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Life insurance policy terminated prematurely in 2004.

November 20, 2015 | 50,00 EUR | answered by StB Patrick Färber

In 2004, a life insurance policy was taken out. Regular payments were made over 5 equal annual installments, with a term of 20 years, making it perfect for tax-free income in the future. However, the insurance policy was terminated prematurely in 2011.

I understand that the interim capital gains from the insurance policy must now be taxed, without the previous deduction of insurance administration costs. The question is, in which years should the income be taxed? Should it all be taxed in the year of termination (the "inflow year") 2011, with the capital gains tax? Or should the years since 2004 be considered individually (since the tax exemption on the gains has been subsequently removed), with the specific capital gain for each year since 2004 being taxed? Providing the source for this information would be great.

StB Patrick Färber

Dear inquirer,

Indeed, the interim profits are taxed because there is a "harmful use". The taxation is carried out in accordance with Par. 20 Abs. 1 Nr. 6 S.1 EStG. The taxation takes place in the year of inflow, in this case with flat-rate tax. This results from the general principle of inflow in the context of surplus income, Par. 11 Abs. 2 EStG.

Best regards,
Patrick Färber
Tax Advisor