Taxes play a key role when investing for children in Germany. Learn how child investment taxes, allowances and structures work.
Read more.
When parents begin investing money for their child in Germany, they often focus on questions like:
✅ What monthly saving amount makes sense?
✅ Which investments offer strong long-term growth?
✅ Which investment structure is stable over many years?
However, one important factor is often overlooked:
The tax treatment of child investments.
When saving for children in Germany, taxes can have a significant impact on how much wealth is actually built for the child over time.
Many child investment plans run for 15 to 20 years or longer. Over such long time horizons, even small differences in tax rules, fees or investment structures can result in several thousand euros difference in the final outcome.
That is why it is important for families to understand early on:
✅ how child investments in Germany are taxed
✅ which tax allowances children can use
✅ which investment structures may be more tax-efficient
Parents who understand these factors early can often optimize their child’s long-term wealth building strategy and create better financial opportunities for the future.
In Germany, most investment profits are subject to the capital gains tax, known as Abgeltungssteuer.
This tax generally applies to profits from investments such as:
stocks
ETFs
investment funds
interest from savings accounts
The tax consists of several components:
25% capital gains tax
5.5% solidarity surcharge on the tax amount
church tax (if applicable)
In total, the effective tax rate on investment profits is typically between 26% and 28%.
In most cases, this tax is automatically withheld by the bank or broker when profits are realized. This means investors usually do not need to declare these taxes separately, as they are deducted directly at the source.
For families investing for their children in Germany, understanding how capital gains tax applies to child investments is an important part of long-term financial planning.
Children in Germany, just like adults, have their own tax allowances.
These allowances can allow certain investment profits to be partially or even completely tax-free, depending on the child’s total income.
Understanding these allowances can be especially relevant when investing for children in Germany, as they can influence the tax efficiency of a savings strategy.
Important tax allowances include:
The saver’s allowance currently amounts to:
1,000€ per year
Investment income up to this amount can remain tax-free.
To benefit from this allowance, parents usually need to submit a tax exemption order (Freistellungsauftrag) with the bank or broker managing the investment account.
The basic tax allowance is significantly higher and amounts to several thousand euros per year.
As long as a child’s total income stays below this threshold, certain types of income may remain tax-free.
This can include:
interest income
dividend payments
capital gains from selling ETFs or investment funds
For long-term savings plans, this can provide tax advantages when investing for children in Germany, especially if the investment structure is planned carefully.
Many expat parents living in Germany assume that taxes apply automatically every year when investing money for their child.
In practice, this is often not how the German tax system works.
In most cases, taxes only arise when investment gains are actually realized.
This typically happens when:
✅ ETFs are sold
✅ investment funds are sold
✅ dividends or interest payments are distributed
For long-term ETF savings plans for children in Germany, this often means that taxes may only become relevant many years later.
This can be especially important for expat families investing in Germany, since tax rules in Germany may work differently from those in their home country.
Depending on how the investment is structured, the timing and impact of taxation can vary.
Understanding when taxes occur is therefore an important part of tax-efficient investing for children in Germany, particularly for expat families planning long-term savings strategies.
With a traditional child investment account in Germany (Kinderdepot), the assets legally belong to the child.
This means that all capital gains are also attributed to the child for tax purposes.
In some cases, this can create tax advantages, because children can use their own tax allowances, such as the saver’s allowance and the basic tax allowance.
However, there are also several important aspects that parents, especially expat families living in Germany - should understand:
✅ The invested assets legally belong to the child
✅ At the age of 18, the child receives full control over the money
✅ Capital gains may become taxable when investments are sold
✅ The assets may be considered in certain government support programs (for example BAföG student aid)
For families saving larger amounts over many years, these structural aspects can play an important role in long-term child investment planning in Germany.
Understanding how a child investment account in Germany works is therefore an important step for expat parents who want to build wealth for their children while navigating the German tax system.
In addition to traditional child investment accounts (Kinderdepot), some families in Germany use long-term investment solutions where ETFs are held within an insurance-based investment structure.
These solutions are often referred to as ETF insurance policies or unit-linked investment policies.
The underlying investments can still consist of globally diversified ETFs, similar to those used in a regular investment account.
The main difference is not the investment itself, but rather the tax structure of the investment wrapper.
Within these types of policies, certain tax characteristics may apply, for example:
investment gains often become relevant only at the time of payout
specific long-term tax rules may apply under German tax law
portfolio adjustments within the policy may be tax-neutral
For long-term savings plans that run over many years, these structural differences can influence the overall tax efficiency of investing for children in Germany.
This can be particularly relevant for expat families living in Germany, who may not be familiar with how German investment taxation works.
For a comprehensive overview of the main ways families invest for children in Germany, see our guide:
Saving for Children in Germany: The Complete Guide
When saving and investing for children in Germany, many parents focus mainly on the monthly saving amount.
However, the structure of the investment can be just as important from a tax perspective.
Several questions can influence how an investment is taxed over time:
Who is the legal owner of the investment?
When do taxable gains occur?
Can portfolio adjustments happen without triggering taxes?
When and how will the money eventually be paid out?
For long-term savings plans that run over many years, different investment structures can lead to significant tax differences.
This is why many families, especially expat families living in Germany - look beyond individual products and consider the overall financial structure of their household when planning investments for their children.
