In April 2018, the German Federal Constitutional Court (Bundesverfassungsgericht) declared the current property tax (Grundsteuer) unconstitutional. As a consequence, legislators must reform the outdated property valuation system by the end of 2019; otherwise, no further property tax may be levied.
Property tax is currently calculated on the basis of so-called assessed property values (Einheitswerte), which were set in 1964 for the former West German federal states and as far back as 1935 for the former East German federal states. The reform of the property tax is, however, not intended to make housing more expensive.
Since property values have changed considerably over the past decades — generally increasing — the federal legislator has the option to counterbalance this by lowering the tax assessment rate (Steuermesszahl). However, this figure is multiplied by the assessment rate (Hebesatz) of the respective municipality. As municipalities are required not to increase their existing property tax revenues, they must adjust their assessment rates accordingly.
According to the current status, the CDU/CSU and SPD have agreed on a value-based model. This could result in an additional burden for both tenants and property owners. Under the new property tax, the calculation would be based on the year of construction, standard land values (Bodenrichtwerte) and flat-rate net rents.
The German Taxpayers' Association (Bund der Steuerzahler) has voiced criticism of this approach, arguing that the model is too complicated, too bureaucratic and too costly. In particular, lower-income households in urban areas would have had to expect rising housing costs. A partial success has been achieved here: the value-based model originally provided for a metropolitan surcharge, which has been dropped.
A compromise between the CDU/CSU and SPD provides for an opt-out clause (Öffnungsklausel), allowing municipalities to deviate from the federal value-based model and apply an area-based model instead.
If legislators succeed in enacting a new property tax framework by 31 December 2019, the Bundesverfassungsgericht has provided for a transitional rule. Under this rule, the existing method of calculation may continue to be applied until 31 December 2024. The new rules must then take effect from 1 January 2025.
Petra Römer
Sources: – Journal "Der Steuerzahler" – BMF Monthly Report July 2019, Property Tax Reform
Frequently asked questions
Frequently asked questions
Why does the property tax (Grundsteuer) in Germany have to be reformed?
In April 2018, the Federal Constitutional Court (Bundesverfassungsgericht) ruled that the previous property tax was unconstitutional because it was based on outdated assessed values (Einheitswerte). In the former West German states, these values date back to 1964, and in the former East German states even to 1935. The legislator had to enact new rules by the end of 2019; otherwise, property tax could no longer have been levied.
Until when does the old property tax calculation remain in effect?
The Bundesverfassungsgericht (Federal Constitutional Court) has provided for a transitional period: the previous calculation method may continue to be applied until 31 December 2024. From 1 January 2025 onwards, the new rules must be applied on a mandatory basis.
How is property tax calculated under the new value-based model?
The value-based federal model considers three factors: the building's year of construction, the standard land value (Bodenrichtwert), and flat-rate net rents. These yield a property value, which is then multiplied by the assessment rate (Steuermesszahl) and the municipal multiplier (Hebesatz).
What does the opening clause in the property tax reform mean?
The opening clause is a compromise between the CDU/CSU and SPD that allows the federal states to deviate from the value-based federal model and apply an area-based model instead. This enables states to choose a simpler calculation based on land and building area.
Will the property tax reform lead to higher housing costs?
In principle, the reform is not intended to make housing more expensive. Since property values have generally risen over the decades, the federal government can counteract this through the tax assessment rate (Steuermesszahl), and municipalities are urged to adjust their multipliers (Hebesätze) accordingly. Nevertheless, an additional burden on tenants and owners, particularly in metropolitan areas, cannot be ruled out.