheld unnecessarily, if you use foreign brokers, or if your capital income situation is more complex.

1

You forgot the exemption order.

If your bank withheld tax even though you had unused allowance, a tax return may help recover it.

2

You use a foreign broker.

Foreign brokers may not apply German withholding or German exemption orders. Reporting can be more manual.

3

Your personal tax rate is low.

In some low-income situations, a so-called Günstigerprüfung or NV certificate may be relevant. This should be checked carefully.

4

You have losses or several depots.

Loss offsetting across institutions can require certificates and correct tax return entries.

How to make the most of the allowance without overcomplicating it.

The goal is not to chase taxes first. The goal is to build a sensible investment structure and make sure the tax settings do not waste your allowance.

Step 1

Know where returns appear.

List interest, dividends, ETF distributions, realised gains and potential fund taxation at each bank or broker.

Step 2

Set exemption orders early.

Do not wait until tax has already been withheld. Set up or adjust the Freistellungsauftrag before expected interest or distributions.

Step 3

Keep annual tax statements.

Save bank tax certificates and annual statements. They are useful if you need Anlage KAP or change advisors.

Red flags before you publish, file or invest.

These points are especially relevant for expats because foreign accounts, cross-border situations and old broker accounts can create confusion.

Red flag 1

Calling it a tax-free account.

The allowance is not an account wrapper. It is an annual allowance for capital income.

Red flag 2

Exemption orders exceed the legal limit.

You can split the allowance across banks, but the total must stay within your personal allowance.

Red flag 3

Using a child’s account for your own money.

A child’s assets should genuinely belong to the child. Otherwise tax and legal issues can follow.

Your annual German investment tax checklist.

Review this once per year, ideally before major distributions, interest payments or portfolio sales.

1

Check your exemption orders at all banks.

Make sure the total does not exceed your annual allowance and that the distribution still makes sense.

2

Save annual tax certificates.

Download Jahressteuerbescheinigung documents before closing or moving accounts.

3

Review foreign accounts and brokers separately.

Foreign institutions often do not handle German withholding tax or exemption orders automatically.

4

Ask whether a tax return can recover overpaid tax.

This is especially relevant if allowance was unused, withheld tax was too high or your personal tax rate is low.

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