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Avoid tax-related mistakes when purchasing property
Buying property is a significant investment. Avoid unnecessary costs due to tax mistakes. We’ll show you how to save taxes legally, from optimal contract drafting to taking advantage of allowances. Do you need individual advice? Get in contact with our experts.
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The separate consideration of land purchase and building contract can significantly reduce the land transfer tax by applying it only to the land price. Pay attention to a 'waiting period' of at least six months and different contracting parties.
By separately listing movable items in the purchase contract of an existing property, the assessment basis for the property transfer tax can be reduced. However, the value should not exceed 15% of the total purchase price.
Self-employed individuals and landlords can claim the land transfer tax as a deductible, which reduces the overall tax burden. Learn about the current tax rates in your state and take advantage of any available incentive programmes.
Overview of the Real Estate Transfer Tax (GrESt) and Its Importance
The Real Estate Transfer Tax (GrESt) is a one-time tax incurred when purchasing a plot of land or property. It is regulated by the Real Estate Transfer Tax Act (GrEStG) and is levied by the respective federal state. The rate of GrESt varies between 3.5% and 6.5% of the purchase price, depending on the state. The real estate transfer tax is a significant factor in the ancillary costs of purchasing property and should therefore be carefully considered in financial planning. More information on the legal basis of the real estate transfer tax can be found on Wikipedia.
Why is Avoiding Mistakes Important?
Mistakes in purchasing property can have substantial financial and legal consequences. Incorrect calculation of the real estate transfer tax or overlooking tax planning opportunities can lead to unnecessarily high tax payments. In the worst case, this can result in additional payments, interest, or even disputes with the tax office. It is therefore advisable to thoroughly inform oneself about the tax aspects before purchasing property and, if necessary, seek professional advice. Our page on the procedure of purchasing a property offers a good overview.
The financial impact of errors in the calculation of the real estate transfer tax can be significant. Since the tax is levied on the total purchase price, even small errors in valuing the property or plot can lead to high back-payments. Additionally, interest may accrue on the tax payable, further increasing the financial burden. Therefore, it is essential to carefully consider all relevant factors in calculating the real estate transfer tax and seek professional advice if in doubt. Find out about the current real estate transfer tax rates of individual federal states.
Aside from financial risks, errors in purchasing property can also have legal consequences. For example, a faulty purchase contract can be contested, potentially resulting in the reversal of the purchase. Disputes with the tax office are also not uncommon when interpreting tax regulations. To minimize these risks, it is advisable to have the purchase contract reviewed by a lawyer or tax advisor before signing. This is particularly important to understand and apply the land register correctly.
Separate Acquisition of Land and Building
One way to reduce the property transfer tax is to acquire the land and building separately. This is particularly appealing if you plan to buy an undeveloped plot and then build a house on it. By treating the land purchase and construction contract separately, the property transfer tax applies only to the purchase price of the land, not the construction costs. Ensure there is a time gap between the land purchase and the construction contract (known as the 'waiting period') to avoid the impression of a single economic unit. A waiting period of at least six months is recommended. You can find more about this here.
To avoid creating an economic unit, make sure that different contracting parties are involved for the land purchase and the construction contract. Additionally, careful contract drafting is crucial to avoid any links between the two contracts. For instance, clauses that tie the construction contract to the land purchase or vice versa should be avoided. A clear separation of contracts is essential to minimize the property transfer tax. Get informed about the financing options for your land.
Optimization through Designation of Movable Assets
When purchasing an existing property, you can reduce the property transfer tax by separately stating movable items (furniture) in the purchase contract. These may include fitted kitchens, saunas, or other furnishings not permanently attached to the building. The value of these items is then excluded from the property transfer tax assessment base. However, it's crucial that the valuation of movable items is realistic and corresponds to their actual value. The tax office typically reviews these figures very closely. Ensure proper calculation of the property's value.
