Child tax allowances pay off

Children, like their parents, are entitled to annual allowances for income tax. These allowances can legally reduce the tax burden. Particularly with capital gains, a strategic distribution within the family can bring tax advantages. Despite still moderate interest rates, it is worth exploring this option.

Capital Gains and Tax Allowances 2025

To fully utilise the saver’s allowance of 1.000 Euro at an interest rate of 2.5%, approximately 40.000 Euro would need to be invested. Parents should check whether capital gains can be transferred to the children to benefit from their tax allowances. Children can use the following tax allowances in 2024, provided they only have income from capital assets:

• Basic allowance 12.096 Euro
• Saver’s allowance 1.000 Euro
• Special expenses allowance 36 Euro
• Total tax-free (per child) 13.132 Euro

This means: Capital gains such as interest, dividends, or profits from the sale of securities remain tax-free up to an amount of 13.132 Euro.

Gifts of Capital Assets to Children

Parents can transfer capital assets to their children up to an amount of 400.000 Euro per child without incurring gift tax. However, the transfer of assets must comply with civil law regulations and not be solely for tax avoidance. To ensure this, the following points must be observed:

• The capital must be paid into the child's account or deposit.
• Parents must no longer have unrestricted access to the capital or its income.
• The gift must be credible and documented.

Additional Aspects for High Capital Income

Children with high capital gains may need to make their own contributions to statutory health insurance. Additionally, such income can affect benefits such as BAföG, as certain income and asset limits must be observed. Therefore, it is advisable to have larger asset transfers checked for tax and legal implications.