In its judgement of 24 March 2026 (VIII R 30/24), the Federal Fiscal Court (BFH) has expressly amended its previous case law on the tax treatment of interest-free seller’s loans in private assets: If the contracting parties agree to a deferral of the purchase price free of charge (interest-free), there is, in principle, no taxable consideration for the provision of capital within the meaning of section 20(1)(7) of the Income Tax Act (EStG). Any interest component calculated, for example, in accordance with Section 12(3) of the Valuation Act (BewG), is therefore not taxable.
In 2021, a married couple sold a developed plot of land, which they had held for more than ten years, to their daughter by means of a notarised contract. In return, a purchase price corresponding to the market value of the property was agreed, which was initially deferred and was to be paid in monthly instalments. Interest was expressly not agreed. The amount represented by the waiver of interest was gifted to the daughter as a reduction in the purchase price. The reason for setting the instalment amount was that bank financing, which would have enabled the daughter to settle the purchase price immediately, was not available to her, and she could only afford to pay a certain amount each month. The couple did not declare any capital gains in connection with the sale of the property. In contrast, following a review notice, the tax office calculated, on a standardised basis in accordance with Section 12(3) of the Valuation Act (BewG) (5.5%), which it taxed as income from capital assets under Section 20(1)(7) of the Income Tax Act (EStG) and subject to the separate tax rate under Section 32d(1) of the Income Tax Act. Following an unsuccessful appeal against the income tax assessment notices for 2021 and 2022, the Schleswig-Holstein Finance Court upheld the couple’s claim.
The Federal Fiscal Court (BFH) dismissed the tax office’s appeal as unfounded. The decision contains several statements of practical significance:
No capital gains in the case of an interest-free deferral: Where, in the case of a transfer of an asset from private assets for consideration, the parties agree that the instalments are to be credited in full against the purchase price and that the deferral is granted interest-free, the deferral is to be regarded as having been granted free of charge. Any interest component, whether determined on an economic basis or by application of Section 12(3) of the German Valuation Act (BewG), does not constitute taxable consideration for the provision of capital. The Senate no longer adheres to its earlier case law to the contrary.
Section 12(3) of the Valuation Act (BewG) does not give rise to tax liability: this provision does not remedy the absence of, or the lack of intent regarding, an interest agreement in the private sphere. Neither does Section 20(1)(7) of the Income Tax Act (EStG) refer to Section 12(3) of the Valuation Act (BewG), nor does Section 12(3) of the Valuation Act give rise to tax liability within the scope of application of Section 20(1)(7), first sentence, of the Income Tax Act.
No gift by mere deferral: The interest-free deferral of the purchase price claim does not constitute a generous gift under Section 7(1)(1) of the Inheritance Tax Act (ErbStG), as the necessary transfer of assets is lacking. Furthermore, the transfer of the land itself took place for full consideration at market value. In this respect, the Federal Fiscal Court (BFH), departing from its previous case law, corrected the reasoning of the Finance Court but upheld the outcome.
Relevance of the civil law agreement: The basis for the assessment is the content of the purchase price agreement. The situation is different only where there are conflicting circumstances, such as the concealment of an interest agreement or an abuse of legal form under Section 42 of the German Fiscal Code (AO), for example, if the purchaser would have had to pay a lower amount had payment been made immediately. No such indications were present in this case. The interest-free deferral was economically necessary in order to enable the daughter to make the purchase at all. A vendor is not obliged, for tax reasons, to refrain from the intended sale due to the purchaser’s lack of financial capacity and to sell their property to a purchaser with greater financial capacity.
This judgement gives rise to several important practical implications:
Firstly, in the case of transfers of private assets within the family or to close relatives, the interest-free deferral and the full crediting of each instalment towards the purchase price should be expressly and unambiguously agreed in the contract.
Secondly, for a transfer to be considered a transfer for full consideration, the agreed purchase price must correspond to the market value.
Thirdly, the economic reasons for the interest-free deferral (e.g. the purchaser’s lack of financing options) should be clearly documented to prevent any allegations of tax-motivated arrangements.
It should be noted that the tax authorities may still challenge an interest-free deferral if there are indications of a concealed interest agreement or an abuse of the tax system. However, the judgement provides considerable legal certainty for the common scenario of asset transfers in private wealth in return for interest-free instalment payments.
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