The Bundesfinanzhof (BFH, Federal Fiscal Court) is changing its previous case law on the tax treatment of interest-free purchase price instalments. If, in the transfer for consideration of an asset held as private property, an interest-free deferral of the purchase price is agreed, the tax authorities may generally not assess notional interest income for the seller. This also applies where, from an economic perspective, a notional interest component can be calculated in the individual instalments. In its judgment of 24 March 2026 (case no. VIII R 30/24), the BFH has thus made a significant change to its previous case law for private asset transfers.
Transfer of real estate within the family
The proceedings concerned the sale of a developed plot of land by a married couple to their daughter. The parents had previously owned the property for more than ten years. The real estate purchase was notarised on 23 April 2021; possession, benefits and risks passed to the daughter on 1 May 2021.
As consideration, the parties agreed on a purchase price corresponding to the value of the property, payment of which was initially deferred. The daughter was to pay the amount in monthly instalments. Interest was expressly excluded. The contracting parties also recorded that the purchase price reduction inherent in this waiver was being gifted to the daughter. To secure the purchase price claim, a land charge was created in favour of the parents.
The background to the agreement was the daughter’s financial situation: bank financing that would have enabled her to pay the purchase price immediately was not available to her. The instalment agreement was nevertheless intended to enable her to acquire the property.
The parents did not declare any investment income from the instalment payments for the years in dispute, 2021 and 2022. The Finanzamt (tax office) took a different view. Applying § 12 para. 3 BewG (German Valuation Act), it calculated notional interest components in the instalments paid and treated them as income from capital assets pursuant to § 20 para. 1 no. 7 EStG (German Income Tax Act). It subjected the corresponding amounts to the separate tax rate under § 32d para. 1 EStG.
The Schleswig-Holsteinische Finanzgericht (Schleswig-Holstein Tax Court) upheld the parents’ action by judgment of 17 September 2024 (case no. 4 K 34/24). It assumed that the notional interest components had been transferred as a gift due to the expressly declared waiver of interest and therefore did not constitute investment income subject to income tax. The Finanzamt appealed this decision on points of law.
Judgment: No taxable investment income from the interest-free deferral
The BFH dismissed the Finanzamt’s appeal on points of law as unfounded. By receiving the purchase price instalments, the parents had neither generated taxable miscellaneous income nor income from capital assets. Nor was there any taxable gain from the repayment of a capital claim.
However, the BFH corrected the reasoning of the Finanzgericht: in the case in dispute, the gratuitous deferral of the purchase price did not constitute a gratuitous transfer subject to gift tax pursuant to § 7 para. 1 no. 1 ErbStG (German Inheritance and Gift Tax Act). The result reached by the lower court was nevertheless correct because there was already no taxable income from the instalment payment.
The key statement of the decision concerns § 20 para. 1 no. 7 EStG: if, in the transfer for consideration of an asset held as private property, the parties expressly agree that the purchase price instalments are to be fully credited against the purchase price and that the deferral is granted free of charge, this agreement must generally also be used as the basis for taxation.
Under these conditions, a notional interest component does not constitute taxable consideration for the provision of capital.
The BFH is thereby abandoning its previous case law (most recently judgment of 14 July 2020 – case no. VIII R 3/17), according to which, in the case of an interest-free deferral of the purchase price, the instalments had under certain conditions to be split into principal and interest components and the notional interest components could be recorded as investment income.
The decisive factor is the change in the tax treatment of investment income since 2009. In addition, the Senate is departing from its order of 12 September 2011 (case no. VIII B 70/09), in which, following a summary review, it had still considered a gratuitous transfer of interest benefits to be possible.
No taxable consideration without a corresponding agreement
Under § 20 para. 1 no. 7 EStG, income from other capital claims forms part of income from capital assets if the repayment of the capital asset or consideration for making it available for use has been promised or paid.
It is true that the interest-free deferral of a purchase price claim also constitutes the provision of capital. According to the BFH, however, it does not follow from this that taxable consideration must necessarily be assumed.
Rather, the decisive question is whether the contracting parties agreed on a provision of capital for consideration. If the deferral is expressly granted free of charge and the instalments are credited in full against the purchase price, there is generally no taxable claim to interest.
The BFH thus places the focus on the contractual arrangement, which is permissible under civil law. The economic possibility of determining a notional interest component is not sufficient to deem, for tax purposes, consideration that was in fact not agreed.
§ 12 para. 3 BewG does not create an income tax liability
In the BFH’s view, § 12 para. 3 BewG also does not justify a different assessment. The provision on the valuation of interest-free claims does not provide a sufficient legal basis for assessing notional investment income in respect of a purchase price claim held as private property.
