Savings Allowance: How to Keep Your Capital Gains Tax-Free

The savings allowance is a statutory tax exemption under Section 20(9) of the German Income Tax Act (EStG). Single individuals can receive capital gains up to 1,000 euros per year tax-free, while married couples filing jointly can receive up to 2,000 euros. Everything above this is subject to capital gains tax of 25 percent plus solidarity surcharge and, if applicable, church tax. Those who activate the savings allowance through an exemption order save immediately on the taxation of their capital income.

What is the savings allowance?

The savings allowance sets the threshold up to which income from capital assets remains tax-free. It functions as a lump-sum compensation for business expenses associated with capital gains, such as custody fees or advisory costs. A deduction of actual business expenses is excluded. The exemption covers all income from your capital assets, regardless of its source.

Which capital gains are covered?

The savings allowance includes all classic income from capital assets. These include:

• Interest from call money accounts, fixed-term deposits, and savings accounts
• Dividends from stocks and funds
• Gains from the sale of securities, funds, and ETFs
• Income from building savings contracts and bank savings plans

The savings allowance thus applies to your entire wealth building. Whether interest from a savings account or gains from the sale of ETFs, all capital income is counted up to the limit of 1,000 euros.

How high is the savings allowance?

Since January 1, 2023, the savings allowance stands at 1,000 euros for single individuals and 2,000 euros for married couples filing jointly. These amounts remain unchanged through 2026. Previously, the savings allowance was only 801 euros per person for many years, or 1,602 euros for married couples.

Historical development at a glance

The increase was part of the 2022 Annual Tax Act and was the first adjustment since 2009. The development of the savings allowance:

• 2009 to 2022: 801 euros (single individuals), 1,602 euros (married couples)
• From 2023: 1,000 euros and 2,000 euros

The jump from 801 euros to 1,000 euros represents roughly 24.8 percent; for married couples, from 1,602 euros to 2,000 euros. Critics argue this merely compensates for inflation over the preceding 14 years, representing no real gain.

Savings allowance: saving taxes made easy

Without the savings allowance, capital gains tax would be due immediately on every euro of your capital income. The exemption provides you with a tax-free buffer. The maximum savings per year is approximately 264 euros per person, or about 528 euros for married couples. This amount flows directly back into your returns.

The compound interest effect works in your favor

Those who utilize the exemption early keep their gains immediately in their portfolio. Instead of recovering overpaid capital gains tax through a tax return, the money stays invested and continues to work. Over many years, this advantage accumulates significantly in your investments and improves your portfolio's returns.

Difference between savings allowance and exemption order

Both terms are often confused, but they do not mean the same thing. The savings allowance is the statutory exemption itself. The exemption order is the tool you use to activate this exemption with your bank. Without this instruction, the exemption remains unused, and the bank will still withhold taxes.

The key difference: the exemption exists automatically, but the exemption order must be actively submitted. Only through this notification does your bank know that it may pay out capital income up to the specified amount tax-free.

How can you use the savings allowance optimally?

In practice, utilization occurs through the exemption order. You inform your bank which amount it should exempt. Up to this amount, no capital gains tax will be withheld.

Submit the exemption order in time

It is best to submit the exemption order at the beginning of the year. Without this declaration, the bank will deduct the full capital gains tax on all capital income. The tax identification number has been a mandatory entry since 2011. An exemption order submitted indefinitely extends automatically to the following year, so you do not need to resubmit it each year.

Divide the exemption among multiple banks

If you have accounts and portfolios at several institutions, you can divide your savings allowance. An example: 600 euros at Bank A and 400 euros at Bank B. The total of all exemption orders may not exceed 1,000 euros (for married couples, 2,000 euros). Distribute the 600 euros and remaining amounts to where the highest income is expected, and estimate in advance where interest and dividends will occur.

Review the distribution regularly

If your investment strategy changes, a new portfolio is added, or you switch banks, you should adjust the distribution. Many institutions automatically increased existing orders by approximately 24.8 percent on January 1, 2023. Check whether this distribution still fits your portfolio.

Savings allowance and capital gains tax

All capital income above the savings allowance is subject to capital gains tax. The tax rate is a flat 25 percent. Additional charges apply, so the actual burden is higher.

These taxes apply

• Capital gains tax: 25 percent on gains above the 1,000 euro exemption
• Solidarity surcharge: 5.5 percent on the capital gains tax
• Church tax: 8 or 9 percent, depending on the state

Without church tax, the total burden is at least 26.375 percent. Those subject to church tax pay accordingly more; in Bavaria and Baden-Württemberg with 8 percent church tax somewhat less than in the remaining states with 9 percent. The savings allowance protects your first 1,000 euros of capital income completely from this deduction.

