Self-directed investing with ComfortInvest

Taxes: five actions that save real money

Tax portfolio management in itself does not optimise. Everything listed below is done by the investor, and each item costs a specific amount in euros.

1. Submit an application for tax exemption

Freistellungsauftrag is an instruction to a bank not to withhold tax until income has exceeded the tax-free allowance. Until the application is submitted, tax at the rate of 26.375 per cent (with church tax of 27.82 or 27.99) is deducted from the first euro.

Practical tip: if you have multiple depots, do not allocate the limit equally, but rather to where income actually arises. The unused balance in an empty depot goes to waste.

2. To know about partial exemption

Part of the fund's income is not taxed at all. This is compensation for taxes that the fund has already paid internally. The rate depends on what the fund holds (§ 20 InvStG):

From this follows a non-trivial conclusion: The effective tax rate on a portfolio of shares is lower than that on a portfolio of bonds, even with the same yield. On the equity fund, the real burden is about 18.5 percent instead of 26.375.

3. Check preliminary lump-sum income in January

Vorabpauschale – a tax on the unrealised growth of a fund, which is charged even if you haven't sold anything or received any payouts. It is calculated using a base rate that the Federal Ministry of Finance publishes at the beginning of the year.

Important: The bank debits this amount from the current account without your consent and has the right to use the unused overdraft. Keep free cash in your account in January — otherwise you'll be charged overdraft interest out of nowhere. The paid Vorabpauschale is not lost: upon sale, it is deducted from taxable profit.

4. Avoid incurring losses when switching banks

The bank maintains separate «pools» of losses for you: one for losses on individual shares, a second for everything else, and a third for the credit for foreign tax deducted at source. Losses on shares are offset only against earnings per share — Funds and ETFs are not included here.

If there is a loss in one bank and a profit in another, it is not possible to offset them automatically. A loss certificate (Verlustbescheinigung) is required. The application for it must be submitted to the bank by the 15th of December of the current year is a strict deadline, § 43a Abs. 3 EStG. After that, the loss is claimed in the tax return, Schedule KAP.

Separately: the previous €20,000 limit on the offset of losses on derivative transactions retrospectively cancelled. If it was applied to you in previous years, it makes sense to check old notifications.

5. Separating sale and transfer

Selling units is a taxable event. Transferring units to another bank without a change of ownership (Depotübertrag) is not. When changing providers, always ask whether a transfer is possible without salethis is a difference of thousands of euros over the long term.

The rule applies when selling part of a position FIFOthe oldest units are considered to be sold first. The accumulated profit on them is usually higher, meaning the tax is also higher. Bear this in mind if you are planning a partial withdrawal.

What lies behind the word «safely»

Phrasing in financial product adverts often conflates three different things. Let's break them down.

• Mutual fund units are segregated assets. Under Section 92 of the KAGB, they are segregated from the balance sheet of the bank and the management company. If the bank goes bankrupt, the units will not form part of the insolvency estate. There is no limit on the amount here.
• Funds in a current account — deposit insurance. Up to €100,000 per depositor per bank. Applies only to cash balances, not shares.
• Compensation for investment services. A fallback mechanism in the event that a financial firm is unable to redeem the securities: 90 per cent of the claim, up to a maximum of 20,000 euros (§ 4 AnlEntG).

None of the three mechanisms doesn't cover the market downturn. A portfolio drawdown is an investment risk, not an insurance claim. The only real protection against it is a sufficient time horizon and an allocation to equities that matches your tolerance for fluctuations.

Questions to ask before signing

1. What is the total annual cost? Not only the management fee, but also the TER of the funds within the portfolio plus transaction costs. Ask for a single-line figure as a percentage of the invested amount.
2. Where is the depot maintained? The German custodian bank withholds the tax itself, applies the partial exemption and takes your exemption order into account. With a foreign broker, all of this falls on you and the KAP tax return.
3. What is the rule for the rebalancing? By calendar or by deviation of the share from the target. The second option usually means fewer unnecessary trades.
4. Can I change the strategy without selling the portfolio? Changing your risk profile by selling everything and buying back in creates a taxable income.
5. How long does it take to withdraw money? And is there a fee for early withdrawal.
6. Who holds the licence? It is checked by the legal entity name in the public BaFin database, not by the brand name.

You may also want to read

• easyInvesto or ComfortInvest — platform comparison and videos summarising three years of running parallel accounts.
• easyInvesto – second platform: investor taxes and investment protection.
• Whitebox – another platform with automatic portfolio management and cost analysis.
• What is an ETF in simple terms how the funds invested in by the platform are structured and the criteria used to select them.
• ETF taxes in Germany — Abgeltungsteuer, Sparerpauschbetrag and Vorabpauschale are calculated in the same way as for a self-managed portfolio.
• Accumulation plan for ETFs – if you're ready to build your portfolio yourself.
• Investor taxes in Germany – detailed analysis.
• Investment-linked life insurance – different tax regime, its advantages and disadvantages.

Sources

• § 44a EStG — application for tax exemption: gesetze-im-internet.de
• § 43a of the Income Tax Act (EStG) — statement of losses, deadline 15 December: gesetze-im-internet.de
• § 20 InvStG — partial exemption: gesetze-im-internet.de
• Section 18 InvStG — preliminary lump-sum income: gesetze-im-internet.de
• § 92 KAGB — segregated fund assets: gesetze-im-internet.de
• § 4 AnlEntG — limits of compensation: gesetze-im-internet.de
• BaFin — database of licensed companies: bafin.de