The BFH thereby emphasises the necessary distinction between the valuation-law determination of a capital value and the income-tax question of whether taxable income was actually generated.
A notional discounting can therefore not in itself lead to taxation merely because the economic value of the claim changes as a result of the later payment.
Tax recognition despite a close relationship
The relationship between the contracting parties is of particular significance. According to the BFH, the fact that an interest-free deferral might be unusual between unrelated third parties is not sufficient to disregard the agreement for tax purposes.
Relatives, too, are generally permitted to structure their legal relationships in accordance with their personal needs. What matters is whether the agreement is valid under civil law and whether specific circumstances speak against its recognition for tax purposes.
Such circumstances may exist, for example, if interest that was actually agreed is concealed or if there is an abuse of legal structuring options within the meaning of § 42 AO (German Fiscal Code). An agreed lower purchase price in the event of immediate payment may also speak against the alleged gratuitous nature of the deferral.
In the case decided, however, the interest-free payment by instalments was necessary to enable the daughter to acquire the property at all. The BFH saw no reason not to recognise the agreement for tax purposes.
No gift tax solely on the basis of the waiver of interest
The BFH also rejected the existence of a transfer subject to gift tax. In the transfer of the property, there was a fully paid sale at the agreed market value. The waiver of interest also did not, viewed in isolation, lead to a gratuitous transfer.
Through the deferral, the daughter was not provided with a sum of money from the parents’ assets for her use. Rather, only her financial burden was reduced. The BFH did not see this as a sufficient transfer of assets within the meaning of § 7 para. 1 no. 1 ErbStG.
Practical significance
The decision opens up structuring options for private asset transfers, particularly in real estate sales within the family. An expressly agreed interest-free payment by instalments can enable the acquisition of an asset without the seller generating additional income from capital assets solely on the basis of notional interest components.
For contract drafting, it is advisable to record the following points clearly:
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the purchase price
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the amount of the instalments
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the crediting of the payments against the purchase price
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the exclusion of interest
The economic reasons for the instalment agreement should also be documented in a comprehensible manner.
However, the decision should not be understood as a general carte blanche for every interest-free claim. The BFH focuses on the transfer for consideration of assets held as private property and on a gratuitous deferral that is to be recognised for tax purposes. Whether other circumstances, in particular transfers from business assets or taxable private disposal transactions, are to be assessed in the same way requires a separate examination.
Nevertheless, splitting the instalments into interest and principal components may still be considered if an interest agreement that was actually made is concealed or if there is an abuse of legal structuring options. The new approach therefore does not dispense with the need to examine whether the agreed gratuitous nature of the deferral corresponds to the actual circumstances.
Frequently asked questions on the BFH judgment of 24 March 2026 – VIII R 30/24
Must notional interest be taxed in the case of an interest-free deferral of the purchase price?
No. According to the BFH judgment of 24 March 2026 (case no. VIII R 30/24), in the case of a transfer for consideration of an asset held as private property, no notional investment income is generally to be assessed if the parties have expressly agreed on an interest-free deferral and all instalments are credited in full against the purchase price. A notional interest component calculated mathematically does not in itself give rise to taxable income from capital assets pursuant to § 20 para. 1 no. 7 EStG. The BFH is thereby abandoning its previous case law on this issue.
Does the judgment also apply to a sale between parents and children?
Yes. The principles of the judgment may be relevant in particular to real estate sales within the family. The BFH makes clear that an interest-free deferral may not be disregarded for tax purposes solely because it was agreed between relatives or does not fully withstand an arm’s length comparison. The prerequisite is that the agreement is valid under civil law and that no tax-law reasons preclude its recognition. In particular, neither interest that was actually agreed may be concealed nor may the limits of § 42 AO be exceeded.
What should be considered when structuring an interest-free instalment payment agreement?
The purchase agreement should clearly regulate the purchase price owed, the amount and due dates of the instalments, and the full crediting of the instalments against the purchase price. In addition, it should be expressly agreed that the deferral is granted gratuitously and without interest. The economic reasons for the agreement should be documented in a comprehensible manner, especially in the case of transfers within the family. It should be noted that the judgment concerns the transfer of assets held as private property and cannot readily be applied to all business or other tax circumstances.
Conclusion
With its judgment of 24 March 2026, the BFH strengthens the importance of the contractual agreement in the case of interest-free purchase price deferrals. Where no consideration for the provision of capital has been agreed, notional interest components may generally not be taxed as investment income solely on the basis of discounting under valuation law. In practice, clear contract drafting and an examination of possible reasons that could preclude tax recognition are therefore crucial.
MTR Legal advises on legal issues relating to inheritance tax and gift tax. Further information can be found under Legal advice in tax law.
