Children have their own tax allowances - and this can be really worthwhile for families. If you want to make capital gains such as interest or dividends tax-free for your children at an early stage, you should be aware of the exemption order. Used correctly, it saves money and lays the foundation for clever asset accumulation.
But how exactly does it work? What information is required and what should parents pay attention to? In this article, you will find out how to make the most of the exemption order for your child - in a clear, practical way and with a view to the financial benefits for your family.
We'll help you find the right investment for your child!
What is an exemption order - and why is it also important for children?
An exemption order is an important instrument for exempting investment income such as interest, dividends or capital gains from withholding tax - up to a fixed amount per year. The state grants every taxpayer this saver's allowance, which can be activated with the exemption. This is not only worthwhile for your own accounts, but also for money that you invest for your child, as even small earnings from a junior account or custody account can be taxable.
With an exemption order, this tax deduction is avoided directly at source. Parents can submit it to their child's bank or credit institution so that the income is automatically tax-free up to the tax-free amount. In this way, more of the savings is left over - a clever step in long-term wealth accumulation.
The saver's lump sum: How much capital gain remains tax-free?
The saver's lump sum is an important building block for clever tax optimization when saving and investing. It determines how much capital income remains tax-free each year before the final withholding tax kicks in.
- This allowance is currently 1,000 euros per person per year - including for children.
- Married couples who are jointly assessed can bundle their exemption orders and thus receive a total of 2,000 euros in investment income per year tax-free. For children, however, it remains at 1,000 euros per head - this amount applies regardless of the parents' tax bracket or family income.
In concrete terms, this means that interest, dividends or capital gains from a junior account or custody account remain untaxed up to this limit. Only when the child's annual capital gains exceed the 1,000 euro mark does the bank automatically deduct 25% withholding tax (plus solidarity surcharge and, if applicable, church tax).
Parents can make the most of their child's saver's allowance by issuing an exemption order in the child's name. The exemption amount can be flexibly distributed across different accounts or banks - the only important thing is that the total amount does not exceed the exemption amount of EUR 1,000.
- Tip: Especially if a child has several investments with different banks, parents should make sure to split the sum correctly so as not to give away any tax.
If you do not submit an exemption order, you run the risk of the bank immediately withholding the final withholding tax - even if the income is actually below the tax-free amount. You can get the money back later via your tax return, but it is easier to submit a suitable exemption order straight away and make the best possible use of the tax-free amount.
The saver's allowance helps you to save for your children in the best possible way for tax purposes and to increase your investment income without deductions - an important basis for successful wealth accumulation from an early age.
Use child investment cleverly: How I4K supports you
Well-planned asset accumulation for children can lay the foundation for a successful financial future. Invest4Kids helps you to find the right investments and make the most of the saver's allowance with the exemption order. This way, you can let your child's capital grow tax-free and benefit from our all-round expertise. Together, we can turn even small amounts into a big head start for your child's future.
Exemption order for children: who can issue it and what is required?
If you invest money for your child, you can use an exemption order to ensure that the investment income remains tax-free up to the saver's lump sum. But who can actually issue the exemption order - and what do you need to bear in mind?
As the legal representative of your child - usually the mother or father - you are authorized to issue the exemption order on behalf of your child. Your child is not yet allowed to do this themselves, even if they already have their own junior account or custody account. You act here on behalf of your child.
Some information is required so that the bank or credit institution can implement the exemption order correctly. First and foremost, this includes your child's tax identification number (tax ID). Every child receives this automatically after birth and you can usually find it on the parents' tax assessment notice or you can request it from the Federal Central Tax Office.
You must also specify the amount of the exemption - a maximum of 1,000 euros per year. You can divide this amount between different accounts or banks as long as the total amount is not exceeded. Make sure that the distribution is clear so that the exemption amounts are taken into account correctly.
It is best to check your exemption order once a year, especially if your child's investment income changes or you open a new account. This will ensure that you make the most of the tax advantage - and that your child's savings can grow unhindered.
Practical implementation: step-by-step instructions
Issuing an exemption order for your child is easier than you think. To make sure you don't overlook any important points and everything goes smoothly, you'll find step-by-step instructions here:
- Have your tax identification number ready
Before you get started, you should have your child's tax identification number to hand. This is required to assign the exemption order and can be obtained from the Federal Central Tax Office.
- Determine the amount of the exemption
Determine how much capital gain you want to make tax-free for your child. Each person is allowed 1,000 euros per year. You can also issue several individual exemption orders if your child has a children's account at different banks - the only important thing is that the total of all exemption orders does not exceed the maximum saver's lump sum.
- Fill out the bank form
Almost every bank or credit institution provides a form for the exemption order - often online. Here you enter your child's tax ID and the amount of the desired exemption. The form is usually clearly laid out and easy to understand.
