Redemption for consideration of a gratuitous usufruct is not taxable
The Federal Fiscal Court (Bundesfinanzhof, BFH) recently provided an answer to the question of whether or not the redemption for consideration of a gratuitous usufruct over shares in a GmbH is subject to income tax at the level of the beneficiary of the usufructuary right.
In 2012, in the underlying case, a mother had transferred shares in a GmbH, which she held as private assets, to her son for no consideration under reservation of usufruct. The giver of the gift (donor) had retained the right to draw profits, which was linked to the shares. In 2018, the mother and son agreed to cancel the usufruct in return for the payment of compensation. The local tax office initially regarded this compensation payment as taxable income. The transaction would need to be considered as a sale of GmbH shares within the meaning of Section 17 of the German Income Tax Act.
Following an initial unsuccessful legal action by the taxpayer in the tax court, it was then the BFH, in its ruling of 20.9.2024 (case reference: IX R 5/24), that clarified that the compensation payment was not subject to income tax because the beneficial ownership of the GmbH shares had already been transferred to the son with the granting of the usufruct. The BFH regarded the transaction as tax-irrelevant at the assets level; the appreciation in the value of the shares, which had in the meantime taken place, had been at the level of the beneficiary.
