The new year has barely begun, and already the first mammoth task is looming. That's because property tax is changing. Property tax is a tax on real estate that is levied once a year by the relevant municipality and is always linked to the property, not the owner.
This means that property tax can be paid by the owner themselves or passed on to the tenant as part of the operating tax bill, if there is one. There are three different types of property tax. Property tax A applies to agricultural land, property tax B to developed land, and property tax C to undeveloped land. These taxes are calculated based on three factors:
- Unit value: assessment basis for determining the value of a developed or undeveloped property
- Property tax rate: determines which part of the unit value is taxable
- Assessment rate: determined individually by municipalities to increase or decrease property taxes
This property tax will be changed on January 1, 2022, the date on which the data is primarily determined, as the previous calculation was based on values from 1935, which are now considered unfair. The aim is to introduce this new property tax by 2025. In the new calculation, the unit value will no longer be determined by the expected value and the real value, but only by the expected value. To implement this, owners will have to provide a large amount of data to the tax office. The Federal Constitutional Court has created a model for this purpose, which the federal states can follow, but each federal state is still free to develop its own model. Baden-Württemberg, Hamburg, Hesse, Bavaria, and Lower Saxony have come up with a simpler model that they are sticking to. In Baden-Württemberg, the land value model applies, while in Bavaria, Hesse, Hamburg, and Lower Saxony, the area factor model applies.
The land value model in Baden-Württemberg only requires the land area and the official land value (average price for a number of similar properties) to calculate property taxes. The federal model also requires the living space. With a bit of luck, the living space can be taken from the building plans, the purchase agreement, the insurance policies, or the utility bill, and updated if necessary if extensions or similar changes have been made to the property. If this is not the case, the entire living space must be remeasured. The federal model does not shy away from any details, so the basement, laundry room, or storage room are not included in the living space. A swimming pool or a room with sloping ceilings counts as half, and a balcony or terrace counts as only a quarter. However, if you have an unheated conservatory that is enclosed on all sides, this does not count as part of your living space. A heated conservatory, for example, is included in the living space. Skirting boards and baseboards must also be included, while door frames are omitted.
In Bavaria, Hesse, and Lower Saxony, commercial and work areas must also be separated, as there are different methods of calculation for these. A study is still counted as living space. In the federal model, a building with 80% or more living space is considered residential property, and anything below that is calculated as commercial space.
If you need help collecting this data, you should contact a surveyor, architect, or tax advisor. The "Boris" system makes it easy for owners to obtain the standard land value in square meter prices for their property. If no values are available, owners must have the prices determined by municipal appraisal committees.
As a general rule, the larger the living space, the higher the property tax. Despite this, the municipalities have promised not to increase property tax, but to reduce it as far as possible, especially for social housing, cooperative properties, and municipal, non-profit housing associations.
The new property taxes are set to increase for the first time in 2025. This could result in additional payments for tenants, as landlords can pass on property taxes to their tenants. Landlords should communicate this to their tenants at an early stage.
The tax office has to recalculate and revalue a total of 24 million residential properties and 12 million commercial properties, which is why they need 1,000 new employees nationwide to meet the deadline. Owners must submit all data to the tax office by the end of October 2022, otherwise they face penalties of up to €25,000 or the data will be estimated to the detriment of the owner.
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