1. What the pre-tax allowance (Vorabpauschale) is and who it affects
The pre-tax allowance (German: Vorabpauschale) is a yearly minimum taxation for accumulating (thesaurierende) funds in Germany. It is charged in January and is based on the previous fund year. For 2026 the charge is calculated from the fund year 2025 using a basis interest (Basiszins) of 2.53 percent. The rule exists so that non-distributing funds are taxed at least on a notional baseline return even if they don’t pay out distributions.
This affects investors holding accumulating ETFs in taxable German depots. Key points: it is calculated as a notional base return, it is due in January, and it only results in an actual tax payment where the allowance’s taxable portion exceeds your saver allowance (Sparer-Pauschbetrag) or any Freistellungsauftrag you have filed.
2. How the Vorabpauschale is calculated — step by step
The calculation follows a few clear steps. Understanding them helps you estimate the likely tax and plan a Freistellungsauftrag (exemption order) if needed.
Formula and caps
First the so-called Basisertrag (base yield) is derived by multiplying the fund value on January 1 by the Basiszins and by a factor of 0.7. This Basisertrag is then capped at the actual increase in value during the fund year (minus any distributions). In short: Basisertrag = fund value on 1 Jan × Basiszins × 0.7, then limited to actual performance.
Partial exemption and tax rate
Equity ETFs benefit from a 30% partial exemption (Teilfreistellung). That means only 70% of the Basisertrag is taxable for equity ETFs. The taxable portion is then subject to the withholding tax (Abgeltungsteuer) of 26.375 percent, plus any applicable church tax.
Practical example (based on the 2026 calculation for fund year 2025)
Using the 2026 basis (Basiszins = 2.53% for the 2025 fund year): for an equity ETF with a depot value of €10,000 the calculation yields a typical tax of about €33 (without any Freistellungsauftrag). That matches the flow: Basisertrag ≈ €10,000 × 0.0253 × 0.7 ≈ €177.1; taxable portion (after 30% Teilfreistellung) ≈ €124.0; tax ≈ €124.0 × 26.375% ≈ €33.
3. What changes in 2027 and why investors should watch the Basiszins
The Basiszins can change year to year. For 2027 the Basiszins used in examples rises to 3.20 percent, which increases the notional Basisertrag and therefore the potential tax. The burden can rise noticeably — some projections show a significant increase (for example, an illustrative figure given for 2027 is about €163 tax on a €50,000 depot in one scenario). The core message: rising Basiszins → higher Vorabpauschale headline numbers.
Because the law also caps the Basisertrag at actual performance and applies the partial exemption for equities, the increase is moderated but still meaningful. Investors with larger depots should particularly monitor changes to the Basiszins each year.
4. Saver allowance (Freistellungsauftrag) and practical tax planning
A central lever to avoid or reduce immediate tax on the Vorabpauschale is the Freistellungsauftrag (saver’s exemption order). According to the rules cited here, the allowance is up to €1,000 for singles and €2,000 for couples. The bank only collects tax on the Vorabpauschale to the extent it exceeds your used exemption.
How to size your Freistellungsauftrag
Some advisors recommend aligning the Freistellungsauftrag with the expected Vorabpauschale. Example guidance from recent discussions suggests numbers like €178 per €10,000 for 2025 or €224 per €10,000 for 2026 as target figures for planning. That can help you preserve room for tax-free partial sales.
When the allowance runs out
Warning: for larger depots the Sparer-Pauschbetrag can be used up quickly. For example, at a depot value of €30,000 the expected amounts can already add up to about €525 of allowance usage in some calculations, leaving much less room for tax-free partial sales later. If you have multiple taxable investments, coordinate exemption orders carefully across accounts.
5. Practical investor actions — checklist and tips
Be proactive rather than reactive. The Vorabpauschale is predictable, so small administrative steps often avoid unnecessary tax or panic-selling.
- Check whether each ETF is accumulating (thesaurierend) or distributing — only accumulating funds are typically affected by the Vorabpauschale.
- Estimate the expected pre-tax allowance for your holdings (use the Basiszins for the applicable fund year and the 0.7 factor), then compare that to your Freistellungsauftrag and Sparer-Pauschbetrag.
- Update Freistellungsaufträge across accounts so the allowance is used where you need it most (singles €1,000, couples €2,000 according to the rules cited).
- For savings plans (Sparpläne), remember the pre-tax allowance is considered pro rata over time, which usually lowers the immediate hit for regular monthly investments.
- Ensure you have cash on your settlement account or a covered account — an uncovered Verrechnungskonto can trigger interest charges or even forced sales if taxes must be paid and no cash is available.
- Keep paperwork: banks provide confirmations you need for your tax return (see next section).
6. Taxes, filing and how to avoid mistakes
Tax administration and filing matter. The tax on the Vorabpauschale is typically handled at the bank level if it exceeds your allowances, but you still must account for it correctly in your tax return when required.
Tax return and deadlines
Include the pre-tax allowance information in your tax return using the appropriate form (in the German system the relevant annex is indicated as Anlage KAP-INV) by the stated deadline (for the year discussed, the deadline is July 2026). Use bank confirmations (tax certificates) as supporting documents.
In short: understand the calculation (Basiszins × 0.7, cap at real performance), use the Sparer-Pauschbetrag or Freistellungsauftrag smartly, file your tax return with bank certificates by the deadline, and monitor Basiszins changes (e.g. higher figures expected for 2027) so you can adjust your planning in good time.
Common pitfalls
Don’t confuse the allowance with a payment you must hand over: you do not pay the Vorabpauschale itself to your bank — you may only pay tax on it, and only to the extent it exceeds your saving exemptions. Don’t rely on assumptions about zero tax without checking allowances. If your fund had zero net return in the fund year, the Vorabpauschale can be zero as well.
Keep perspective — don’t panic
The legal framework (InvStG) contains limits and caps that prevent runaway taxation on notional returns. For most retail investors modest shielding via the Freistellungsauftrag and the partial exemption for equities will keep the effect small. Update orders, check your numbers, and avoid hasty sales driven by headlines — plan calmly.
