Facing the challenges of German property tax law or planning a real estate transaction? Careful tax advice and precise contract design are crucial for your success. This article shows you how to avoid pitfalls and make the most of opportunities.
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The topic briefly and concisely
The property tax reform 2025 requires a reassessment of almost all 36 million properties in Germany and may lead to tax changes.
Professional tax advice is essential for optimising the real estate transfer tax (3.5%-6.5% of the purchase price) and other property-related taxes.
A notarised purchase agreement is mandatory (§ 311b BGB); careful contract drafting protects against cost traps and secures rights.
The German property tax law is complex and subject to constant changes, as demonstrated by the property tax reform of 2025. For property owners, heirs, and investors, expert tax advice is essential to avoid financial disadvantages. At the same time, careful contract drafting forms the basis of every successful real estate transaction and protects against unexpected costs. This article highlights the core aspects of property tax law, tax advice, and contract drafting, providing you with practical solutions.
Mastering the Property Tax Reform 2025: What Owners Need to Know
The property tax reform will come into effect on 1 January 2025 and affects millions of property owners in Germany. It is based on outdated standard values from 1964 (West) and 1935 (East), which the Federal Constitutional Court declared unconstitutional in 2018. The aim is a fairer distribution of the tax burden through current assessment bases. For the recalculation, around 36 million properties had to be re-evaluated by the end of January 2023. The reform may lead to higher or lower burdens depending on the location and value of the property. Early engagement with the new regulations is essential for every owner. The complexity of the reform highlights the need for expert tax advice.
Tax Advice for Real Estate: More Than Just Numbers
Qualified tax consultancy in the real estate sector goes far beyond merely preparing tax returns. It includes the strategic planning of purchases and sales, for example, to optimise land transfer tax, which ranges from 3.5% to 6.5% of the purchase price depending on the federal state. A tax advisor examines Asset Deal vs. Share Deal structures and assists with tax-related contract design. A due diligence can uncover tax risks of up to 20% of the transaction volume. Proper allocation of the purchase price is crucial for future depreciation. Advice on inheritance and gift tax regarding property transfers within the family is also part of the service spectrum. Find out about tax advantages when acquiring property.
Contract Design: The Foundation of Secure Real Estate Transactions
The property purchase agreement is the central document of any real estate transaction and requires notarisation according to § 311b BGB. It records all agreements between buyer and seller, from the purchase price to the condition of the property. Important contents are:
Exact designation of the object of purchase (land register sheet, parcel number).
Agreed purchase price and payment modalities (e.g. due within 4 weeks after the notary appointment).
Regulations on the transfer of possession and the transfer of benefits and burdens.
Exclusions or regulations of warranties for material and legal defects.
Priority notice to secure the buyer’s claim until the property transfer is registered.
Power of attorney for the buyer for financing purposes.
Errors in the contract can lead to delays of several months and considerable additional costs. The terms of the contract must be precisely formulated. The notary fees for notarisation and land registry entry typically range between 1.5% and 2% of the purchase price.
The Role of the Notary: More than Just Certifying Signatures
A notary plays a key role in drafting and processing real estate transactions. They are obliged to remain neutral and advise both parties. Their tasks include drafting the contract, notarising the purchase agreement, and monitoring the proper execution of the transaction. The notary ensures that the contract complies with legal requirements and provides unequivocal evidence of the agreements made. For example, the notary obtains the municipality's waiver of a statutory right of first refusal. The notary's fees are set out in the Court and Notary Fees Act (GNotKG) and often amount to 1% to 1.2% of the purchase price. Learn more about important questions about the notary.
Optimise property transfer tax: Make use of planning options
The property transfer tax is a significant additional cost when purchasing real estate and varies considerably depending on the federal state, for example, 3.5% in Bavaria and 6.5% in Brandenburg. However, there are legal ways to reduce the tax base. This includes separately listing movable extras like fitted kitchens or awnings in the purchase contract, as they are not permanently attached to the property. For new buildings, separate contracts for the purchase of land and construction can often reduce the tax burden by several thousand euros. Additionally, when transferring property within the family (e.g., to children or spouses), there are exemptions or reductions in property transfer tax under certain conditions. A detailed examination by a property tax expert is advisable here.
Tax aspects of transferring property within the family
Transferring real estate within the family, whether by gift or inheritance, presents specific tax challenges and opportunities. For gifts, allowances can be utilised, amounting to up to 500,000 euros for spouses and up to 400,000 euros for children every 10 years. An interesting arrangement is the sale to children with simultaneous loan provision by the parents. This allows the children a new depreciation basis, and the interest can be deducted as advertising costs. The so-called family home can even be transferred completely tax-free under certain conditions. Early planning is crucial to avoid tax-related errors.
