Anyone who wants to inherit or give away assets usually has an interest in making the associated inheritance tax or gift tax as low as possible. One option on how to achieve this goal is to inherit or donate an old building property. Because the valuation of an old building property in the case of inheritance tax and gift tax is particularly advantageous from a tax point of view, because their age requires a low valuation factor. However, other factors also influence the valuation of the old building property. The amount of the annual rental income and the flat-rate calculation of the eligible costs are just as important as the discounting of the value of the land. In comparison, the actual market value of such an old building property is usually significantly higher. But even in comparison to a new building of the same value, old building properties can excel here for tax purposes.

In the video we explain to you the tax advantage of an old building property in the assessment for inheritance tax and gift tax.

1. The Valuation Act determines the valuation of old construction properties

Different legal assessment standards exist in Germany. Some are included in laws that refer to special taxes, such as the Income Tax Act. In such special cases, of course, these rules take precedence over other, more general rules. However, if tax laws do not contain their own assessment standards, then the assessment law is consulted. Because the evaluation law is intended precisely for this use. Thus, it also contains the general evaluation rules for application in questions related to the Inheritance Tax Act and Gift Tax Act.

Even in the case of an valuation of an old building property for the purposes of inheritance tax and gift tax, the valuation law is decisive. Therefore, in the following, we look at which rules determine the valuation of old construction properties in the case of inheritance tax and gift tax.

Legal standards for the valuation of real estate

In the valuation of old-construction real estate in the assessment for inheritance tax and gift tax, three possible valuation methods are in the foreground: the comparative value method, the income value method and the property value method. In addition, there is the valuation of undeveloped land.

But we want to anticipate an important aspect that makes each of the evaluation methods presented in the same way obsolete. Because if you can prove that the actual market value, one also speaks of the common value, is lower than the value determined according to the statutory regulations, then the market value is to be used for the inheritance tax or gift tax.

2.1 Valuation of the property value under the comparative valuation procedure

The comparative valuation method is used for real estate which is residential, partial or a one- or two-family house. On the one hand, it is possible to determine the value of the property by comparing it to a similar property for which a selling price is known. In other words, the market value of a property is used.

Often, however, it is also a construction expert who produces an expert report for evaluation in the comparative value method. Alternatively, the service of an expert committee of cities and districts can be used to justify the valuation of a property in the comparative value procedure. This is based on reference units, which in turn are included as a factor in the valuation of the property. If only an valuation of the building takes place, the valuation of the land on the basis of the valuation rules for undeveloped land must also be carried out.

2.2 Valuation of rented properties in the income method

Of course, we also want to investigate how the valuation of old-fashioned properties is carried out under inheritance tax and gift tax, which generate income through rental. In the law one finds the term building yield value. However, the income-value method only applies to rented residential land and commercially used land if a comparison of the rental amount can be made at local level. In addition to pure rental properties, however, mixed-use properties are also included.

For the valuation of the property, a gross yield must first be determined, from which deductible management costs are subtracted in order to determine the net yield. In addition, however, there is the interest on the land value, which also reduces the gross yield. The interest on the land is based on the valuation of undeveloped land. This results in the property value on which the inheritance tax or gift tax is then incurred.

Interestingly, the requirement for determining the building value in the income value method also includes an instruction that takes into account the age of the building being valued. Because this influences the value of the property via a factor. And this is of course also important for the valuation of old construction properties in the case of inheritance tax and gift tax.

2.3 Valuation of immovable property

For plots of land that were not taken into account in the above-mentioned cases, the Valuation Act provides for the approach in the property value procedure. Also in the valuation in the property value procedure, a distinction is made between buildings and land.

In order to evaluate the value of the building, one assumes the so-called standard manufacturing costs of a building. This is a blanket assessment approach based on data from the Federal Statistical Office on the production costs of buildings.

On the other hand, land is again assessed on the regulation that exists for undeveloped land. Overall, the sum of the valuation of land and land as well as the standard manufacturing costs determines the value of a property.

2.4 Valuation of undeveloped land

Now to the already mentioned valuation of unbuilt land. The so-called soil standard per unit area is used as a benchmark (§ 179 BewG). Here, too, cities and counties are responsible for determining the soil benchmarks in their administrative area, and their expert committees carry out this work. Since the soil benchmark is precisely determined in § 196 BauGB and otherwise has no further tax relevance, it is sufficient to mention it briefly. It is only important that the value of the land receives a concrete amount with which the inheritance tax or gift tax can be calculated.

Technical advice for

Taxation of inheritances and gifts

3rd Comparative Example for Evaluating an Old Building Property

Now that the basics for evaluating an old building property are available, it is time to give a calculation example. However, since the valuation depends on the type of property or its use, we are satisfied with a representative example.

3.1. Starting situation for the exemplary evaluation of an old building property

3.2. Exemplary evaluation of an old building property

3.2.1. Determination of net income in the income value method

First of all, we calculate the net income that the old building property provides annually. In doing so, we are cutting the yield by flat-rate management costs, which we can set at 20% of the yield. In addition, interest on land with a statutory real estate interest rate of 5,5 % is used. This interest rate applies to real estate that is commercially used up to 50 %. We want to start from this in our example.