What property tax changes are planned in Germany?

Every week, Mansion Global poses a tax question to real estate tax lawyers. Here is this week’s question.

Q. I understand that Germany may soon be making some changes to property taxes. Can you explain what it is?

A. With the change in management in Germany in December, several changes in the way properties are taxed are on the table, according to Roland Bomhard, partner at the Düsseldorf-based law firm Hogan Lovells International. These initiatives were outlined in the new government’s coalition agreement last month and are expected to be rolled out over the next four years.

For starters, government officials are looking to change the way real estate transfer tax (RETT) is charged. Currently, RETTs range from around 3.5% to 6.5% nationwide, Bomhard said, and there are plans to create a reduced rate to make buying a home more affordable for people. young families.

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“Germany is a country of tenants – around 60% of all properties are not owned but rented, and in the big cities the rate is even higher, in Berlin for example it is 82%,” said he explained. “It’s very, very difficult to get into the real estate market… so what the government is saying is ‘let’s lower the rate of property transfer taxes for young families or first-time buyers…[to] increase the pool of owners because it’s good for the economy.

The new rate is still under consideration, and some want to eliminate the tax altogether, Bomhard said. In order to finance a more affordable rate, the government is also seeking to adjust the taxation of transactions by institutional real estate investors.

Currently, an investor can sell up to 89.9% in a real estate holding company without triggering real estate transfer taxes, the lawyer explained.

“Only if you sell 90% or more do you trigger a real estate transfer tax,” he continued.

The government wants to make real estate investment in holding companies less attractive and increase the collection of taxes on real estate transactions. As a result, officials are seeking to reduce the percentage of shares an investor can sell in a real estate holding company without paying tax from 89.9% to 75%, according to Bomhard.

German homeowners can also expect a nationwide revaluation of property values ​​in 2022. This includes 36 million properties, the lawyer said.

“What the tax services want is to redefine the property tax that each owner pays,” he explained. “There should be no increase in overall tax revenue. This should only be a change in structure…and again, each state has the right to implement its own structure.

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Still, property values ​​in Germany have increased over the past two years, so many people will see an increase in their assessments, especially in larger cities. Multi-family buildings dating from the 1920s, 1930s and 1950s may be at a particular disadvantage, Bomhard said. These properties currently have a relatively low tax value, and this is likely to increase.

Owners will be required to submit a form outlining the type of property they own and its amenities by October 2022, and some follow-up visits may be required. The reassessment process is expected to take two years after the forms are submitted, and the new tax structure will take effect in 2025.

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Penny D. Jackson