Tax tip: Rescission of a consumer loan agreement

In the past, many consumers were able to revoke their loan agreements due to incorrect revocation instructions from the bank. This "revocation joker" enabled them to get out of their real estate loans with expensive interest conditions.

If the revocation is successful, the loan is reversed. Borrowers can not only reclaim repayments and interest they have paid, but also demand compensation from the bank because it was able to make use of the interest and repayments until the revocation.

This led to disputes as to whether borrowers had to pay tax on the compensation for use received. The majority of tax offices and banks treated the compensation for use as taxable capital gains and taxed it accordingly. Several borrowers contested this. The tax courts initially decided differently.

The Federal Fiscal Court has now sided with the borrowers in two initial leading judgments and provided more clarity (case no. VIII R 7/21 and VIII R 16/22).

The court ruled that the compensation for use to be paid by the banks did not constitute taxable capital gains. The reversal of the loan agreement does not constitute a gainful activity of the borrower and is therefore not taxable. For the same reasons, the compensation for use is also not taxable as other income.

The court was able to leave open the question of whether the compensation for the use of a loan to finance a rented apartment should be regarded as taxable rental income under certain circumstances. At least this was the decision of the Düsseldorf tax court in the previous instance.

It remains to be seen how the tax authorities will apply these decisions in future. Taxpayers whose compensation was treated as taxable investment income should consider an appeal against their income tax assessment.