Tax benefits remain even after revocation – Federal Fiscal Court ruling, case no. II R 34/22
According to Section 13a of the Inheritance and Gift Tax Act (ErbStG), tax benefits can be claimed for the gift of business assets. The Federal Fiscal Court ruled on March 19, 2025 (case no. II R 34/22) that the tax benefit may remain valid even if the gift is revoked.
Introduction to Gift Tax
Gift tax is a key issue in German tax law and applies to any gratuitous transfer of assets between living persons. It is regulated in the Inheritance and Gift Tax Act (ErbStG) and ensures that gifts – similar to inheritances – are subject to tax assessment. The Federal Fiscal Court (BFH), as the highest court for tax and customs matters, plays a decisive role: Its rulings significantly shape the interpretation of gift tax regulations and provide legal certainty in the entire area of fiscal jurisdiction.
Tax Classes and Allowances for Gift Tax
The amount of gift tax depends on the value of the gift, the degree of kinship between the donor and the recipient, and the applicable tax class. In Germany, there are three tax classes: Tax Class I applies to spouses, registered life partners, and direct descendants such as children; Tax Class II includes parents, grandparents, and further relatives; Tax Class III covers all other persons. Different tax rates and allowances apply depending on the tax class, which can reduce the taxable acquisition. Particularly high allowances exist, for example, for children, which often results in tax advantages for gifts within the family.
The Right of Revocation of Gifts
An important aspect related to gifts is the right of revocation. In certain cases, a gift can be revoked, for example, if a revocation clause has been contractually agreed upon. The exercise of the right of revocation is subject to a legal or contractually stipulated deadline – the so-called revocation period. This period usually begins upon receipt of the revocation instruction and commonly lasts 14 days. The exact conditions of the right of revocation and the revocation period may vary depending on the contract and individual circumstances.
Tax Planning Options and Exemptions
Various options are available to reduce the tax burden: in addition to allowances, there are exemptions, for example, for gifts to spouses or under certain conditions for business assets. However, the correct use of these tax advantages requires precise knowledge of the current legal situation and relevant court rulings. The Federal Fiscal Court and the fiscal courts ensure through their decisions that the regulations on gift tax are continuously adapted to legal developments.
Anyone planning or receiving a gift should inform themselves early about the applicable tax rates, allowances, and exemptions. Due to the complexity of the regulations and the importance of current rulings – for example, those by the BFH – it is advisable in case of doubt to consult an experienced tax advisor or lawyer in order to optimally utilize all possibilities and avoid legal pitfalls.
Gift of Business Assets and Relief Deduction
Under certain conditions, the gift of business assets can be tax-free up to a relief deduction of 85 percent. For example: if business assets valued at 1,000,000 euros are gifted to children, the gift tax can be significantly reduced after deducting the allowance and applying the relief deduction. The cost of the gift results from calculating the remaining tax burden after all allowances have been deducted. The Federal Fiscal Court (BFH) recently ruled that the tax benefit remains effective even in the case of a fictitious usufruct if the donor has reclaimed the company shares and the donee retains only the economic benefit, explains the law firm MTR Legal Rechtsanwälte, which also advises on tax law. Particularly with gifts to children, tax advantages arise from using the allowance. It is also important to consider the differences between gift tax and inheritance tax. The legal regulations and the ruling can be found as a source in the Federal Fiscal Court ruling (case no. II R 34/22) and in the ErbStG.
Revocation of the Gift
In the underlying proceeding before the BFH, a father granted his daughter sub-participations of 30 percent each in three corporate entities by notarized gift agreements. The contracts play a central role in setting the legal framework and specifying the respective rights and obligations of the parties. The donor contractually reserved a right of revocation for the event that he has further children or there are significant changes to the inheritance tax law. Due to the sub-participation, the daughter was involved in the profits or losses derived by the father from his company shares. These sub-participations could be tax-preferred under Section 13a of the ErbStG.
After the reform of the Inheritance Tax Act, the father exercised his agreed right of revocation in 2009 and withdrew the subordinate participation. There is the possibility to choose different contractual arrangements that can affect the tax consequences. From a tax perspective, a reversal of a gift according to Section 29 Paragraph 1 No. 1 of the Inheritance Tax Act generally leads to the gift tax being waived to the extent that the gift is returned. In the course of tax treatment, the precise calculation of the gift tax in the event of revocation is crucial to determine the correct tax amounts. If the recipient has derived benefits from the gift, they are treated as if they had a usufruct on the item. This results in the value of this right of use being taxable. The conclusion of the gift and the official designation of the respective rights and obligations are decisive for the tax classification. The tax office treated the benefits derived by the daughter as usufruct and therefore did not want to grant the tax relief because the daughter’s co-partnership status ceased due to the revocation of the gift.
Tax Relief Remains
The father successfully contested this. As the Fiscal Court had already decided, the Federal Fiscal Court (BFH) also ruled that the tax relief remains in place. If an exemption amount or a relief deduction was granted during the original gift, this benefit remains valid for the valuation of the fictitious usufruct, the BFH made clear.
In the specific case, the tax relief was lawfully granted at the original transfer of the subordinate participation. Through the gift, the daughter became a co-entrepreneur with opportunities and risks. She was also granted control rights similar to those of a limited partner. After the revocation, the gifted daughter retained only the economic benefits for the period between transfer and return. This period is treated for tax purposes like a usufruct, which remains part of the original acquisition, the BFH further emphasized. Consequently, the value of this usufruct is taxable but under the application of the same tax relief that already applied at the original gift.
An example: If a daughter is gifted an asset worth 400,000 euros, she can fully utilize the exemption amount of 400,000 euros available for children. If additional costs arise from the usufruct during the period between transfer and return, these are taken into account in the tax calculation. This way, the effective tax burden can be significantly reduced through the use of the exemption and consideration of the costs.
Gifts to children often offer tax advantages compared to inheritance transfers because the exemption amount for children can usually be used. It is important to consider the differences between gift tax and inheritance tax to choose the optimal tax structuring.
The legal provisions and the BFH decision can be found in the source: Section 13a of the Inheritance Tax Act and BFH ruling of July 26, 2022, II R 25/20.
Tax Reduction Linked to Gift
According to Section 29 Paragraph 2 of the Inheritance Tax Act, the fictitious usufruct only corrects the value of the taxable acquisition; it does not create a new taxable event. Thus, there is no “second gift date”, only a revaluation of the original acquisition. One reason for the BFH decision is that the revocation clause does not trigger a new gift but merely adjusts the value of the acquisition. Therefore, there is no basis to deny the tax relief, the BFH further explained. The revocation does not retroactively affect the daughter’s co-partnership status.
With the conclusion of the proceedings, the BFH, in its official capacity as the highest German tax court, clarified that the tax relief for business assets under Section 13a of the Inheritance Tax Act is not automatically lost if a gift is withdrawn based on a revocation clause. The tax reduction is linked to the gift and also applies according to BFH case law if it concerns only the taxation of the temporary use. The decision provides legal certainty for donors and recipients who agree to such clauses for economic or family reasons. Source: BFH ruling of March 15, 2023, II R 10/21, status: October 6, 2025.
Reliable Legal Advice on Gift Tax
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