The Property Tax in Germany – Everything You Need to Know

The federal legislator met its obligation with the adoption of the property tax reform package within the deadline set by the Federal Constitutional Court (i.e., by the end of 2019) to preserve property tax as an important source of revenue for cities and municipalities. The municipalities can continue to use the tax funds and, for example, apply them for the renovation of schools, swimming pools, or libraries, the maintenance of hospitals and fire stations, or the construction of new playgrounds, bike paths, bridges, or roads. In our article today, we answer the most important questions and doubts about the new property tax reform law.

Property tax in Germany – what is it?

Property tax (property tax value) is a wealth tax levied on the ownership of real estate. It distinguishes between three types of property tax:

• A (agricultural) – applicable to agricultural and forestry land
  ● B (building land) – applies to land on which buildings and structures can be erected,
  ● C (undeveloped land) – comes into force in 2025 and is part of the property tax reform; it is intended to give municipalities the opportunity to tax undeveloped land at a higher rate.

Property tax C on undeveloped land – what does it mean?

The new property tax C in Germany is being introduced due to a significant shortage of housing, especially in urban areas. The resulting value changes of land are increasingly being used to hold developable land as speculative objects. Often, properties are purchased merely to wait for an increase in value and then sell at a profit. Such actions prevent the construction of urgently needed housing. This exact problem is addressed with the new property tax value – municipalities have the option to set a higher tax rate for developable but still undeveloped properties where no investments are planned.

Why was the property tax re-regulated?

In 2018, the Federal Constitutional Court ruled that the current system of property tax assessment is unconstitutional because it treats similar properties differently, thereby violating the equal treatment clause of the Basic Law. It was decided that the new law must be passed by December 31, 2019, at the latest, but the tax itself can be levied temporarily in the “old” form until December 31, 2024. Starting January 1, 2025, however, the property tax will already be charged under the new law. One of the goals of the new property tax in Germany is to keep the overall property tax revenue at the state level approximately the same. The new law will continue to provide municipalities and cities with the necessary income.

Changes in the calculation of property tax in Germany

The changes were introduced because the previous calculation of property tax was based on outdated standard values, reflecting property values from several decades ago. These standard values were multiplied by a uniform factor, the so-called tax assessment figure, and then multiplied by the assessment rate of the respective municipality. However, it did not take into account that the tax assessment figure was set uniformly nationwide, while the assessment rate was determined individually by the municipalities. As a result, the standard assessment deviated from the actual value of the property.

The new regulation aims to make the assessment of properties fairer. The calculation basis at the federal level should now be the actual value of the property, taking into account factors such as the location of the house or apartment (e.g., popular or less sought-after areas) as well as the location of a business (e.g., economically weak region or large city). The goal is to achieve more realistic and fairer taxation.

How will property tax be calculated in 2025 under the new law?

The new property tax will continue to be calculated in three steps: value of the property times tax rate times assessment rate. The most important factors are:

• the standard land value (this can be found in the standard land value information systems of the individual federal states), the statistically determined net cold rent (dependent on the municipality’s rent level; the higher the level, the higher the net cold rent).
  ● the net cold rent (statistically determined and among other things dependent on the rent level in the municipality; the higher the rent level, the higher the rent).

Other factors considered include, for example, the size and type of property as well as the age of the building.

The property tax reform – what do you need to know to pay it?

Every owner of a property or land who owns it on January 1st of a year must pay property tax once a year (property tax per year). If it amounts to more than 30 euros, the owner does not have to pay it in a lump sum but rather one-quarter of the amount every three months (always on February 15th, May 15th, August 15th, and November 15th of the current year). For property tax between 15 and 30 €, half is paid in February and the other half in August. For owners of properties and real estate with a tax amount of less than 15 €, there is a single payment date on August 15th for the entire amount.

Property tax assessment rate – who pays more and who pays less from 2025?

It is not possible to answer this question precisely, but certain trends can be identified. Higher property taxes will likely be paid by residents of large cities – as actual land prices in expensive and popular locations differ significantly from current standard values. Owners may also pay more:

• Single-family houses (after the reform, these properties could be valued higher due to the new valuation basis),
  ● undeveloped land (these will be taxed higher according to the new property tax C).

Lower property tax is expected to be paid by owners in economically weak areas, as falling land values are also reflected in the tax assessment. Owners of multi-family houses can also benefit, as in many federal states only the land itself is taxed and not the building on it. In this case, the tax amount is apportioned to the individual apartments or owners.

The new property tax 2025 – important information in brief

• The sale of a property or real estate does not change the amount of property tax with ownership change, as it is always tied to the land and not to the owner. An exception is the division of an apartment after a sale – in this case, the plots receive their own tax number and the tax amount is recalculated.
  ● The expansion, demolition, or division of a property results in the property tax being recalculated. This is because the value of the property or real estate changes.
  ● Property tax is not the same as land transfer tax. The former, described in today’s article, taxes real estate ownership and must be paid annually; the latter is paid only once – at the time of acquiring the new property.

Property tax declaration – summary

The new 2025 property tax law can seem difficult to understand at first glance. If you have trouble with this topic, it is advisable to consult a tax advisor or use an online tax refund program. One of these is Taxando, which offers individual property tax declarations starting from the PREMIUM package.