The 2022 Property Tax Reform: What Changes for Property Owners?

In the following article you will find out what the property tax reform means for you, how it works in practice, and what deadline the tax offices have set for submitting the valuation return.

Property transfer tax (Grunderwerbsteuer) is payable when you acquire, for example, a plot of land or a flat, and is levied only once. After the acquisition you will receive a property transfer tax assessment notice from the tax office setting out the amount of tax due.

Property tax (Grundsteuer), by contrast, is payable quarterly and arises because the land is in your ownership. Until now, property tax has been calculated on the basis of the so-called unit values (Einheitswerte).

Previously there was Property Tax A for agricultural and forestry enterprises and Property Tax B for commercial and private land.

As part of the property tax reform, a new Property Tax C was introduced; this applies to development-ready unbuilt plots of land.

Municipalities may decide for themselves whether or not to levy Property Tax C. This new element of the property tax enables local authorities to apply a higher assessed value to development-ready plots of land and tax them accordingly. The aim is to prevent vendors of building land from speculating on a higher sale price.

On 10 April 2018, the Federal Constitutional Court ruled that the calculation methodology used for property tax purposes — based on so-called unit values — was incompatible with the general principle of equality and therefore unconstitutional.

The legislature was granted a generous deadline to remedy this problem and carry out a reform of property tax (and above all the calculation methodology).

This deadline expired on 31 December 2019 and the relevant legislative amendments were implemented. Before the new

property tax concept takes effect, however, a 5-year transitional phase is required, during which the "old" property tax law continues to be applied and preparations for the new rules are put in place.

The property tax reform affects all owners of property located in Germany. The term "property" (Immobilien) includes, among other things, detached houses, owner-occupied flats, and unbuilt plots of land.

The reform provides for approximately 35 million properties in Germany to be revalued (by means of a so-called valuation return, Feststellungserklärung). The tax authorities have set a 4-month window for this purpose, running from 1 July 2022 to 31 October 2022.

In some federal states the competent tax offices will request taxpayers to file by letter; otherwise the request will be made by way of a public notice.

Within the period mentioned above, property owners must submit the valuation return electronically via the designated portal ("ELSTER", www.elster.de).

Once the valuation return has been submitted, your competent tax office will issue a valuation assessment notice (Feststellungsbescheid) and a property tax assessment notice (Grundsteuer-Messbescheid). On this basis, the new property tax will then be set in a property tax notice from 2025 onwards.

The term "unit value" has been abolished and a property value (Grundstückswert) will now be determined instead.

Before the property tax reform, the calculation of the tax amount proceeded in three stages. The unit values determined in 1935 or 1964 were first multiplied by the statutory tax assessment factor.

The result was used by the tax office to establish the property tax assessment amount in a corresponding notice. This was then multiplied by the multiplier (Hebesatz) set by the municipality in whose territory the land or property was situated. This produced the amount of property tax due.

Once the property tax reform process is completed in 2024, the amount of property tax from 1 January 2025 will be calculated as follows:

• The property value is determined on the basis of the valuation return you submit to the tax office.
• Multiplying this by the statutory property tax assessment factor produces the property tax assessment amount.
• After applying the multiplier set at municipal level, the amount of the new property tax is calculated.

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Each federal state was given the option of adopting the so-called "federal model", also known as the "value-based model".

By means of a so-called opening clause, federal states were also permitted to establish their own calculation models.

The following states have adopted the federal model (value-based model):

• Berlin
• Brandenburg
• Bremen
• Mecklenburg-Vorpommern
• North Rhine-Westphalia
• Rhineland-Palatinate
• Saxony-Anhalt
• Schleswig-Holstein
• Thuringia
• Saarland (modified version)
• Saxony (modified version)

The following states have adopted their own model:

• Baden-Württemberg (modified land value model)
• Bavaria (floor area model)
• Hamburg (residential location model)
• Hesse (floor area factor model)
• Lower Saxony (floor area location model)

The valuation of all properties is to be carried out for the first time as at the valuation reference date of 1 January 2022.

Seven years later this process will be repeated in order to update the values, i.e. as at 1 January 2029.

Property owners are also required to notify the tax office of any changes within those 7 years. These may include, for example:

• structural changes to the property, e.g. a change of use
• a change in the property value of more than 15,100 euros