Anyone selling real estate within the family often wishes to make the transaction easier to complete. A common solution is for the purchase price not to be paid in one lump sum, but in instalments over several years – without interest. While this may make economic sense and reflect the family’s intentions, it has previously raised tax issues.
In its judgment of 24 March 2026 (case no. VIII R 30/24, published on 11 June 2026), the Federal Fiscal Court (Bundesfinanzhof, BFH) has now abandoned decades of case law and created significant relief for private sellers. We assess the decision from a notarial perspective.
The case: sale to the seller’s own daughter
The judgment was based on a set of facts frequently encountered in notarial practice. Parents sold a property that they had owned for more than ten years to their daughter. As bank financing was not an option, the parties agreed that the purchase price would be paid in instalments over many years. Interest was expressly excluded, meaning that the purchase price claim was deferred interest-free.
The parents did not declare any investment income from the transaction. The tax office took a different view: it calculated a notional interest component from the purchase price instalments and subjected this amount to taxation as income from capital assets.
The previous position: notional interest
The tax office’s position was consistent with the Federal Fiscal Court’s previous settled case law. In the case of interest-free instalment payments over longer periods, often more than one year, the Federal Fiscal Court applied a purely economic analysis. The nominal purchase price was discounted and divided into a repayment component and a notional interest component. This was based on the standardised interest rate of 5.5% under Section 12(3) of the German Valuation Act (Bewertungsgesetz, BewG).
The consequences were unpleasant for many sellers: although no interest had deliberately been agreed under civil law, they were required to tax a calculated interest component as taxable investment income under Section 20(1) no. 7 of the German Income Tax Act (Einkommensteuergesetz, EStG). Particularly in the case of long-term instalment arrangements within families, this resulted in a tax burden on income that had never actually been received.
The decision: interest-free remains interest-free
The Eighth Senate of the Federal Fiscal Court has now expressly departed from this approach. If the contracting parties have agreed that the instalments are to be paid in full as consideration for the object of purchase and that the deferral inherent in the instalment payment arrangement is granted interest-free, the purchase price claim must, for tax purposes, be treated as having been deferred free of charge. There is therefore no taxable consideration for the provision of capital within the meaning of Section 20(1) no. 7 EStG.
For the treatment of the individual payments, this means that if, in accordance with the agreement, the instalments do not contain any interest component and are not required to be split, each instalment is offset in full, on a pro rata basis, against the acquisition costs incurred when the receivable was acquired (Section 20(2) sentence 1 no. 7, Section 20(2) sentence 2 and Section 20(4) sentence 1 EStG). No taxable income therefore arises.
In the Senate’s view, Section 12(3) BewG, which had previously been used as the basis for this approach, also no longer applies in the private sphere: the provision neither remedies the absence of an agreed consideration for the deferral nor can it be used to construct a repayment gain. The standardised interest rate of 5.5% therefore loses its effect in this constellation.
No cause for concern from a gift tax perspective either
It is notable that the Federal Fiscal Court also clarifies the issue in another respect. The interest-free deferral of the purchase price does not constitute a gratuitous transfer within the meaning of Section 7(1) no. 1 of the German Inheritance Tax and Gift Tax Act (Erbschaftsteuer- und Schenkungsteuergesetz, ErbStG). There is no transfer of assets subject to gift tax, neither in relation to the property, which was sold for full consideration at market value, nor in relation to the waiver of interest. The decisive factor is that no funds are transferred directly from the seller’s assets to the buyer.
The Senate thus dispels a concern that frequently arises in advisory practice in connection with intra-family transfers: that a favourable payment structure might trigger gift tax elsewhere.
What does this mean in practice?
For the notarial drafting of purchase agreements involving private assets, the decision sends an important signal. Several points merit attention:
Clear agreement is key. The favourable tax treatment depends on the parties expressly agreeing that the instalments are allocated in full to the purchase price and that the deferral is granted free of charge, i.e. interest-free. Clear and unambiguous wording in the purchase agreement is therefore not merely a formality, but a prerequisite for the favourable treatment.
Appropriate purchase price. In the case decided, the agreed purchase price corresponded to the market value of the property. The intra-family accommodation was limited to the payment structure. If, by contrast, a significantly undervalued purchase price is agreed, gift tax issues may arise on a different level.
Private assets. The decision concerns transactions involving private assets. Disposals in the business sphere are subject to separate principles, which remain unaffected.
Anyone who deliberately agrees not to charge interest should therefore generally no longer be required to recognise notional interest in future. This creates legal certainty, particularly for real estate transfers within families where payment by instalments is the only practicable solution.
Open questions remain
As welcome as this clarification is, the judgment does not answer every subsequent question. Further case law and administrative practice will have to show how scenarios are to be assessed where the line between a gratuitous deferral and a disguised agreement on consideration is less clear. It also remains to be seen how the tax authorities will respond to this change in case law.
For drafting purposes, this makes it all the more important that the contractual arrangements are precise and consistent from the outset. This is precisely where notarial advice comes in.
We advise you
Are you planning a real estate transfer within the family or another private disposal transaction involving payment by instalments? We review the contractual structure in light of the latest case law and ensure that your agreement is also on secure footing from a tax perspective.
Please feel free to contact us – appointments with the notaries at Gänsemarkt are also available at short notice.
