Pensions – “old” life insurance policies – tax-free – special expenses

Currently

contributions to certain private pension insurance policies can only be deducted as special expenses to a certain extent (cf. Section 10 (1) No. 2 (b) EStG); when the pension is paid out, it is taxable at a rate that depends on the date of retirement. In the case of payouts from endowment insurance policies, only half of the income is taxable if the payout is made after the age of 60 and at least 12 years after conclusion of the policy (Section 20 (1) No. 6 EStG).

For contracts,

concluded before December 1, 2005, the income is fully tax-exempt when the capital is paid out in these cases. If a pension option is exercised, the pension from these “old contracts” is taxed by the tax authorities at the so-called income share.

The Fiscal Court of Baden-Württemberg

considers this practice to be inadmissible. Since the lump-sum payout is fully tax-exempt in the case of these favored “old contracts,” it would not be justifiable to tax income from the insurance in the same way when exercising the pension option as is the case with non-favored life insurance policies. This question is now before the Federal Fiscal Court for a decision. Until then, it should be examined whether income tax assessments in which pensions from “old” life insurance policies are taxed should be challenged by means of an appeal in order to be able to subsequently achieve tax exemption if the Federal Fiscal Court rules accordingly.

(Further comments & information on this can be found in our information letter 07/2018 under the item 3.)