Claims arising from a revoked loan agreement

The repayment of loan interest paid after the revocation of a loan agreement is not a taxable capital gain.

Because many banks used revocation instructions for their loan agreements in the past that were later found to be incorrect, borrowers were able to revoke their loan agreements even years later and in some cases conclude significantly more favorable agreements with lower interest rates. The Baden-Württemberg Fiscal Court has now clarified that the refund claims from a revoked loan agreement for interest and redemption installments already paid do not lead to income from capital assets. This is because the borrower has not generated any income of any kind through the reversal, but has merely achieved a reduction in the interest owed on the loan. At most, the reduced interest burden has an effect for tax purposes if the interest was previously deducted as income-related expenses or business expenses.