Often it comes between close relatives to a loan grant with an unusual interest rate. For this purpose, the Bundesfinanzhof (BFH) subsumed in judgment of 31.07.2024 the granting of a non-market interest-bearing loan as a mixed donation. Among other things, he also addressed the calculation of the amount of the free grant. In the following, we give you an overview of the risks of a gift tax when granting a low-interest loan.

1. Classification of the low-interest loan as a gift

A gift is considered to be any liberal donation among living people, insofar as the covered person is enriched by it at the expense of the recipient. According to BFH, the granting of a low-interest loan also constitutes such a free grant within the meaning of § 7 (1) no. 1 ErbStG. Here, the objective facts and the subjective facts of the free grant must be present. The objective fact is fulfilled by the free transfer of assets. In the case of a low-interest loan, it lies in the benefit of using the loan at a lower than market interest rate. For the fulfilment of the subjective facts, on the other hand, already the awareness of the partial remuneration of the legal transaction is sufficient.

2. Impact on gift tax: low-interest loans

If the requirements of a free grant exist, the granting of the loan has a gift tax relevance. In order to determine the amount of the gift, the asset advantage resulting from the gift must be calculated. In the case of low-interest-bearing loans, the interest rate difference relevant for the tax calculation under gift tax law is to be formed from the difference between the agreed interest rate and the interest rate resulting from § 15 (1) BewG. The agreed interest rate is undisputedly present in the corresponding loan agreement, whereas a market interest rate must first be determined. In the case of BFH, the lower court assumed a standard market interest rate of 5,5 % (see § 15(1) BewG). BFH could not accept this view and allowed the lending parties to use a lower interest rate as a market benchmark, as far as this is fixed.

3. Proof of the market interest rate on the low-interest loan

The wording of § 15 (1) BewG refers only to the fact that “no other value is fixed”. In principle, there is no direct obligation to prove the lower value. In order to be able to determine the value, however, a comparison value, which refers to the personal circumstances and the corresponding loan conditions of the individual case, usually makes sense. Without proof, it will be hard to imagine the lower interest rate being established by the tax office.

4. Amount of gift tax: low-interest loans

The calculation of the interest benefit is based on the difference between the agreed interest rate and the market interest rate. The market interest rate is 5,5 %, unless another value is fixed. If the loan is of indefinite duration, the difference between the two values must first be multiplied by the loan amount. The benefit of use is to be calculated from the resulting annual value and the reproducer of § 13 (2) BewG in the amount of 9.3. After deduction of the corresponding allowance, the value which is subject to the gift tax is obtained.

Example:

Brother B grants his sister S a loan of EUR 900,000. Instead of the fixed market interest rate of 3.5%, the siblings negotiate an interest rate of 1%.

Solution:

The benefit of the loan is calculated from the difference between the market interest rate of 3,5 % and the agreed interest rate of 1 %. The resulting 2.5% is to be multiplied by the loan amount of EUR 900,000. The annual value of the benefit is therefore EUR 22,500. According to § 13 (2) BewG, the annual value of the duplicators is 9,3, resulting in a benefit of use of EUR 209,250. Less the allowance of EUR 20,000 (§ 16 (1) no. 5 ErbStG) an amount of EUR 189,250 is subject to gift tax.

5. Gift Tax on Low-Interest Loans – Conclusion

Low-interest loans are a common arrangement between related parties. In order to avoid the tax risks and an unwanted burden of gift tax, the legal specificities should be examined in advance. Gift tax allowances often make very good use of the advantages of a low-interest loan in tax practice.