The Federal Constitutional Court has ruled that the assessment of property tax on real estate is unconstitutional. The court states that the standard assessed values for land have not been adjusted for more than 50 years and are therefore "completely outdated", leading to "serious unequal treatment" of property owners.
What happens now following this ruling?
The Federal Constitutional Court is thereby compelling the legislator to enact new rules by the end of 2019. If no new regulation has been found by then, the currently applicable rules may no longer be applied.
Does the ruling legally apply only to the western federal states?
In strict legal terms, yes, as only cases from the western federal states were before the court. However, the situation is fundamentally comparable in the new federal states as well, so we assume that, in principle, all German property owners are affected (note: property tax is passed on to tenants as part of the ancillary costs).
Is property tax an important source of revenue?
Since property tax accounts for approximately 10% of municipal tax revenues, it represents an important source of funding. According to the Federal Statistical Office, revenues from Property Tax A amounted to approximately EUR 400 million in 2016.
Frequently asked questions
Frequently asked questions
Why did the Federal Constitutional Court declare the property tax unconstitutional?
The Federal Constitutional Court (Bundesverfassungsgericht) ruled that the assessment of the property tax (Grundsteuer) is unconstitutional because the underlying standard assessed values (Einheitswerte) for real estate have not been updated for more than 50 years. According to the court, these outdated values lead to significant unequal treatment of property owners and are entirely obsolete.
By when must the legislator enact a new property tax regulation?
The legislator was required to enact a constitutionally compliant new property tax regulation by the end of 2019. If no new regulation is adopted by then, the currently applicable rules may no longer be used.
Does the ruling on the real estate tax also apply to the new German federal states?
Formally, the ruling initially applies only to the western federal states, as the court was presented exclusively with cases from these states. However, since the situation in the new federal states is fundamentally comparable, it can be assumed that all German property owners will ultimately be affected.
Are tenants also affected by the property tax reform?
Yes, tenants are indirectly affected, as property tax is typically passed on to tenants as part of the ancillary costs. Changes in the amount of property tax therefore also impact the service charge statement.
What is the financial significance of the property tax for municipalities?
The Grundsteuer (German real property tax) is a key source of revenue for municipalities, accounting for roughly 10 percent of their tax income. According to the Federal Statistical Office, revenues from Grundsteuer A amounted to approximately 400 million euros in 2016.