If you want to purchase a property without having to pay real estate acquisition tax, this is possible via a share deal. For this purpose, the vendor must meet the condition that he holds the property in a company. This can be both a partnership and a corporation. If you now acquire less than 90% of the shares in the company, then the acquisition of the shares – and thus indirectly the property – does not cause real estate acquisition tax. In order to acquire the remaining shares, a distinction in the form of company is necessary. Because with a corporation, another person of your trust can acquire the remaining shares in the company. Also a family foundation founded by you comes into question. However, if it is a partnership whose shares, including the property, you acquire, a 10-year lock-up period must elapse before the acquisition of the remaining shares by your trustee. Otherwise, the property transfer tax will be levied retroactively.

Note: this is a contribution according to old legal situation! Information on the new legal situation is offered in our contribution New regulation on the share deal with real estate in the Real Estate Transfer Tax Act

0% real estate tax on the share deal

In the video we explain how you can buy a property without having to pay real estate acquisition tax.

1st Real Estate Transfer Tax: When Does It Incur?

As usual, let’s start with the basics. For this we ask the question when the real estate transfer tax is incurred. Of course, the opposite question is also connected with this in the further course. After all, our readers also want to learn from us how to avoid the real estate acquisition tax, but at least reduce it.

1.1. The rules of the Property Transfer Tax Act

According to the Real Estate Transfer Tax Act, the transfer of real estate is generally subject to taxation (§ 1 GrEStG). Which property transfers are meant by this is regulated in detail, but like some other special features for our remarks is out of consideration. The only thing that matters to us is what exceptions paragraph 2a provides.

1.2. Taxation on the sale of real estate companies

Because in § 1 paragraph 2a GrEStG, the law refers to the sale of shares in companies that contain real estate assets. The law states that the transfer of 90 % or more of the shares in such a company constitutes a taxable acquisition of the real estate in the company’s assets. However, some details are important here. The legislator distinguishes between partnerships and corporations. While partnerships must maintain this percentage for a period of 10 years in order to avoid retroactive taxation, this is different in the case of limited liability companies. For corporations there is no blocking period.

2. acquisition of real estate without real estate transfer tax

With the legal bases provided, we now venture the digression into practice. But it should already be clear that the approach we are showing here to avoid real estate acquisition tax when acquiring real estate is an indirect one. Instead of acquiring ownership of a property, we want to use the possibilities offered by § 1 paragraph 2a GrEStG in order not to have to pay real estate acquisition tax. It makes sense to describe the procedure separately due to the different conditions in partnerships and corporations. However, it is important in this context that the basic condition is fulfilled that the real estate assets that one wants to acquire without real estate transfer tax are the property of a company.

2.1. Acquisition of real estate without real estate transfer tax – partnership

In the case of a partnership with real estate assets, you first purchase 89.9% of the company’s shares. Then wait 10 years. After the expiry of the blocking period, a family member or a partner of your trust will appear as the buyer of the remaining shares. In this indirect way, you have acquired the real estate assets by means of a share deal without having to pay real estate acquisition tax.

2.2 Acquisition of real estate without real estate transfer tax – corporation

However, if the real estate asset that arouses your interest is owned by a corporation, the path to the goal is even shorter. Because then your partner can purchase the remaining 10.1% of the shares simultaneously with you without triggering a real estate acquisition tax.

At this point, there was an outlook on planned legislative changes. These had the aim of making the acquisition of real estate without real estate transfer tax more difficult. In the meantime, these changes to the law have actually occurred, so this indication is obsolete. Instead, we have inserted the new framework conditions here. In parallel, however, we would also like to refer to our contribution published specifically on this change in the law.

As a conclusion, it can be stated that the share deal with real estate without incurred a real estate acquisition tax is still possible. Only the conditions have changed, so that the attractiveness of this design model is now somewhat lower.