Property tax in Germany, what does the new law mean for homeowners and tenants?

It’s been coming for quite some time, but finally the reform in property taxes in Germany has now been agreed upon by government and the changes will affect everyone. After all we are talking about 14 billion Euros per year, which the local communities are earning, and which makes up about 15% of their income. 

But what are property taxes? Property tax is a tax on properties and plots of land, payable every year and everybody has to pay it. Yes, even if you are a tenant, you will have most likely seen it on your ancillary costs bill under #Nebenkosten, for landlords are allowed to pass these costs straight on to their tenants. Until now, generally speaking those cost ran at a few hundred Euros per year if you own a flat, but if you own a house those numbers could easily run into a few thousand Euros.

Why the change now?

But who decides and more importantly how is it being decided how much everybody needs to pay? Currently, the inland revenue office calculates how much one needs to pay based a set of old numbers from 1935 in the old East Germany and a set of numbers from 1964 in old West Germany. Due to this, the Federal Constitutional Court (Bundesverfassungsgericht) demanded that a new law has to be introduced by the end of the year 2019, so that new rules for calculation can be applied and then implemented. As this will take some time, for some 35 million property plots will need to revalued, a grace period until 2025 has been introduced and the new tax will come into effect after that.

How much will you have to pay?

That depends entirely on where in Germany the property is located. The law allows the local provinces (Bundesland) to decide themselves how they are calculating the value of the property land. But the final word have the local communities, for they decide how high the assessment rate for their respective community is going to be. Due to the fact that the value of property and land has generally increased and rental fees have gone up in Germany over the last years, it is to be assumed that the assessment rate will also raise. In order for tax payers not having to pay more than they currently do, in overall terms, the local assessment rates have to be lowered. In effect, local communities have been asked that they do not raise these taxes to make more income, but to distribute the taxes evenly amongst the tax payers.

So at the end of the day, we need to wait on the local communities and how they decide to calculate the value of the property or land. Fact is, that so far nothing has been changed on the model that landlords or property owners can pass those charges onto their tenants, as long as it has been agreed upon within the rental agreement.