The Wohndepot: A New Subsidy for Future and Existing Home Owners

How Can You Use the AV Depot for Homeownership?

The new Altervorsorge Depot, AVDepot for short, has a surprising feature that makes it very attractive for both future and existing homeowners. You can use it to accelerate your savings toward a home purchase and receive an attractive state subsidy, or, if you already own a home, you can use it to pay off your mortgage and benefit from the same subsidy.

We will refer to this as the Wohn-Depot. This option is the successor to the old Wohn-Riester scheme, but unlike the old system, it is actually quite attractive. Let’s first explain why it is attractive.

How Does the WohnDepot Work for Future Homeowners?

You save up to 150 € per month in an AV Depot and receive a state subsidy of 25 to 50% on your contributions. When you purchase a home, you use the accumulated savings as a down payment, including all state subsidies, penalty-free.

The minimum subsidy is 50% on the first 360 € contributed per year and 25% on the next 1.440 €.  In other words, you get 490 € in subsidy on a savings of 1.800 €, for a total of 2.290 €.

If your marginal tax rate is higher than the subsidy rate, you automatically receive an additional rebate through your tax return (Günstigerprüfung).

Example. A couple saves 3.600 € per year in an AV Depot and deducts the contributions from their taxable income. At a marginal tax rate of 30%, this yields € 1.080 in annual tax savings. This adds up over a 5-10 year period. Of course, you need much more to buy a home, more like 50.000 €, but it helps.

Additionally, you can get 100% subsidy per child up to 300 € per child per year. 

How Does the WohnDepot Work for Existing Homeowners?

If you already own a home, you save up to 150 € per month per adult in an AV Depot, collect the 25-50% subsidy, and then use the accumulated capital to pay off your mortgage. By doing so, you save on mortgage interest, while also benefiting from the state subsidy.

In effect, it is a form of the AV depot where you get a guaranteed return, namely the interest rate you save on your mortgage. If you compare this to the alternative of investing in a bond, it has two benefits:
1) The interest you save on your mortgage is typically about 1 % higher than the rate you would get when investing in a government bond.
2) You don't pay any managing fees. 

You can use the savings annually to reduce your mortgage, but it is often more financially attractive to wait, first harvest even higher returns in the stock market, and then make a larger lump-sum repayment.

Example. A couple with 2 kids saves 300 € per month over 20 years, and gets each month 140 € in subsidies. With subsidies, they save a total 105.600 €, of which 33.600 € are subsidies. If they use these savings to pay off the mortgage each year, they save another 55.781 € in interest. If the same couple invests the money instead and then pays off the mortgage after 20 years, they can use the investment returns of 139.544 € to reduce their mortgage, on top of their savings and subsidies. Indeed, this is the power of compounding. This repayment can all be tax-free!

At Pensionfriend and Hypofriend, we help you make the most of your savings.

Book a free meeting here to check the best use of an AV Depot for you.

How Is the AV Depot Taxed When Used for a Home?

No taxes are due as long as the money remains invested in your home.

You can sell your home and buy another one without triggering a tax bill, as long as you reinvest at least the amount previously withdrawn from the AV-Depot into the new property, use the new property for your own occupation, and it is located within the EU.

If you sell the home more than 5 years after retiring, no taxes are due at all. If you sell earlier and do not reinvest the proceeds into an AV Depot, you would owe income tax on the subsidies you originally received. 

However, you do not pay tax on the implicit return (the interest saved) generated while the money was invested in the home, only on the investment gains made while the capital was held in the AV Depot itself.

Therefore, even if you decide to sell early, it is still very worthwhile to open a Wohndepot and use the subsidized proceeds to reduce your mortgage payments.

What Do I Do With My Riester Wohnung?

Transfer it to the new AV Depot; do not cancel it. Transferring eliminates the 2% annual charge on your Wohnförderkonto and significantly reduces the tax window when you sell your home. 

See below for the transfer costs and why the new system is better.

Kündigung Wohn-Riester: Can I Cancel My Wohn-Riester Contract?

No, canceling a Wohn-Riester contract means repaying all subsidies and tax benefits you have received. The right move is to transfer it to the new AV Depot instead, which is free if your contract is more than five years old. When the contract is newer, the cost is capped at 150 €.

Why Is the WohnDepot Better Than Wohn-Riester?

The new system improves significantly on Wohn-Riester in three ways: 

• The period during which taxes are still due on the sale of the property is reduced from 20 years to just 5 years after retirement. 

• After those 5 years, all monitoring of property use ends completely; you can sell, rent out, or move without any tax penalty.

• The amount on which taxes are due is, in any case, limited to the amount you invest in your home, unlike the fictitious Wohn-Riester tax account (Wohnförderkonto), which grows at 2% per year. 

Conditions for Using the AV Depot for a Home

The main condition is that you need to hold the property until retirement plus 5 years to fully avoid taxation on the original subsidy. However, the alternative of selling early is still attractive, and the tax and interest savings over the holding period generally far outweigh the eventual tax due.

One practical thing to check: not every AV Depot provider offers the home withdrawal option, as it is optional under the new law. If you plan to use your depot for a home purchase or mortgage repayment, make sure your provider, like Pensionfriend, explicitly offers this feature before signing up.

Book a free meeting here to check the best use of an AV Depot for you.