The following points should be particularly noted when transferring within the family:
Utilisation of personal allowances every 10 years.
Verification of tax exemption for the family home.
Possibility of donation under usufruct reservation to reduce the taxable value.
Risk of gift tax if the purchase price is set too low among relatives.
Consideration of the 10-year period for private sales transactions.
Documentation of all agreements in notarial form.
Comprehensive advice ensures optimal use of the tax possibilities.
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Careful contract drafting is crucial to avoid future conflicts and financial disadvantages. A common mistake is the inadequate description of the item being purchased or unclear provisions regarding defects. It is important to thoroughly document the condition of the property, including any potential contamination or encumbrances. A missing or unclear regulation regarding the cost bearing of development can lead to unexpected expenses of over 10,000 euros. Pay attention to clear formulations regarding the transition of ownership, benefits, and burdens. Checking the land register for existing encumbrances is essential before signing the contract. Seek support in reviewing complex legal frameworks.
Auctoa: Your partner for valuation and strategic consulting
What are the main responsibilities of a tax advisor in property transactions?
A tax advisor analyses the tax implications of buying or selling, optimises the real estate transfer tax, advises on the drafting of contracts regarding tax clauses, examines depreciation options, and assists with inheritance or gift tax issues.
Which clauses are particularly important in a real estate purchase contract?
Important clauses include the exact description of the purchase object, the purchase price and payment terms, provisions on liability for defects (warranty), the timing of transfer of possession, and the priority notice of conveyance.
What are the notary fees when buying property?
Notary fees are governed by the Court and Notary Costs Act (GNotKG) and usually amount to about 1% to 1.5% of the purchase price for notarisation and processing. Additionally, there are approximately 0.5% for land registry entries.
What is the difference between property tax and real estate transfer tax?
The real estate transfer tax is a one-off charge incurred when buying a property (ranging from 3.5% to 6.5% of the purchase price depending on the federal state). The property tax is an annual tax levied by the municipality on the ownership of property.
How does the property tax reform affect tenants?
Landlords can pass the property tax on to tenants. If the property tax changes for the landlord due to the reform, this may lead to adjusted additional costs for tenants from 2025 onwards.
What tax allowances are there for the gifting of property to children?
Children have a personal allowance of 400,000 euros per parent every 10 years for gifts of property from their parents.
Additional useful links
The Bundesfinanzministerium provides information on the fiscal immediate investment program.
The Bundesfinanzministerium offers an overview of the tax changes coming into effect in 2025.
The Federal Statistical Office (Destatis) delivers up-to-date tables and data on the residential property price index in Germany.
The Federal Statistical Office (Destatis) provides publications and analyses on the purchase values for building land.
The Bundesfinanzministerium answers frequently asked questions about the new property tax.
The Federal Chamber of Notaries provides a leaflet with important information on purchasing a pre-owned property.
The Federal Ministry of Justice offers the full text of the Property Tax Act (GrStG) of 1973 through "Laws on the Internet."
FAQ
What are the main responsibilities of a tax advisor in real estate transactions?
A tax consultant analyses the tax implications of buying or selling, optimises the land transfer tax, advises on contract design regarding tax clauses, checks depreciation options, and assists with inheritance or gift tax issues.
Which clauses are particularly important in a property purchase agreement?
Important are the exact designation of the purchase object, the purchase price and payment terms, provisions on defect liability (warranty), the time of transfer of possession, and the priority notice of conveyance.
What are the notary fees when purchasing a property?
The notary costs are governed by the Court and Notary Fees Act (GNotKG) and typically amount to about 1% to 1.5% of the purchase price for the certification and handling. Additionally, there are about 0.5% for land register entries.
What is the difference between property tax and land transfer tax?
The real estate transfer tax is a one-time fee incurred when purchasing a property (between 3.5% and 6.5% of the purchase price, depending on the federal state). The property tax is an annual tax imposed by the municipality on the ownership of property.
How does the property tax reform affect tenants?
Landlords can pass on property tax to tenants. If the property tax for the landlord changes due to the reform, this could lead to adjusted service charges for tenants from 2025.
What tax allowances are available for gifting real estate to children?
Children have a personal tax allowance of 400,000 euros per parent every 10 years for real estate gifts from their parents.
