German Life Insurance Policies To Lose Tax Exempt Status

by Ulrika Lomas, Tax-News.com, Brussels

29 April 2004

Payouts from German life-insurance savings products are to lose their tax exempt status under government proposals, although savers will retain a small tax break when policies mature, it was announced on Tuesday.

At present, investors in such policies, which pay out a lump sum or annuity on maturity, are exempt from taxation if they have held the savings plan for a minimum of twelve years.

However, faced with a future pensions crisis as a result of an ageing population, the German government is trying to encorage people to save for their pension, and has argued that the proceeds from life insurance schemes aren’t always used for retirement, and are therefore undeserving of preferential tax treatment.

However, as a small concession to the country’s insurance industry, which has lobbied hard to prevent the changes, the authorities will allow savers to take advantage of a tax accounting rule that will reduce the amount of tax paid on a maturing policy, provided that it has been held for twelve years, or the policy holder has passed their sixtieth birthday.

The new law is applicable only to life insurance policies entered into after January 1 2005.

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