On November 8, 2019, the German Federal Council adopted the reform the German property tax. This means that the legislative package consisting of amendments to the Basic Law and changes to property tax and valuation law can enter into force as planned: As from 2025, the federal states will levy property tax according to the new rules.
The main features of the reform
In particular, the reform changes the valuation of land. The background to this is a decision by the Federal Constitutional Court in 2018, which declared the current unit valuation to be unconstitutional.
In the future, valuation will generally be based on the value-dependent model: in the case of undeveloped land, the value determined by independent expert committees will be decisive. For developed land, income such as rents are also taken into account when calculating the tax. In order to simplify the procedure, a given average target yield in the form of a net cold rent per square metre is assumed for detached and semi-detached houses, rental properties and condominiums, depending on the location of the property.
Exception: the value-independent model
Instead of the value-dependent model, the federal states can also decide to calculate the property tax according to a value-independent model. This is made possible by the amendment to the German Constitution, which was preceded by a long dispute. However, if the federal states suffer tax losses as a result of their decision, these cannot be included in the federal fiscal equalisation system.
The basic structure of the property tax remains unchanged. It is still calculated in a three-step procedure: Valuation of the real estate, multiplication of the real estate values with a tax measurement multiplier and a municipal assessment rate.
The existing regulations may still be applied until the new rules become effective in 2025.