Many families start saving for their children with the best intentions.
However, when investing for children in Germany, several common tax-related mistakes can occur, especially for expat families who are not yet familiar with the German tax system.
Understanding these mistakes early can help parents build a more tax-efficient child investment strategy in Germany.
Many parents focus mainly on the expected returns of an investment.
While returns are important, the tax structure of the investment can have a significant impact on the long-term outcome.
Over investment periods of 15 - 20 years, small differences in tax treatment can result in noticeable differences in the final amount available for the child.
Some families simply open an investment account or savings product without considering the long-term structure of the investment.
For expat families living in Germany, this can sometimes lead to unexpected tax consequences later on.
Taking time to understand the legal ownership, tax treatment and long-term flexibility of an investment can help avoid these issues.
If investments are frequently sold or reallocated, taxable gains may be triggered repeatedly.
Over time, this can reduce the efficiency of a long-term savings strategy.
Long-term investment approaches often aim to minimize unnecessary transactions, helping families reduce avoidable tax events while building wealth for their children.
In general, children in Germany are subject to the same tax rules as adults when it comes to investment income.
However, children also benefit from their own tax allowances, which can allow certain capital gains or investment income to remain partially or even fully tax-free.
This can make investing for children in Germany more tax-efficient when the structure of the investment is planned carefully.
Children can benefit from the Saver’s Allowance (Sparerpauschbetrag), which is currently 1,000€ per year.
In addition, the basic tax allowance (Grundfreibetrag) may apply as long as the child’s total annual income stays below that threshold.
When these allowances are used correctly, certain types of investment income may remain tax-free, which can improve the tax efficiency of child investments in Germany.
Investing for a child can offer tax advantages, particularly because the child’s own tax allowances may be used.
However, in many investment structures the assets legally belong to the child, which can have implications for ownership, taxation and access to the funds later on.
For this reason, many families, especially expat families living in Germany - consider the overall investment structure carefully when planning long-term child investments.
In most cases, taxes on ETFs in Germany arise when investment gains are realized.
This usually happens when:
ETFs or funds are sold
dividends are paid out
interest income is received
For long-term ETF savings plans, this means taxes may only become relevant after several years, depending on the investment structure.
Understanding how ETF taxation works in Germany can help families make better decisions when investing for children in Germany.
To understand why taxes play an important role when saving for children in Germany, a simple example can help.
Assume parents invest:
100€ per month
for 18 years
with an average annual return of 7%.
Over time, this could result in a total investment value of more than 40,000€.
However, how much of this amount ultimately benefits the child can also depend on how the investment is structured.
Different investment structures may lead to different tax outcomes over time, especially in Germany’s tax system.
With a traditional child investment account in Germany (Kinderdepot), the securities legally belong to the child.
This means:
capital gains are attributed to the child
selling ETFs can trigger taxable capital gains
dividend payments may also be taxable
Children can benefit from their own tax allowances, which may reduce or eliminate certain taxes.
However, over many years taxable events can still occur repeatedly, for example when investments are sold or when the portfolio is rebalanced.
For long-term savings plans, these recurring tax events can potentially reduce the final amount available for the child.
An alternative structure used in Germany is an ETF insurance policy, where ETFs are held within a long-term insurance-based investment contract.
In this case, the investments themselves can still consist of broadly diversified ETFs.
The main difference lies in the tax treatment of the investment structure.
For example:
investment gains may only become relevant when the policy pays out
portfolio reallocations inside the policy can often occur without triggering immediate taxes
under certain conditions, tax advantages may apply at the time of payout
For long-term savings plans over many years, this structure can sometimes lead to fewer taxable events during the investment period.
This is why some expat families living in Germany compare different investment structures when planning long-term child investments in Germany.
When families begin saving for their children in Germany, they are usually thinking in long time horizons:
15 to 20 years or even longer.
Over such long periods, even small differences in
✅ taxes
✅ fees
✅ the structure of the investment
can have a significant impact on the final amount available for the child.
For expat families living in Germany, this can feel even more complex. Many parents are navigating a financial system that may work very differently from the one in their home country.
At the same time, most parents share the same goal:
to create security, opportunities and financial freedom for their children’s future.
Taking the time to understand these aspects early can help families build a more stable and tax-efficient financial foundation for their children, even while living abroad.
That is why it can be helpful to think about questions such as:
Thoughtful planning can help families build more wealth for their children over the long term.
When parents start saving for their children, they often focus first on investment returns or the monthly savings amount.
However, taxes also play an important role when investing for children in Germany.
Depending on how an investment is structured, there can be significant differences in:
✅ how investment gains are taxed
✅ how tax allowances are used
✅ how flexible the investment structure remains over time
For expat families living in Germany, understanding these aspects early can be especially valuable. The German financial and tax system may work differently from what families know from their home countries.
By considering these factors early, parents can create a more efficient and stable investment structure, helping them build long-term financial opportunities for their children while living in Germany.
Many expat parents living in Germany ask questions such as:
What taxes apply when saving for children in Germany?
Which tax allowances can my child benefit from?
What investment structure makes the most sense for our family?
In a short conversation, we can look at your situation together and explain which options may work best for your family living in Germany.
Book your free Clarity Call here
