Many ETF savers get a surprise in early January: the bank debits tax although not a single unit was sold. The reason is called the Vorabpauschale, the advance lump sum, and it is one of the most misunderstood parts of investing in Germany.
What the advance lump sum actually is
Until 2018, accumulating funds, meaning those that reinvest income automatically, could defer tax almost indefinitely. Whoever never sold, never paid.
The investment tax reform ended that. Since then a notional minimum return is taxed every year, even when nothing is distributed and nothing is sold. That notional return is the advance lump sum.
The 2026 calculation
Base rate: for 2026 the Federal Ministry of Finance set the base rate at 3.20 percent, published on 13 January 2026.
Base yield = fund value at the start of the year × 3.20 % × 0.7
The factor 0.7 is a statutory reduction of 30 percent.
Advance lump sum = the smaller of the base yield and the actual increase in value during the year.
That last point is decisive and often overlooked: if your ETF fell during the year, no advance lump sum arises.
A worked example
Portfolio value on 1 January 2026: 30,000 euros. Base yield: 30,000 × 0.032 × 0.7 = 672 euros.
Suppose the ETF rises by 4,000 euros during the year. Since the base yield is smaller, the advance lump sum is 672 euros.
For an equity ETF, 30 percent stays tax free through partial exemption, so 201.60 euros. That leaves 470.40 euros taxable.
With a tax-free allowance of 1,000 euros per person and an exemption order in place, no tax would be debited in this example, provided the allowance has not already been used elsewhere.
Partial exemption
| Type of fund | Tax-free share |
|---|---|
| Equity funds and ETFs with at least 51 % equities | 30 % |
| Mixed funds with at least 25 % equities | 15 % |
| Pure bond and money market ETFs | 0 % |
Partial exemption applies both to the advance lump sum and to gains on sale.
The date that causes trouble
The advance lump sum for 2026 is treated as received on the first working day of 2027. In early January 2027 your bank automatically debits the tax from the settlement or reference account.
This is where the most common problem arises: if there is too little money in the account, the bank may sell units depending on the terms, or a direct debit fails. Both are avoidable.
In practice: keeping a few hundred euros of buffer in the account in January saves the whole hassle.
The advance lump sum is the smaller part of the bill. What costs far more over time is the wrong framework around the investment: cost ratio, wrapper, withdrawal strategy. We can look at that in 30 minutes.
Discuss your portfolio →What you can actually do
Check your exemption order. 1,000 euros per person, 2,000 for jointly assessed couples. With several accounts you have to split the amount. A missing exemption order is the most common reason for paying tax unnecessarily.
Split across banks. The allowance is not distributed automatically.
Buffer in January. See above.
Do not rush anything. The advance lump sum is no reason to change your investment strategy. It shifts the timing, it does not raise the total tax.
- The exemption order is in place and split across all accounts
- There is enough money in the settlement account in January
- I know whether my ETF counts as an equity fund (30 % exemption)
- With a foreign account: I know I have to declare it myself
- Married couples: the 2,000 euro allowance is used jointly
Important note
This text explains the general mechanics as they currently stand. It is not tax advice and cannot replace an individual review. A tax adviser is responsible for your specific situation.
What I do in the consultation is different: I make sure the structure around your investment fits, meaning which wrapper, which cost ratio, which withdrawal strategy later. A good ETF in the wrong framework costs noticeable return over twenty years, and nobody notices as long as nobody does the maths.
Common questions
Does it affect distributing ETFs too? In principle yes, but distributions are offset. If enough has already been distributed during the year, often little or no advance lump sum arises.
Do I have to declare anything? With a German account and an exemption order, the bank handles it automatically. With foreign accounts it is different.
What happens when I sell? Advance lump sums already taxed are deducted from the capital gain. You do not pay twice.
