Shares in investment funds acquired in private assets before 01.01.2009 are tax-protected old shares. Because unlike those who carry a younger acquisition date, the legislature granted the owners when the capital gains tax was introduced that they can sell these shares tax-free after a speculative period of one year. Inherently protected old shares in investment funds were therefore allowed to be sold tax-free – at least for a while. Because in 2018, the legislature changed its earlier requirement again. Until 31.12.2017, the existing protected shares could be sold 100% tax-free to investment funds. However, if they are retained, then the increases in the shares since that date are subject to capital gains tax. However, you can use an allowance of EUR 100,000. But this allowance is personal. Thus, a doubling of the allowance amount is excluded in the case of an investment together. However, you can also cleverly give away old shares, so that the gifted persons can use their own allowance.

When we deal with the sale of shares in investment funds, we have to differentiate whether the shares were bought before 01.01.2009 or later. In the former case, it is still important whether the shares are held in private assets or in business assets. So if the former applies in each case, we speak in tax terms of so-called stock-protected old shares in investment funds. The legal definition of this is provided by § 56 paragraph 6 InvStG.

In this article, we want to shed more light on what these legacy-protected shares in investment funds are all about. But first, let’s look at how to sell shares you only acquired after 2008.

The sale of shares in mutual funds that a taxpayer purchased after 2017 is fully taxable. This means that the capital gains tax is 25 %. In doing so, one calculates the taxable profit by deducting from the selling price the acquisition costs including all additional costs. If necessary, you can claim the savings flat-rate amount of EUR 801 for individual investments or EUR 1,602 for joint investments. In addition, the custodian credit institution retains the capital gains tax as withholding tax and pays it to the tax office. Thus, the tax on the capital gain has basically already been paid off.

It can be that simple if you want to sell shares in mutual funds today. However, our concern is to explain the special case with the existing protected old shares in investment funds. Based on this, we continue to discuss the possibilities available to reduce the tax.

As already anticipated, when considering the taxation of the sale of existing protected shares, two deadlines come to the fore. They determine decisively how to tax these stock-protected old shares in investment funds.

The first case applies to the sale of the existing protected shares to investment funds between 01.01.2010 and 31.12.2017. This case can be solved quite easily from a tax point of view. Because in this case, the legislature had legally assured the purchasers of the shares acquired before 01.01.2009 that the sale, as before, remains tax-free. For this reason, many tax consultants had recommended their clients to invest their capital in mutual funds in the run-up to the introduction of the capital gains tax.

But why do we restrict the period of tax-free sales from the beginning of 01.01.2010, when the tax exemption already applies from 01.01.2009? The reason for this is that at that time you always had to pay a tax on profits on sales within a year. There was talk of a one-year speculative period.

Now we look at the rules for taxing existing protected shares in investment funds from 01.01.2018. Because at this time, the legislature revised its previous taxation practice in this regard. On the one hand, the tax exemption on the sales profit of existing protected shares in investment funds was left until the expiry of 31 December 2017. However, any increase in the value of the old shares that takes place after this date is regularly subject to capital gains tax at 25%. Basically, you take a fictitious, tax-free sale on 31.12.2017 and consider the increase in value as taxable, which you would have received if you had acquired the shares at the fictitious sales price at the turn of the year 2017-2018.

Of course, as an affected investor, one wondered that the legislator initiated a very obvious U-turn to his previous policy, with which he conceded his own requirements – and that is quite euphemistically meant. The legislator has certainly anticipated this in his legislative proposal. Therefore, he introduced – as a kind of comfort pavement – a generous allowance of EUR 100,000 in this course. Thus, profits from the sale of existing protected shares up to an amount of EUR 100,000 remain tax-free. However, every additional euro won is subject to capital gains tax.

But who is entitled to the allowance? Well, in the simplest case, of course, the investor who acquired the existing protected old shares in the investment funds at the time, i.e. before 2009. But unlike most allowances, the type of investment does not matter. Therefore, unlike, for example, when applying the lump-sum savings allowance, the allowance does not double to EUR 200,000 for the joint investment of spouses. The allowance for the sale of existing protected shares in investment funds therefore remains in principle tied to the then purchaser.

In the last sentence of the previous section, we already significantly restricted the general regulation on the binding of the allowance to the acquirer by the deliberately inserted “in principle”. Based on this, we now consider the possibilities with which we can circumvent the principle in order to benefit from the allowance more than once.

Well, if you own stock-protected old shares in investment funds whose taxable profit is above the allowance of EUR 100,000, then you can give this excess share to another person. Because on the one hand the gift requires an acquisition on the part of the gifted, but the gift is not a purchase. Rather, the recipients assume the legal succession to the ownership of the existing protected old shares in the investment fund. In other words, it is as if they had bought the shares themselves before 01.01.2009. Therefore, they are also allowed to claim all aspects of the tax exemption for the sale of the existing protected shares for themselves, although they received them as part of a gift.

Of course, this division of the existing protected shares in investment funds with all their tax privileges also applies in the case of an inheritance instead of a gift.

As beautiful as this model may sound, there is another aspect that must be considered in addition. Of course, the free transfer of assets is also subject to gift tax or inheritance tax when it comes to existing protected shares in investment funds. Here you should also pay attention to the gift tax allowances, which can be used depending on the degree of kinship to the giver over a period of ten years.

Again, is this model too good to be true? In this regard, the attitude of the financial administration is particularly important. Does it accept the so-called legal succession by the gifted? After all, it is quite obvious that the gift is mainly used to use further allowances. In this way, one can achieve exactly what the legislature actually wanted to avoid with its change of law on 01.01.2018, namely that the sale of the existing protected shares to investment funds takes place completely tax-free.

But the answer to this core question is clear: yes, it is permissible to generate further allowances by donation. The legislature decided this point positively by discussing the possibility itself by means of a BMF letter (paragraph 56.98) and deeming it admissible. Fortunately, in this case, the usual legal proceedings before the tax courts or the Federal Finance Court were avoided.