- Sign order
As your child is still a minor, you sign the order as the legal representative (usually the mother or father). By signing, you confirm that you are submitting the exemption order on behalf of your child.
- Submit exemption order
Submit the completed and signed form to the bank or financial services provider where the child account or custody account is held. Many banks now allow you to submit the form online, by post or directly at the branch.
- Check and adjust regularly
Check once a year whether the exemption order is still correct. It makes sense to update the details, especially if you have several accounts or new investments. This will ensure that your child's investment income remains below the saver's allowance and no unnecessary withholding tax is incurred.
By following these steps, you can make clever use of the benefits of the saver's allowance, avoid tax deductions and help your child to build up assets successfully.
We'll help you find the right investment for your child!
- An additional $25,703 per child, thanks to our modern ETF strategy
- Find the perfect ETF investment for your child in a 30-minute video conference from the comfort of your own home.
- Sit back and watch your child's assets grow – our experts will take care of the rest.
Non-assessment certificate: If the exemption order is not sufficient
Sometimes it can happen that the saver's allowance of EUR 1,000 per year is not sufficient for your child's investment income - for example, if your child has already built up a large amount of assets or several investments generate income at the same time. In such cases, the non-assessment certificate is worthwhile as a supplement to the exemption order.
💡 NV stands for "non-assessment certificate". You can apply for this certificate from the tax office if your child's income is so low that they do not have to pay income tax overall. With the NV certificate, all of your child's investment income is then exempt from withholding tax - regardless of the saver's allowance. The bank will automatically take this into account and will not deduct any tax.
In order for the non-assessment certificate to be issued, you as the legal representative must submit an application to the tax office. In addition to your child's tax identification number, you will also need details of their income and any other tax allowances. As a rule, an informal declaration of the amount of your child's income, which you enclose with the application, is sufficient.
The non-assessment certificate is valid for three years and must then be reapplied for. Once issued, you can submit it to the bank or credit institution where your child has their account or custody account. This ensures that your child's investment income remains tax-free even if the exemption order has already been exhausted.
Tip: Make sure that you apply for the non-assessment certificate in good time to avoid unnecessary tax deductions. This way, you and your child will benefit from an optimal tax structure and at the same time support long-term wealth accumulation.
Avoid tax pitfalls: What parents should look out for
Even though the exemption order and the saver's allowance make it much easier for children to save, small mistakes can quickly lead to tax disadvantages. To make the most of your child's investment income, there are a few important points to bear in mind:
1. determine the correct amount of the exemption order
Make sure that the sum of all your child's exemption orders does not exceed the saver's allowance of EUR 1,000 per year. If you issue individual exemption orders with several banks, you must coordinate the amounts precisely. If you inadvertently exceed the exemption amount, the bank will automatically deduct withholding tax on the excess amount.
2. enter the correct tax identification number
Your child's tax identification number is mandatory on every exemption order. If it is missing or incorrect, the bank cannot take the exemption amount into account and automatically withholds tax.
3. no subsequent exemption possible
An exemption order can only be submitted for the current year, not retroactively. If the bank has already paid the withholding tax, you can only reclaim the excess tax paid from the tax office via your child's income tax return - this is often more complicated.
4. check investment income carefully
Even if children usually earn low investment income, you should keep an eye on this regularly. If the income increases due to interest, dividends or capital gains, it may make sense to adjust the exemption order or apply for a non-assessment certificate. This will ensure that your child's investment income remains tax-free at all times.
5. no improper use
An exemption order may only be issued for your child's custody accounts and accounts. You may not use it for your own investment income or that of other family members - this would be abusive and could have tax consequences.
By paying attention to these points, you can optimize your child's investment income for tax purposes and avoid tax pitfalls. This way, your child will benefit in the long term from successful wealth accumulation without unnecessary tax deductions
Conclusion: Use tax advantages for the next generation
An exemption order is a simple and effective way of making your child's investment income tax-free. With the saver's allowance of EUR 1,000 per year, your child can save interest, dividends and capital gains without having to pay withholding tax - and you support smart wealth accumulation from an early age.
Especially if your child has several accounts or investments with different banks, it is worth carefully coordinating the individual exemption orders. This allows you to make the most of the saver's allowance and avoid unnecessary tax deductions. If the income is higher, a non-assessment certificate is a useful addition.
Therefore, take the time to regularly check your child's exemption orders and investment income. This will ensure that your child benefits from the tax advantages - an important building block for the financial foundation that you can lay today.
Do you have any questions? Just get in touch with us! If you're looking for support, we'll be happy to advise you personally at Invest4Kids. You can also find lots of other practical guides, tools and tips about investing for children on our blog.
We'll help you find the right investment for your child!
- An additional $25,703 per child, thanks to our modern ETF strategy
- Find the perfect ETF investment for your child in a 30-minute video conference from the comfort of your own home.
- Sit back and watch your child's assets grow – our experts will take care of the rest.
