date | theme

03. January 2022 | Property tax reform 2022: what is new?

03. February 2022 | The new property tax in Bavaria from 2025

04. February 2022 | Property tax in Baden-Württemberg from 2025

07. February 2022 | Property tax in Saarland from 2025

08. February 2022 | Property tax in Saxony from 2025

10. February 2022 | Property tax in Hessen from 2025

11. February 2022 | Property tax in the Hanseatic City of Hamburg from 2025

14. February 2022 | Property tax in Lower Saxony from 2025

25. March 2022 | Calculate the new property tax: example of the general property tax law (this contribution)

Due to the property tax reform, the revaluation of many properties in Germany begins in 2022. If you want to calculate the new property tax according to the federal model, you need several details. Thus, the location of the property, the construction type and the year of construction, the land area and the land reference value as well as possibly the living space are relevant. With these data, the tax offices determine the property tax measurement amounts of all properties in the next few years. The municipalities then apply their respective lifting rates to calculate the new property tax from 2025 onwards. An example of the calculation of property tax according to the new rules, which will apply from 2025, should provide this contribution.

The property tax reform goes back to a judgment of the Federal Constitutional Court. In 2018, it found that the property tax, as they had raised the municipalities until then, contradicted the equality principle of the Basic Law. So you had to reform the property tax law. At the same time, however, the valuation law had to be adapted. However, since this complex reform affects more than 36,000,000 properties throughout Germany, one also had to be prepared for a longer duration to implement the property tax reform. The judges of the Federal Constitutional Court stated in their judgment that first the legislature should introduce a new law on property tax by the end of 2019. In addition, it was stipulated that the new property tax, adapted to the Basic Law, should be introduced by 2025 at the latest. Thus, both the legislature and the financial administration were given sufficient time to make all preparations for the big change in property tax.

Nevertheless, this was a tricky undertaking. Because the Federal government intended to make the new property tax revenue-neutral. However, it wanted to continue to maintain the value ratios of the real estate as a tax base. Nevertheless, the new property tax for each property would be calculated differently than before. At the same time, this should lead to the elimination of the previously existing inequalities in taxation. So how to calculate the property tax from 2025?

Now the legislature has created the conditions for the new property tax. However, individual federal states have favored a different approach to taxation in the legislative process. And since the property tax actually only applies at the municipal level, they wanted to determine for themselves how cities and municipalities should calculate the new property tax in the future. This is why Baden-Württemberg, Bavaria, Hamburg, Hessen, Lower Saxony, Saarland and Saxony have each created their own property tax law. Thus, a general federal model according to the Property Tax Act now faces seven individual models in these federal states.

Since the main purpose of this contribution is to better understand the new property tax, we would have to calculate eight examples. No doubt this should go far beyond the scope of a single article. Therefore, we intend to calculate the property tax here only in accordance with the new federal law as an example. This is also useful insofar as the Saarland and Saxony in any case only deviate from the federal law in details of the property tax measure. Other federal states take a very different approach. For example, there is a pure area model with which the municipalities in Bavaria will calculate the property tax from 2025. Also differently, taxation takes place according to the area-location model. Such calculation methods, which are based on the requirements of the federal states deviating from the federal model, should therefore remain unprecedented at this point. In addition, we do not refer to property tax A paid by agricultural and forestry enterprises, nor to the new property tax C on land that is ready for construction but undeveloped.

But before we come to the actual example of the calculation of the new property tax, we want to briefly evaluate the legal bases determining this. On the one hand, this is of course the reformed Property Tax Act (GrStG). In particular, Section II and §§ 13 and 15 GrStG are relevant for the calculation of property tax. § 13 GrStG refers to the Valuation Act (BewG). Since the new Land Tax Act, like its predecessor, is to use the general market value as a basis for the taxation of land, a valuation of land remains necessary. And this is exactly what the BewG regulates. In the second part, first section under C. Grundvermögen, §§ 68 to 94 BewG inform about this. In addition, some tables in the appendices to the BewG are also important here. They provide important duplicators that depend on certain parameters and thus influence the value of real estate when calculating property tax.

In the BewG you have to distinguish between several regulations for the valuation of real estate. On the one hand, there is the income-value method and on the other hand, there is the property-value method. Income value method, the value of a property is calculated on the basis of the returns it yields or could yield. Thus, for example, in the case of a rental property, the rentals purchased play a prominent role in the valuation. However, this is different when determining the value of an operational property. Here, the valuation of an operationally used property follows the specifications according to the property value procedure.

Now that we have prepared the legal tools for our calculation example, we can calculate the new property tax. To do this, we must first determine which parameters we want to use for this purpose. Should our calculation example be a single-family house? Or maybe a residential building that you rent? Alternatively, an operating property could also be considered for our example. Because we are a law firm specialized in corporate tax law, such an example would certainly also be attractive. But since we assume that most of our readers have at least one home of their own, we aim to calculate the new property tax for a single-family house as an example.

For the valuation of real estate, the BewG therefore provides for two different valuation procedures. Since we assume a single-family house in our example, we first consider what § 76 BewG provides us with regard to regulations. Paragraph 1 states that, according to its number 5, the single-family house should also be valued in an income-valuation method. However, in the same paragraph, paragraph 3 instructs us that, inter alia, in the case of single-family houses which are significantly different in terms of furnishings or design from other single-family houses, the property value procedure should rather apply.

