Ask a tax advisor on the topic of Capital assets

Amount of capital gains tax for low retirement income

May 20, 2015 | 50,00 EUR | answered by Anton Pernitschka

Dear Sir or Madam,

My wife and I pay a total of 4.8% (on average) income tax according to split tariff without church tax (marginal tax rate just under 20.5%) on our pension income. In addition to the pension income, we have capital gains, which, minus a 1,602 EUR allowance per year as stipulated by the legislator, are subject to a flat tax rate of 25% plus 5.5% solidarity surcharge. Because this seems too high, it appears sensible to include the capital gains along with the pension income when calculating income tax. However, in our case, this leads to the total tax on pension and capital gains being even higher than if pension (4.8% tax) and capital gains (25% plus 5.5% solidarity surcharge) are taxed separately.

Now we have heard that if the income tax rate for retirees (in our case 4.8% according to split tariff) is lower than the flat capital gains tax rate (25% plus 5.5% solidarity surcharge), it should be possible to also tax the capital gains separately according to the existing income tax rate. This would mean that if true, we could tax our capital gains at 4.8% of our average income tax rate or possibly at just under 20.5% of our existing marginal tax rate for pension income - instead of 25% + 5.5% solidarity surcharge.

Question: If this can be done as described above (applying the average income tax rate or marginal tax rate), we would like to know what we need to request from the tax office.

Furthermore, we are always assessed together according to split tariff. The tax on my wife's low pension would be taxed individually (i.e., without joint assessment) = 0 EUR. The capital gain, on the other hand, comes entirely from your assets.

Thank you.

Anton Pernitschka

Dear questioner,

In the context of an initial consultation and your fee commitment, taking into account the regulations of this forum, I would like to answer your question.

Based on the description of your situation, it could be inferred that in the case of joint taxation of your income from pensions and capital assets, a personal income tax rate of less than 25% can be expected.

In this case, it is likely that the pension income will also be taxed at a higher rate than 4.8%. The exact personal tax rate cannot be determined without precise information, especially concerning the amount of capital gains.

However, if the personal tax rate exceeds 25%, the capital gains do not need to be declared in the income tax return. In such cases, the taxation is already covered by the withheld capital gains tax.

If it can be assumed that your personal (average) income tax rate is less than 25%, the pension income and income from capital assets should be reported in the income tax return. The withheld capital gains tax will be credited (deducted) in the tax assessment notice against the income tax liability.

This response is based on the description of your situation. Missing or incorrect information about the actual circumstances may affect the legal outcome.

Best regards,

Anton Pernitschka
Tax advisor