date | theme

03. January 2022 | Property tax reform 2022: what is new? (this article)

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

Since the previous property tax was unconstitutional, the legislature had to work out a property tax reform. There were two alternatives. On the one hand, a value-independent model and on the other hand a value-dependent model similar to the previous taxation model came into consideration. The property tax reform now incorporates elements from both models. In the future, the soil guideline in particular will play a role. However, the land reform also takes into account the size and location of a plot of land and the age and manner of use of a building built on it when calculating the property tax amount. Subsequently, the respective municipality entitled to collect charges the lifting rate, which it still determines itself for this purpose. However, the property tax reform also offers the federal states an opening clause to enact their own property tax laws. This alternative path is followed, for example, by Bavaria, Lower Saxony and Rhineland-Palatinate. In contrast, North Rhine-Westphalia intends to adopt the federal law. In addition, a higher property tax C should also be possible. However, it should only affect undeveloped plots.

This small quiz question involves much more than can be inferred from the answer. Basically, the root of the unconstitutional nature of the two tax laws mentioned lies in the determination of the values to be taxed. Because these are so-called unit values. More specifically, the original intention was to re-determine the unit values in the six-year cycle via a main determination procedure. But it was different. Because the effort to determine the unit values was so enormous at the first start in 1964 that the implementation of the legal requirement was waived. Instead, multipliers were used to map rising property prices. To make matters worse, however, the reunification of Germany was added 30 years ago. Because the original unit values only applied to the old FRG. In the GDR, however, there were no comparable values.

Maintaining the old property tax law also led to completely different situations that prevented equal treatment in the taxation of real estate. Thus, neither the wear and tear nor the equipment of buildings can be taken into account in taxation. No wonder, then, that the Federal Constitutional Court recognized an unconstitutional tax collection in both cases (asset tax and property tax), albeit for different reasons. But unlike the property tax, which was simply allowed to expire for political reasons, the legislature sought to reform the property tax. This may also be due to the fact that the property tax, similar to the trade tax, belongs to the municipalities, while the property tax is a tax that the federal states are entitled to levy. With the property tax reform, a constitutional taxation of real estate is now possible from 2022.

However, before we present the property tax reform in detail, we would like to comment on the reform proposals that were under discussion. This is relevant because the property tax reform combines elements from both proposals.

On the one hand, there is the possibility of calculating the property tax on the basis of parameters that do without a value determination of the property to be taxed. For example, land taxation of real estate can be considered. This would, of course, have the advantage that the characteristic figures required for this purpose can be easily determined. A property tax law that levies property tax on such a basis alone would therefore be exempt from the blemish of potential unequal treatment with regard to actual property values – at least at first glance. In any case, this solution does not require expensive, recurring assessment procedures, as originally envisaged.

This is contrasted by the value-based taxation of land as a model. This would require a return to the application of the assessment procedures. Since Germany is now reunited, this would be a good opportunity to make a uniform determination of land values throughout the country. This would certainly also have the advantage that one could revive the wealth tax at a later date – if the political will should come about. However, the main assessment procedure would then have to take place at regular intervals. Only in this way would the constitutional conformity sought by the property tax reform continue to be maintained.

So let us now answer the question of how the legislature developed the property tax reform from the two models. On the one hand, the value determination of the land is basically maintained. But unlike before, the value determination now takes place instead of unit values via the so-called soil benchmark and a statistically determined cold rent. Furthermore, the size of the land area, the year of construction and the type of use of the real estate influence the property tax. The land reference value is the value of a plot of land, as they regularly determine the municipal expert committees for land values according to § 193 BauGB.

By the way, it should be noted that the property tax reform will not lead to the first survey under the new legal provisions until 2025. However, preparations for this start in 2022. After all, the administration also needs time to record the new key figures that will soon be applied in the calculation of property tax. This is done by submitting a property tax return. You have to specify the area of the property and, if there are buildings, the type of buildings, their age and possibly the living space. In addition, the submission of the property tax declaration should in principle be electronic. The next assessment will take place seven years later. However, if changes occur in the meantime, for example by adding a garage, then the property owners are obliged to inform the tax office of the changes.

The property tax reform as we look at it here, however, is only an option. Because the property tax reform allows through an opening clause that the federal states can also deal with the legislation on the collection of property tax. So it is open to them to enact their own property tax laws as an alternative to the Federal German legislation.

Lower Saxony, for example, made use of this possibility, which adopted its own property tax law on 07.07.2021. Rhineland-Palatinate is also striving for its own solution. The Free State of Bavaria is even preparing the introduction of a purely value-independent calculation model based on the land area for the collection of property tax. In Baden-Württemberg, the opening clause is also used, but is based on the federal model, which is sought to simplify. As a result, however, the differences between the own model and the federal model are partly considerable. They can lead to a significantly higher property tax than when applying the federal model. In Saxony and Saarland, however, only minor deviations from the federal model are envisaged. On the other hand, North Rhine-Westphalia adopts the Federal German Property Tax Act as it now stipulates the property tax reform.

It therefore remains to be seen whether the property tax reform will ultimately contribute to a fragmentation of German tax laws. Where a development counteracting federalization can lead can be seen, for example, with a view over the Swiss border.

In addition to the new approach to calculating property tax and the opening clause granted to the federal states, the property tax reform brings another innovation. Basically, this is a reintroduction of property tax C, because such a tax already existed in the past. But she was only granted a short existence.

Now the legislature introduces the property tax C again. For example, the property tax reform provides that the municipalities entitled to collect a property tax C can now levy again. This property tax C concerns undeveloped land but otherwise ready for construction. Here, the municipalities should be allowed to set a higher lifting rate than for built-up land. In this way, the legislator wants to create a financial incentive for housing and at the same time counteract the current speculation with building land.

So how to calculate the property tax according to the federal model in the future? Well, in principle very similar to the previous procedure.

For this purpose, the tax office calculates the value of a property using a complex algorithm based on the parameters provided for by the property tax reform. This results in the so-called basic control value. The basic control value then flows into a further calculation with a basic control measured number. Depending on the type of property, different property tax metrics are used. For example, the measured figure for social housing is lower than for office buildings. This then results in the basic control measurement amount. The tax office then informs the property owners of this property tax measurement amount together with the property tax value and the property tax measurement number by means of a determination decision. Of course, the municipality that is entitled to collect the property tax is also informed about the property tax measurement amount. The municipality then applies its lifting rate to this property tax measurement amount. Then she can claim the resulting property tax amount from the property owners.