In our example, however, we assume a general case. Therefore, for the calculation of property tax in our example, the income value method has priority.

4.3.1. Calculate property tax: starting point

For this purpose, our fictional Wertheim family will occupy a home of 150 m2 living space. Furthermore, her house, built in 2002, stands on a plot area of 400 m2. In order to determine the so-called property value in a first step, we first have to determine a few other parameters: the location of the property, i.e. in which municipality the house stands and the land reference value. The soil benchmark is a parameter that can be queried via an online information system (BORIS), which most federal states have already set up. It should be available nationwide by 31.07.2022 at the latest. In addition, the tax offices also use these data sets to determine the land benchmark. We want to assume a soil benchmark of EUR 300 per m2. Let us also assume that the Wertheim family lives in a city in North Rhine-Westphalia. Kerpen would be a good example.

4.3.2. Calculation of the annual gross yield

This would give us a good part of the information we need for the calculation. This starts with the determination of the annual gross yield. But for this we now have to take some key figures from the BewG.

The statistical net cold rent in the region plays a role. We determine these from Annex 39 BewG. It amounts to EUR 6.88 per m2 of living space per month. However, you also have to consider the rental level. For Kerpen, rent level 4 applies, which according to Annex 39 BewG leads to a surcharge to the net cold rent of + 10 %. Based on this, we determine the assumed annual gross income of the Wertheim family home:

EUR 6,88/m2 x 150 m2 x 110 % x 12 months = EUR 13,622,40 annual gross yield

4.3.3. Calculation of annual net income

We now continue to calculate the annual gross income in order to reach the real estate value via the capitalized net income. For this purpose, we deduct from the annual gross yield the statutory non-distributable management costs. For this we look at Annex 40 BewG. It states that the management costs depend on the remaining useful life of a building. In order to determine the remaining period of use for the Wertheim family house, we first have to know which total period of use we should expect. For this purpose, Appendix 38 BewG states that single-family homes should have a useful life of 80 years. If we assume taxation in 2025, then the remaining life of the house at this time is 57 years. With this information, we see Appendix 40 BewG that the flat-rate management costs should comprise 21% of the gross yield. So we're subtracting:

EUR 13.622,40 – 21 % = EUR 10.761,70 annual net income

The capitalization of net income continues. In order to determine the capitalization factor, we must take into account the real estate interest rate according to § 256 BewG. For single-family houses for which the land reference value is less than EUR 500 per m2, an interest rate of 2,5 % applies. Thus, we see from the table in Appendix 37 BewG that a capitalisation factor of 30.21 is applied for the remaining use period of 57 years. The capitalized net income is thus:

EUR 10.761,70 x 30.21 = EUR 325.110,95 capitalised net income

4.3.4. Calculation of the property tax value

Added to this is the discounted land value. We determine this on the basis of the soil guideline as well as an interest factor that depends on the remaining useful life. In addition, a conversion coefficient applies to land on which a single-family house stands, which is taken from Annex 36 BewG. So in our case, we calculate:

400 m2 x EUR 300/m2 x 0,2448 x 1,06 (conversion coefficient) = EUR 31.138,56 discounted soil value

Consequently, the property tax value of the Wertheim family home includes:

EUR 325.110,95 + EUR 31.138,56 = EUR 356.249,51 property tax value

4.3.5. Calculation of property tax for our example

In order to calculate the property tax with the property tax value, we have to round off the amount to full EUR 100 according to § 230 BewG. So we expect EUR 356,200.

For this property tax value we now apply the property tax meter of 0.34 ‰. This results in a property tax measurement amount of EUR 121,11. If we now simply assume that Kerpen does not decide on a change in the lifting rate of currently 620% by 2025, we can finally calculate the property tax for the Wertheim family:

EUR 121,11 x 620 % = EUR 750,88 property tax in 2025

Admittedly, some of the data used here, such as the soil guideline or living space, are purely hypothetical assumptions. The lifting set is anything but certain. After all, most municipalities intend to make the property tax revenue-neutral. In our example, the lifting load should therefore be lower. Nevertheless, we think that our example shows well how cities and municipalities will calculate property tax in the future.

Although the formulae in the individual intermediate steps in the calculation of the property tax, as it arises from 2025, are only partially complex. But compliance with the various specifications, the selection of the appropriate, legally prescribed factors and much more makes the calculation seem anything but easy. Fortunately, this is mainly left to the tax authorities. But also the taxpayers, who are asked from 01.07.2022 to transmit the data to the tax office via a tax return, are facing enormous tasks. Thus, one has to deal with the procurement of the land benchmark as well as with the assessment of any additional factors that either increase or decrease the value of their properties.

No wonder, then, that many property owners use professional help to prepare their property tax return. No matter which type of property is to be taxed or in which federal state it is located, with our support you succeed very easily. We use a software solution developed specifically for this purpose, with which we will soon be able to send your tax return to the tax office. So if you are also interested in this simple and secure solution, then just click on this link for more details about our comprehensive service.