Anyone who owns property in Germany pays an annual property tax (Grundsteuer) on its assessed value. However, with the system criticised in recent years as hopelessly outdated, the property tax is undergoing a major reform from 2022. Here’s what homeowners and renters need to know.
What is the property tax (Grundsteuer) in Germany?
If you own one of the 36 million properties in Germany, you have to pay taxes on it each year to your local tax office. This property tax (Grundsteuer) is calculated according to the value of the property and the buildings or business operations that stand on it. This value is multiplied by the local tax rate to provide the total tax amount.
If you buy a house in Germany, you as the homeowner are liable to pay property taxes on it. If you rent as a tenant, your landlord may pass the property tax onto you via your utility bills. The tax is an important source of income for municipalities in Germany, bringing in around 15 billion euros each year.
Why is the property tax being reformed?
The reform has been a long time coming: the property values currently used to calculate the tax date from 1964 in the western federal states and as far back as 1935 in the eastern states. Back then, property tax was based on so-called unit values that only took into account the size of the property, and not its location.
Understandably, there has been plenty of criticism that this data no longer has any real bearing on the current state of the real estate market, since prices have developed very differently in different areas over the past few decades. Despite this, property taxes have so far remained the same.
Then, in 2018, the Federal Constitutional Court ruled that the current system used for assessing property tax rates treats similar properties differently and therefore violates the principle of equal treatment enshrined in the Basic Law. The court, therefore, called for the tax to be reformed.
In a major overhaul, property values are now set to be recalculated between 2022 and 2025, before the new tax rate comes into effect on January 1, 2025.
How will the new real estate tax be calculated?
The new property tax will take multiple different factorsinto account to determine a property’s value, including the value of the land and the (theoretical) net cold rent, as well as the area of the property, the type of property, and the age of any buildings on the property. The figure will then be multiplied first by a tax index and then by the local tax rate to calculate the overall property tax.
It’s not clear yet how high your property tax will be after January 1, 2025. This will only be decided when property valuations have been completed and the assessment rates calculated. The Federal Finance Ministry doesn’t expect this to happen before autumn 2024.
What do homeowners need to do?
To make these calculations, the tax offices need quite a bit of up-to-date information about properties all across Germany. Between July 1 and October 31, 2022, all property owners in Germany are therefore required to submit a tax return for their properties and land in Germany. Most federal states have already informed property owners in writing about this requirement.
In general, owners need to provide information about their property’s:
- Location
- Property area in square metres
- Land value
- Building type
- Living / useable area
- Year of construction
In the states of Baden-Württemberg, Bavaria, Hamburg, Hesse and Lower Saxony, the exact information requirements are slightly different, but the same general principles apply.
You will be able to find information about your property in the extract from the land register, the tax notice you usually receive from the municipality, the construction documents, or even the purchase contract concluded when you bought the property. The average land value will be made available via the BORIS portal.
From July 1, 2022, it will be possible to submit this information to the tax office via ELSTER. You need to do this by October 31, 2022 to avoid facing a fine.
Are renters affected by the changes?
Tenants will not have to do anything themselves, but from 2025 onwards they may see their ancillary costs increase, as landlords are permitted by law to pass the new property tax onto their tenants.
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