Claiming the savings allowance through the tax return

If you have not submitted an exemption order, the exemption is not lost. You recover it retroactively through Schedule KAP in your income tax return. The tax office will then refund the overpaid capital gains tax.

Schedule KAP in the tax form

Schedule KAP is the central tax form for capital income. There you enter your capital income and the tax already withheld. Even those who have only partially exhausted the savings allowance can secure the unused remainder through the tax return.

What happens if you exceed the exemption?

If your capital income exceeds the threshold of 1,000 euros, capital gains tax is due on the excess amount. With an exemption order, this happens automatically: the bank withholds tax as soon as the exempted amount is exhausted.

A calculation example: With 1,200 euros in interest and an exemption of 1,000 euros, you pay tax on 200 euros. On these 200 euros, typically 25 percent capital gains tax plus solidarity surcharge applies, approximately 52.75 euros. With 1,200 euros in interest, you retain approximately 1,147 euros. Important: the sum of all exemption orders may never exceed the savings allowance, or the tax office will follow up with inquiries.

When does the savings allowance not apply?

The exemption applies only to income from capital assets in private assets. If securities are held as business assets, different tax rules apply. Also, for other types of income, such as rental income or wages, the savings allowance does not apply.

The exemption also can never be higher than the actual capital income generated. Anyone receiving 400 euros in interest can only exempt these 400 euros, not the full 1,000 euros. For securities held as business assets, separate rules also apply, such as the partial income method.

Special cases: NV certificate and favorable assessment

For investors with low income, there are additional ways to avoid taxation of capital income.

Non-assessment certificate from the tax office

If your total taxable income is below the basic personal allowance, you can request a non-assessment certificate from the tax office. The basic personal allowance is currently 12,348 euros for single individuals. Those remaining below these 12,348 euros keep all capital income tax-free with the certificate, even beyond the savings allowance.

Favorable assessment in Schedule KAP

With low income, a favorable assessment is worthwhile. Requested in Schedule KAP, the tax office checks whether your personal tax rate is below 25 percent. If so, overpaid tax is refunded. The favorable assessment is particularly interesting for retirees and students.

Savings allowance for married couples and children

Married couples filing jointly share a combined exemption of 2,000 euros. This is deducted in half by each partner. If one partner does not use their portion, the unused amount transfers to the other. This preserves the full 2,000 euros, even if only one partner generates capital income.

Minors and students also have their own claim to the savings allowance of 1,000 euros. Those who invest money in a child's name can additionally use this claim and tax-optimize the investment.

Offset losses correctly

Gains and losses from securities transactions are tax-deductible. Within one bank, the institution automatically offsets gains and losses. With multiple institutions, this works only through a loss certificate, which you must request by December 15 of the year. Cross-institutional offsetting then occurs in the income tax return and reduces taxation of your gains from other portfolios.

Is the savings allowance granted automatically?

The savings allowance is automatically applied only if you have submitted an exemption order. Without this instruction, the bank will deduct the full tax. You must then actively recover the exemption through the tax return. It is advisable to establish the exemption order from the start, so your investment gains remain tax-free immediately.

The essentials in brief

The savings allowance ensures that your initial capital income remains tax-free. In brief, the key points:

• Amount: 1,000 euros for single individuals, 2,000 euros for married couples (previously 801 euros or 1,602 euros)
• Activation through the exemption order at your bank
• Retroactive use through Schedule KAP is possible
• Income above the exemption is subject to capital gains tax of 25 percent
• With low income, favorable assessment and non-assessment certificate help

Frequently asked questions about the savings allowance

How much money can I save tax-free?

The amount of saved wealth is not decisive, but rather the ongoing capital income. Up to 1,000 euros in interest, dividends, or gains per year remain tax-free; for married couples, up to 2,000 euros. Anyone receiving 1,200 euros in interest pays tax only on the 200 euros above that.

Does the savings allowance apply to ETFs?

Yes. Dividends and gains from the sale of ETFs count as capital income and fall under the exemption, just like interest or proceeds from other securities. The savings allowance also applies to such investments up to the threshold of 1,000 euros.

What if I have multiple portfolios?

You distribute your exemption across multiple exemption orders. The total may not exceed the savings allowance. Review the distribution regularly if your savings and investments change, so your investment remains tax-optimized.