Property tax is one of the oldest direct taxes. The real estate tax is a property and property tax in Germany, a tax on property, but also on heritable building rights to properties and their development, which the owner has to pay.
It is calculated using a formula from the assessed value, the property tax amount and an individual assessment rate depending on the municipality. The calculation of the property tax was criticized for many years because its calculation violated the principles of equal treatment and caused strong value distortions due to very outdated main findings. This was confirmed by the Federal Constitutional Court in 2018 and the existing assessment regulations for property tax collection were declared unconstitutional.
It can be passed on to tenants. The property tax is an important source of income for the municipalities, with a nationwide revenue of around EUR 14 billion.
In the 1960s, the Federal Government of the time originally stipulated that the assessed value of the taxable real estate should be checked every six years.
However, this was never implemented. The Federal Fiscal Court has therefore come to the conclusion that the basis of the property tax calculation violates the general principle of equality of the Basic Law (Article 3 Paragraph 1).
Due to the developments on the real estate market, one must assume strong value distortions. Because the federal and state governments have been arguing about a property tax reform for several years, the Federal Constitutional Court has now dealt with the property tax. The court in Karlsruhe also came to the conclusion in April 2018 that the calculation method is very outdated. The amount of property tax varies from state to state. The assessment rates are between 300 and 995%. This leads to enormous unequal treatment of property owners and thus violates the principle of equality. For this reason, on April 10, 2018, the Federal Constitutional Court declared the current calculation of property tax to be unconstitutional and initiated a property tax reform.
The German Bundestag and Bundesrat therefore had until the end of 2019 to create new regulations that corresponded to the constitution. If this deadline is not met, the previous regulations may no longer be applied.
A draft law by the Federal Council for the revaluation of land and building values has been available since the last reform in 2016. This rating is intended to replace the unit value.
Since the property tax is one of the most important sources of income for the cities and municipalities, there has been criticism of the planned reform.
The judgment of the Federal Constitutional Court forced the legislature to re-regulate property tax. To this end, the Property Tax Reform Act (GrStRefG) and the Property Tax Reform Implementation Act were passed in 2019. The new regulations will come into force on January 1, 2025, so the previous regulations on property tax will continue to apply until the end of 2024.
Property tax will continue to be levied on a value basis under the new regulation.
The calculation formula of the federal model is:
Real estate value x tax index x assessment rate
To determine the property value, the standard land value, the net cold rent, the area of the property and the age and type of the building will play a role. The value of the rent depends on the level of the respective municipality.
The tax reference number is determined by the responsible tax offices. This will be significantly reduced as part of the reform, from 3.5% to 0.031%.
The assessment rate is determined individually by the respective municipalities. The municipalities are expected to set the assessment rates in such a way that the property tax is not higher than before the reform. In the case of undeveloped properties on which no buildings are built, a sharp increase in the assessment rates is to be expected. This is intended to promote housing construction and make property speculation more difficult.
The property tax reform offers the individual states the opportunity to follow a uniform federal model or to create their own model, which some states will make use of.
Property tax will be levied for the first time from 2025 under the new regulations. If there are changes to your property before then (e.g. through sale, extension, demolition), the necessary adjustments will be made in the new and in the old law. For this purpose, a declaration on the basic tax amount must be made in 2022 (declaration of determination).
Every property owner must submit a declaration of assessment electronically to the responsible tax office by October 2022. We would be happy to support you in fulfilling this obligation.
The federal states that make use of the opening clause are now implementing their own state models. Our property tax overview provides you with a comprehensive overview of the individual state models.
- Baden-Württemberg: Own model "land value tax" (LGrStG BW v. 13.11.2020 GBl 2020 S. 974)
- Bavaria: Own model "area model" (BayGrStG v. 10.12. 2021 GVBl 2021 S. 638)
- Berlin: federal model
- Brandenburg: federal model
- Bremen: federal model
- Hamburg: Own model "Residential Location Model" (HmbGrStG v. 24.8.2021 HmbGVBl 2021 S. 600)
- Hesse: own model "area factor model" (HGrStG v. 15.12.2021 GVBl S. 906)
- Mecklenburg-Western Pomerania: federal model
- Lower Saxony: own model "area-location model" (NGrStG v. 7.7.2021 Nds. GVBl 2021 S. 502)
- North Rhine-Westphalia: federal model
- Rhineland-Palatinate: federal model
- Saarland: Federal model with the deviation that different measurement figures apply to residential property and non-residential property (GrStG-Saar v. 15.9.2021 Amtsbl. 2021 I S. 2372)
- Saxony: Federal model with the deviation that different measurement figures apply to residential and non-residential properties (SächsGrStMG v. 21. 2021 SächsGVBl 2022 S. 9)
- Saxony-Anhalt: federal model
- Schleswig-Holstein: federal model
- Thuringia: federal model
That cannot be answered in general. Especially in expensive and popular cities, such as Hamburg, Stuttgart or Munich, property owners have to be prepared for an increase in property tax. Municipalities can absorb a rapid increase in prices, but have to forego additional income. On the other hand, those who have their property(s) in a structurally weak area can expect a lower property tax from 2025. However, the municipalities are entitled to increase the assessment rates if necessary. Basically, the owners of single-family homes have to reckon with increasing amounts. The owners or residents of apartment buildings, on the other hand, benefit. Because only the property on which the house stands is taxed and the amount can be distributed among all parties. If you own an undeveloped property, you have to pay more. The new property tax C is intended to ensure that these are developed more quickly.
The different assessment rates are called property tax A and property tax B. The rate of increase is determined by the respective municipality.
- Property tax A: Agricultural and forestry areas
- Property tax B: Any type of property
- Real estate tax C: undeveloped real estate
Property tax C enables municipalities to introduce their own rate for building-ready properties from 2025.
The coming property tax declaration obliges to reassess the property tax value, property tax base amount and the final property tax amount.
If you do not have documents such as the cadastral map or the extract from the land register, we can apply for them for you.
The information required as part of the property tax declaration can be found in the extract from the land register and the cadastral map. If these are no longer available, we can request them for you.
The assessed value is always determined on a key date. This is January 1 of the year following the change in the value of the property or the creation of a new "economic entity".
The unit values are determined separately by assessment notices from the tax office. As part of the assessment, the value, the type and attribution of the property are determined (Section 20 BewG). Due to the separate assessment, the assessment of the assessed value is a basic assessment. Objections to the amount of property tax can therefore only be raised by challenging the assessment notice.
The owner of the respective German property is obliged to submit the property tax return.
The declaration must be sent electronically to the tax office. The transfer of the assessment declarations to the relevant tax office takes place via us and the ELSTER certificate we use.
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