Real estate in Germany – Land tax new law
New land tax law passed in Germany – what are the consequences for real estate owners?
The new real estate law in Germany comes into force on January 1, 2025
In accordance with the new law, the German land tax will be calculated according to a new model designed by the Federal Ministry of Finance with the aim of assessing the value of real estate under taxation. The model consists of three stages. The first step is to assess the value of land and property, as well as the potential rental income – the higher the rental potential, the greater the tax. The second step will be to update the data on which the calculations are based. Currently, calculations are based on data from 1935 in East Germany and on data from 1964 in other parts of Germany. At the last stage, municipalities will be allowed to make adjustments in order to ensure that land tax revenue does not increase as a result of the reform.
But the law has not yet taken its final form. It has a clause that allows states (Bundesländer) within Germany to decide independently on how to calculate the tax, which can lead to different results for property owners and renters. For example, federal states such as Bavaria and Saxony, being characterized by a more conservative electorate would prefer that the tax payment be left on tenants – since most of the sector has larger assets in their ownership, and they want to lower costs as much as possible. In contrast, the SPD / Linke / Grüne coalition would prefer to push for property tax to be cast on property owners to ease the tax burden on the weaker sections of the population.
In addition, the clause could lead to significant disparities between states – some of which could raise the tax rate twice as much in order to raise municipal revenue, creating disparity at the federal level. Experts argue that the state must maintain simplicity and a uniform taxation system. The land tax is the government’s third largest income section and is therefore of great importance, but it also needs an update that will be applied wisely and will do no harm to property owners or renters.