Special Income Tax Germany: Severance, Business Sales & Exits (2026)

Last updated: April 2026

Key Facts

Severance pay: claim the Fünftelregelung — spreads tax over 5 years, saves thousands
Selling company shares (≥1%): only 60% of gain is taxable (Teileinkünfteverfahren)
Private property sales: tax-free after 10 years — timing your sale matters enormously
Stock options: taxable at vesting/exercise — § 19a deferral available for startup employees
Inheritance: €400,000 per child tax-free, resets every 10 years — plan early
Lottery winnings: completely tax-free in Germany
Exit tax: leaving Germany with a 1%+ company stake may trigger immediate tax on unrealised gains
Compensation for personal injury: tax-free under § 3 EStG

Introduction

Most German tax guides focus on regular income — salary, rent, dividends. But some of the most significant tax events in a person’s life are one-off — a redundancy payment, a business sale, an inheritance, a stock option vesting, or leaving Germany permanently.

Special income tax Germany on these events follows different rules — and often offers specific reliefs that can significantly reduce the tax burden if you know how to use them. This guide explains every major category of special and one-off income in Germany in plain English.

Other income (§ 22 EStG): the catch-all category

§ 22 EStG is Germany’s residual income category — it covers income that does not fit into the other six categories. Key types of other income include:

Recurring payments and annuities — not covered by pension rules
Private sales profits — gains from selling assets within the speculation period (§ 23 EStG)
Alimony received — under certain conditions
Certain compensation payments
Income from occasional activities — one-off services not qualifying as self-employment

Governed by: § 22 EStG

Severance pay and the Fünftelregelung

Severance pay (Abfindung) is one of the most common forms of special income in Germany. When you receive a large one-off payment — a redundancy package, a settlement, or compensation for loss of employment — it creates a spike in your income that could push you into a much higher tax bracket than normal.

Germany addresses this with the Fünftelregelung (one-fifth rule) under § 34 EStG — a mechanism that significantly reduces the tax impact of large one-off payments.

How the Fünftelregelung works

Take the exceptional income (e.g. severance pay of €50,000)
Divide it by five (€10,000)
Calculate the tax on your normal income plus one-fifth of the exceptional income
Calculate the tax on your normal income alone
The difference × 5 = the tax on the exceptional income

This effectively taxes the exceptional income as if it were spread over five years — reducing the bracket effect significantly.

Example: James earns €60,000 salary and receives €50,000 severance pay. Without Fünftelregelung his total income would be €110,000 — taxed at up to 42%. With Fünftelregelung: tax on €60,000 + €10,000 (one-fifth) = tax on €70,000, minus tax on €60,000 = marginal tax on €10,000 × 5 = tax on the severance at effectively a much lower rate. The saving can be several thousand euros.

When does the Fünftelregelung apply?

The relief applies to außerordentliche Einkünfte (extraordinary income) — income that is:

Genuinely exceptional and not part of normal recurring income
Paid in a single year (concentration principle — Zusammenballung)

It applies to severance pay, certain business sale proceeds, back-pay for multiple years, and compensation for loss of rights.

Important: The Fünftelregelung is not automatic — you must claim it in your tax return.

Governed by: § 34 EStG

Selling shares in a company (§ 17 EStG)

If you own at least 1% of a GmbH or AG and sell your shares, the gain is taxed as income — not as capital income under the flat 25% Abgeltungsteuer, but as regular income under the progressive rates.

However a 40% exemption applies under the Teileinkünfteverfahren — only 60% of the gain is taxable. Correspondingly, only 60% of any related costs are deductible.

The gain is calculated as: Sale proceeds − Purchase price − Selling costs = Gain Taxable gain = 60% of gain

Example: Priya sells her 5% stake in a Berlin startup for €200,000. She paid €20,000 for it. Her gain is €180,000. Under the Teileinkünfteverfahren, 60% = €108,000 is taxable at her marginal rate. At 42%, her tax on the gain is approximately €45,360 — versus €47,475 without the partial exemption.

Governed by: § 17 EStG

Private sales: the speculation period (§ 23 EStG)

As covered in the Rental Income pillar, gains from selling private assets within a certain holding period are taxable as speculative gains:

Real estate: taxable if sold within 10 years of purchase (unless primary residence)
Other assets (art, collectibles, foreign currencies, crypto held under 1 year): taxable if sold within 1 year of purchase
Annual exemption: gains below €1,000 per year from all private sales combined are tax-free — note this is a Freigrenze, not a Freibetrag: if your total gains reach €1,000 or above, the entire amount becomes taxable, not just the excess

Speculative gains are taxed at your normal progressive income tax rate — not the flat 25%.

Governed by: § 23 EStG

Stock options and equity grants (§ 19a EStG)

Stock options and equity grants from your employer are a form of employment income — taxable when they vest or are exercised, not when they are granted.

Germany introduced a deferral mechanism under § 19a EStG in 2021 (reformed in 2024) for employees of qualifying startups and SMEs: the tax on equity income can be deferred for up to 15 years or until a triggering event (sale of shares, leaving the company, IPO) — whichever comes first.

How § 19a EStG works

Without deferral, employees pay income tax on the value of equity at vesting — even if they cannot sell the shares immediately (the “dry income” problem). With § 19a EStG deferral:

Tax is deferred until the shares are actually sold or a triggering event occurs
The employer must apply to the Finanzamt for the deferral
Qualifying companies must meet size and age criteria

When equity income is taxable

Without § 19a deferral, equity income is taxed as employment income at your marginal rate in the year of vesting or exercise. The taxable amount is the fair market value of the shares at that point minus any amount paid by the employee.

