Freistellungsauftrag: Split the German Savers Allowance

Germany taxes your investment income at the bank, before you ever see the money. There is an allowance that lets part of that income through untaxed, the Sparerpauschbetrag, and it is not applied for you. Until you hand each bank a standing instruction called a Freistellungsauftrag, it keeps deducting tax and forwarding it to the Finanzamt in your name. That is how people with completely ordinary portfolios end up paying tax they were never meant to pay, because of a form nobody told them to file.

Your broker is also a tax collector

In Germany, tax on investment income is withheld at source. A dividend lands, interest is credited, you sell a fund at a profit, and the bank works out the tax, keeps it back and passes it on. The flat tax on investment income is the Abgeltungsteuer, and the Solidaritätszuschlag rides along with it, as does the Kirchensteuer if you are registered as a member of a church that levies one. For most people this is convenient, because the deduction settles the matter and no tax return is needed. It has one weakness. The bank can only apply what it has been told, and nobody has told it how your allowance is meant to be shared out.

What the Sparerpauschbetrag actually is

The Sparerpauschbetrag is a lump-sum allowance for investment income. Interest, dividends and realised gains on securities all fall under it, and income up to the allowance escapes the withholding described above. It belongs to you as a person, it runs by calendar year, and it does not roll forward: whatever you have not used by the end of December is simply gone. The word Pauschbetrag matters too. It is a flat figure granted in place of deducting what you actually spent to earn the income, so custody fees and data subscriptions no longer come off separately the way costs do elsewhere in the tax code. The rule sits in the Einkommensteuergesetz, whose current text is published in full on gesetze-im-internet.de, and the Bundesfinanzministerium publishes the amount in force.

The allowance does nothing until you file the instruction

This is where most of the money is lost. The allowance exists in law, but your bank will not act on it unless you give that specific bank a Freistellungsauftrag, a standing instruction saying: leave this much of my investment income here untaxed. Nearly every German bank and broker now accepts it inside the Depot interface, under tax settings, and it takes a few minutes. One requirement catches people out: the instruction is only valid with your steuerliche Identifikationsnummer, the personal tax ID issued to you, and without it the bank has to reject it and carry on withholding. Banks then report the amounts used under each instruction to the Bundeszentralamt für Steuern, which is how the authorities see the total across every institution you deal with.

One allowance, several brokers, one split to get right

You may hold as many Freistellungsaufträge as you have banks. What you may not do is give each of them the whole allowance. Every instruction you have running is added together, and the total has to stay inside your one annual allowance. So somebody with a savings account at a Sparkasse, a Depot at a direct broker and a dormant account left over from an old employer has to cut one allowance into three pieces and decide how big each piece is. That decision is the only part of this topic that needs judgement.

What a bad split actually costs you

Take two brokers, purely as an illustration. At the first you hold a distributing fund that pays out several times a year, so its dividend yield keeps arriving as cash in your account. At the second you hold an accumulating ETF that reinvests internally, so almost nothing reaches you. You split the allowance down the middle because that felt even-handed.

The result is lopsided. The income broker uses up its share early in the year and withholds tax on everything after that, while the other half sits at the quiet broker with barely anything to shelter. Accumulating funds are not invisible to the tax office, since German law charges an annual advance amount on them called the Vorabpauschale, but that is small and predictable next to a stream of distributions. If you are building an income portfolio, the choice between accumulating and distributing funds is also the choice of where your taxable income shows up, which is worth knowing before you start investing for dividends across more than one account.

Losses are settled before the allowance is touched

Your bank does not reach for the allowance first. It nets your losses first. Each institution keeps loss pots for you, the Verlustverrechnungstopf, with a separate pot for losses on individual shares that may only be set against gains on individual shares, and a general pot for everything else. Gains are reduced by whatever sits in the matching pot, and only what survives is measured against your Freistellungsauftrag. A broker carrying a large loss pot may therefore use none of the allowance you gave it, however generous the instruction was. Loss pots also stay where they are: to set a loss at one bank against a gain at another you have to request a Verlustbescheinigung from the first bank before its annual deadline in December, which moves the loss into your tax return instead of leaving it parked.

Getting it wrong is fixable, in one of two ways

Inside the same calendar year, just change the instruction. Raise the amount at the busy broker and it will normally recalculate, refund the tax it has already withheld and carry on from the corrected figure. Lower the one that is doing nothing. The single limit is that you cannot cut an instruction below what has already been used at that bank this year, for the obvious reason that the tax has already gone unpaid. Once the year has closed the bank can no longer help you, and the route becomes your Einkommensteuererklärung: you declare the investment income on Anlage KAP, attach the Steuerbescheinigung each bank issues showing what it withheld, and the Finanzamt recalculates across all your accounts together and refunds the difference. It works. It is also slower, duller and a year later than filing the instruction on time.

Couples file one instruction between them

Spouses and registered partners who are assessed jointly get a combined allowance and can file a joint Freistellungsauftrag. The useful part shows up when one of them holds far more of the investments than the other, because the unused part of the quieter partner's allowance then covers the busier partner's income without anything being transferred between them. Children count as separate people here, each with an allowance of their own, which is why a Junior-Depot in a child's name can carry its own instruction. Whether opening one is a good idea goes well beyond tax, not least because the money legally belongs to the child from the day it arrives.

If your income is genuinely low, there is something better

A Freistellungsauftrag only shields income up to the allowance. Someone whose total income stays under the level at which income tax starts, typically a student or a pensioner living on a small pension, can apply to their Finanzamt for a Nichtveranlagungsbescheinigung using the form the Finanzamt calls NV 1 A. Give a copy to your bank and it stops withholding on your investment income altogether, with no ceiling at all. It is not permanent: the certificate is issued for a limited period and has to be applied for again, and if your income climbs above the line you are expected to tell the Finanzamt so it can be withdrawn.

Redo the split when your accounts change

A split that was right when you set it goes stale quietly. You open an account at a new broker, you sell the fund that was producing most of the distributions, a savings account starts paying interest again after years of paying none. It is worth the annual look for a reason beyond this year's tax: money withheld early leaves your account before it can grow, and compound interest only works on what stays invested. A refund a year later gives the money back without the year of growth attached. One change outranks all the others. A Freistellungsauftrag can only be held by someone with unlimited tax liability in Germany, so if you move abroad it stops being valid and you are expected to tell your bank, and your tax residency then decides which country gets to tax the income at all.

Look the current figures up yourself

Every amount in this area is set by law and changed by law. The allowance has been raised before and can be raised again, the rates attached to investment income are policy decisions, and the income level behind a Nichtveranlagungsbescheinigung moves with the general income tax rules. This article quotes none of them on purpose. Look up what applies now at the Bundesfinanzministerium, read the statute itself on gesetze-im-internet.de, ask your own Finanzamt, or pay a Steuerberater if the sums involved justify it. Anything you read online with a figure in it, including a figure that was correct when it was written, has to be checked against the year you are actually in.

The practical job takes one evening. List every bank and broker where you hold money, pull last year's Steuerbescheinigung from each, and see which accounts produced the income and which produced almost none. Then set the instructions to match that pattern instead of dividing evenly out of habit, and do it early, because an instruction can be backdated to the start of the current calendar year but never into a year that has already closed.

Written by

Federico Romaldi

Co-Founder, Worthmap

Published: August 14, 2026

Federico is a co-founder of Worthmap, a wealth-intelligence platform built for serious investors. With a background in software engineering and a long-standing passion for value investing, he created Worthmap to bridge the gap between net-worth tracking and investment analysis.