If the contracting parties agree at the transfer for consideration of a private asset, such that the acquirer Purchase Price in Installments are to be rendered and are to be paid in full as consideration for the purchased item, it must be assumed that interest-free deferral the purchase price claim should be taken as the basis if the deferral provided for in the installment payment agreement is granted without interest.
Practical example:
The sellers had sold a property to their daughter and agreed to an interest-free installment payment plan. The parents and daughter had expressly agreed that the payments would be credited in full toward the purchase price and that the deferral of the payment obligation would be considered a gift. Nevertheless, the tax office determined an interest component, which it taxed as taxable capital income pursuant to Section 20(1)(7) of the German Income Tax Act (EStG).
The Federal Fiscal Court (BFH) clarifies that a purchase price agreement involving interest-free installment payments is not automatically subject to gift tax or income tax. Exception: This constitutes tax planning abuse or an economically unsustainable agreement. The Federal Fiscal Court (BFH) emphasizes that arrangements within families may be justified—for example, to reduce the financial burden on a family member—without this giving rise to tax consequences. Furthermore, the BFH has ruled that in such cases, the so-called „present value method“ (Section 12(3) of the German Property Valuation Act (BewG)) is not applicable for the purpose of generating taxable interest income.
Conclusion: With this ruling, the Federal Fiscal Court (BFH) has revised its previous case law. It emphasized that, in the case of agreements on installment payments, the expressly the agreements reached by the parties involved are decisive. This ruling thus provides greater legal certainty for family agreements in which the parties’ financial capacity and mutual trust are paramount.