Unfiltered View: Germany's Property Tax Revamp Fiasco
- Unfiltered Opinion: Rolf-Herbert Peters
- Estimated Reading Time: ≈3 minutes
Property tax debacle: Local authorities struggling to manage tax collections, leading to confusion and disputes among residents. - Controversial Discussion Regarding Residential Property Tax Assessment
In the year 2018, the German Federal Constitutional Court struck down the nation's property tax on real estate, deeming it unconstitutional. A reform was in order. On June 27, 2019, the then Finance Minister, Olaf Scholz, declared to the German parliament: "The reform will strive to maintain overall tax revenue while revaluing properties and distributing taxes more equitably." In essence, the fiscal authority would update property valuations and apportion taxes more fairly, but they wouldn't swindle more money.
With the reform, a defining principle of the republic was set aside: the uniformity of living conditions. Since January 1, 2025, the new property tax assessments have been sent to property owners. It appears that the current procedures do not meet the courts' ideals of equal taxation.
Two-thirds of the affected will pay more property tax
Because the assessments are mostly stringent, as a survey by Wiso-Steuer reveals. They scrutinized 46,000 cases that closely mirror the German population structure. The result: Around two-thirds of the affected will shell out significantly more than before. Only about a quarter will find relief, with just under seven percent remaining unaffected. Mathematics isn't fooling anyone; this result can't be revenue-neutral in the end.
The disparities between the states are significant. On average, the additional burden on owners is 84.5 percent. But in Schleswig-Holstein, it's only 54.7 percent, while Berliners are hit with an additional 116.8 percent. This is partly because not all municipalities have lowered their tax rates to achieve revenue neutrality.
The verdict of the constitutional judges was spot-on: It was necessary to revalue the 36 million properties and buildings in Germany. The uniform values that served as the foundation were woefully outdated. This is evident in major cities: Former affordable worker districts have grown trendy and expensive, and the old values bore no resemblance to the reality of the property market.
Some people are exuberant: What's wrong with a higher property tax, finally the rich property owners are being squeezed! But such sentiment is myopic. The property tax is a real estate tax, not a hidden wealth tax. It taxes the ownership of real estate, regardless of the overall wealth of an individual. Moreover, it often impacts tenants hard, as landlords may pass on the property tax as a "public burden of the property" to them, a common practice.
The new property tax hits 'concrete millionaires' less
Thus, those seeking to get at 'concrete millionaires' should focus elsewhere, for example, on the real estate transfer tax, inheritance tax, or a real wealth tax. Scholars like economist Gerhard Graf consider the property tax, even in its reformed form, to be unconstitutional because it continues to violate the principle of equality. Graf even advocates for its complete abolition because the process is fundamentally outdated.
In any case, it will be necessary for the Federal Constitutional Court to revisit the reformed property tax. It appears to disproportionately affect classic housing forms like single-family houses or building plots, which are particularly sought after by young families. Established villa districts, on the other hand, fare relatively well.
Over the past few years, real estate tax revenues have soared dramatically, reaching 15.5 billion euros in 2023. This trend is likely to continue. However, over seven million property owners have challenged their new real estate tax assessments. Many model lawsuits challenging the state's taxation methods are pending. It's quite possible that the current coalition will face another significant financial challenge during this legislative period: a reassessment, potentially with refunds. After all, it would be fair.
Dive Deeper:
- Uniform land and building data are implemented, including standard land value, plot area, property type, and average net cold rent [2].
- Key changes include updating property valuations to reflect current market conditions potentially leading to significant changes in property tax liabilities for both residential and commercial properties [2].
- Variations in regional impact are considerable, with older residential properties suffering increased tax burdens in some areas, while newer properties may experience relief [1].
- Awareness is essential for landlords to review rental agreements and communicate changes in property tax costs to tenants effectively.
[1] - Wiso-Steuer Survey Results[2] - German Property Tax Reform Details[3] - Baden-Württemberg Land Value Model
- The community institution and the institution of the place of residence need to address the concerns of residents regarding the fairness of the new property tax, as two-thirds of affected individuals will pay significantly more, while only a quarter will find relief.
- In the realm of politics and general-news, the business implications of the property tax revamp in Germany are noteworthy, with the reform potentially leading to a significant financial challenge for the current coalition, as over seven million property owners have challenged their new real estate tax assessments.