Governed by: § 19 EStG, § 19a EStG

Inheritance and gift tax: overview

Inheritance tax (Erbschaftsteuer) and gift tax (Schenkungsteuer) are governed by the Erbschaftsteuergesetz (ErbStG) — separate from the EStG income tax law. However they are closely related to income tax planning and highly relevant for expats and property owners in Germany.

Key principles

Who is liable:

If the deceased or the heir is tax resident in Germany, German inheritance tax applies to the worldwide estate
If neither is resident but the estate includes German assets (property, German company shares), German inheritance tax applies to those assets only

Tax-free allowances (Freibeträge)

Germany provides generous tax-free allowances that reset every 10 years:

Relationship	Tax-free allowance
Spouse / registered partner	€500,000
Child	€400,000
Grandchild	€200,000
Parent (on inheritance)	€100,000
Siblings, nieces, nephews	€20,000
Unrelated persons	€20,000

Tax rates

Above the allowance, rates range from 7% to 50% depending on the relationship and the value of the inheritance:

Class I (spouse, children, grandchildren): 7%–30%
Class II (siblings, parents on gifts, step-children): 15%–43%
Class III (unrelated persons): 30%–50%

Primary residence exemption

A property used as the primary family home is completely exempt from inheritance tax if:

Inherited by the spouse or registered partner — no conditions
Inherited by children — if they actually live in it for at least 10 years after inheritance

For a complete guide to inheritance and gift tax planning in Germany — including the 10-year gifting strategy and international estates — see the inheritance and gift tax cluster post →.

Governed by: ErbStG

Exit tax: leaving Germany with assets (Wegzugsbesteuerung)

If you leave Germany permanently and you own at least 1% of a company that was subject to German taxation, Germany may assess a deemed disposal tax on unrealised gains — as if you had sold your shares on the day you left.

This is the Wegzugsbesteuerung under § 6 AStG (Außensteuergesetz — external tax law).

When it applies

You held at least 1% of a domestic or foreign company at any point in the 10 years before departure
You were tax resident in Germany for at least 7 of the last 12 years
The shares have unrealised gains

Relief options

If you move to another EU/EEA country, payment can be deferred interest-free until the shares are actually sold
If you move to a non-EU/EEA country, the tax is generally due immediately — though instalment payment arrangements may be available
Double taxation treaties may provide further relief

Example: Priya has been tax resident in Germany for 8 years and holds a 3% stake in a Berlin startup worth €500,000 (original cost: €20,000). She decides to move back to India. Germany assesses exit tax on the unrealised gain of €480,000 — at 60% under the Teileinkünfteverfahren, €288,000 is taxable. The tax bill could exceed €100,000 — due immediately since India is not an EU/EEA country.

Governed by: § 6 AStG

Lottery winnings and gambling income

Lottery winnings in Germany are generally tax-free — winnings from the state lottery (Lotto), Eurojackpot, and licensed gambling operations are not subject to income tax.

However income from professional gambling — if classified as a commercial activity — may be subject to income tax and Gewerbesteuer.

Interest earned on lottery winnings held in a bank account is taxable as capital income in the normal way.

Compensation payments

Compensation payments received for:

Loss of employment — covered by the Fünftelregelung if qualifying
Personal injury — generally tax-free under § 3 Nr. 1 EStG
Loss of rights or property — may be taxable as extraordinary income under § 24 EStG
Insurance payouts for damage to property — generally tax-free to the extent they replace the damaged asset

Governed by: § 3 EStG (exemptions), § 24 EStG (compensation for loss of income)

Key figures for special income in 2026

Item	Amount / Rule
Fünftelregelung — applies to	Extraordinary income concentrated in one year
§ 17 share sale — taxable portion	60% of gain (Teileinkünfteverfahren)
§ 17 threshold — minimum shareholding	1% of company capital
Private sale speculation period — property	10 years
Private sale speculation period — other assets	1 year
Annual exemption (Freigrenze) for private sales	€1,000 (entire gain taxable if exceeded)
§ 19a equity deferral period	Up to 15 years
Inheritance tax — spouse allowance	€500,000
Inheritance tax — child allowance	€400,000
Exit tax threshold — minimum shareholding	1%
Exit tax — years of residency required	7 of last 12 years

Frequently asked questions

I received a redundancy payment of €80,000. How much tax will I pay?

It depends on your other income and whether the Fünftelregelung applies. If you were made redundant as part of a genuine restructuring, the Fünftelregelung almost certainly applies — reducing your effective tax rate on the payment significantly. Claim it on your tax return — it is not applied automatically by your employer.

I sold my flat after 9 years. Is the gain taxable?

Yes — you are within the 10-year speculation period. The full gain (sale price minus purchase price minus costs) is taxable at your marginal income tax rate. Had you waited one more year, the gain would have been completely tax-free.

My employer gave me stock options. When do I pay tax?

At the point of exercise (for options) or vesting (for restricted shares) — not when granted. The taxable amount is the market value at that point minus any amount you paid. If your employer qualifies under § 19a EStG, the tax may be deferred until you sell.

I am leaving Germany and moving to the UK. Will I face exit tax?

Possibly — if you hold at least 1% of a company and have been resident for 7+ of the last 12 years. The UK is no longer an EU/EEA country post-Brexit, so deferral is not automatically available. Seek specialist advice well before your planned departure date.

Are gifts from my parents taxable in Germany?

Gifts are subject to Schenkungsteuer — but the generous allowances (€400,000 per child every 10 years) mean most family gifts fall below the threshold. Gifts below the allowance are completely tax-free with no filing obligation.

Related Tax Guides

Related Guides

This page explains German tax law in plain English for general information purposes. It is not legal or tax advice. Tax rules change annually — always verify figures against official sources or consult a Steuerberater for your specific situation.