There are limits to the deduction of furniture. For example, the value of movable items should not exceed about 15% of the total purchase price. Otherwise, the tax office may require evidence of the actual value of the items. There are also documentation obligations towards the tax office. You must be able to prove the value of movable items, for example, through invoices or appraisals. Careful documentation is therefore essential to successfully claim the deduction for furniture. More information on the deduction of movable items can be found at Finanztip.
Deductibility of Real Estate Transfer Tax as a Business Expense
Self-employed individuals and freelancers can deduct the real estate transfer tax as a business expense if they use the purchased property or real estate for business purposes. This applies, for example, to businesspersons acquiring an office building or production hall. The prerequisite is that the property or real estate is predominantly used for business purposes. In cases of partial use, the purchase contract must clearly delineate between private and business use. The real estate transfer tax can then be claimed as a business expense pro rata.
For the self-employed, it is important to prove the use of the property for business purposes. This can be done, for instance, through a detailed description of the business activity and how the property is used. Additionally, the purchase contract should clearly distinguish between private and business use. Careful documentation is essential to prove the deductibility of the real estate transfer tax as a business expense. Our page on the process of purchasing property provides a good overview of the necessary steps.
Deductibility of Real Estate Transfer Tax as Advertising Costs
Landlords can also benefit from tax advantages. They can deduct the real estate transfer tax as advertising costs if they rent out the property or real estate. The real estate transfer tax is then considered part of the acquisition costs and can be depreciated over the property's useful life. This results in a reduction of the landlord's tax burden. However, it is important that the renting is actually carried out and not just intended. The Finanztip page on real estate transfer tax provides further information.
For landlords, it is important to prove the rental of the property or real estate. This can be done, for example, through rental contracts or bank statements evidencing rental payments. Additionally, the real estate transfer tax should be recorded as part of the acquisition costs in the accounting. Careful documentation is crucial to prove the deductibility of the real estate transfer tax as advertising costs. Inform yourself about the financing options for your property.
Different Tax Rates in the Federal States
The amount of land transfer tax varies depending on the federal state. Currently, the rates range from 3.5% to 6.5% of the purchase price. It is therefore important to find out about the current tax rates in the respective federal state before purchasing land. Regularly checking these rates is advisable, as changes can occur frequently. The different tax rates can have a significant impact on the total costs of acquiring a property. Find out about the current land transfer tax rates of the individual federal states.
The impact of the varying tax rates on the total cost of acquiring a property should not be underestimated. For example, purchasing land in a federal state with a higher tax rate can be significantly more expensive than in one with a lower tax rate. It is therefore advisable to compare the tax rates of different federal states and possibly consider purchasing land in a cheaper state. The Schwäbisch Hall page provides a good overview of the various tax rates.
Subsidy Programs and Tax Reductions
Some federal states offer subsidy programs and tax reductions for land purchases. For instance, in Hessen, there is the so-called 'Hessengeld', which grants first-time buyers of owner-occupied residential property a subsidy of up to €10,000. In addition, there is a grant of €5,000 for each child. The payment is made over a period of 10 years. It is worthwhile to find out about the current subsidy programs and tax reductions in the respective federal state. The Finanztip page on land transfer tax provides further information.
There have also been subsidy programs in other federal states, such as in North Rhine-Westphalia. The program reduced the land transfer tax by 2 percentage points for owner-occupied property acquired in 2022. It is important to be informed about such initiatives, as they can significantly reduce the financial burden when purchasing land. Explore the financing options for your property purchase.
Liability for Tax and Obligation to Pay
In principle, both the buyer and the seller are liable taxpayers for the land transfer tax. However, in practice, the obligation to pay is usually assumed by the buyer. This is accordingly agreed in the purchase contract. The buyer is then obliged to pay the land transfer tax to the tax office on time. The Finanztip page on land transfer tax provides further information.
The assumption of the obligation to pay by the buyer is customary as they typically have a greater interest in the smooth execution of the property purchase. Additionally, the buyer is usually the one who needs the clearance certificate to secure the entry in the land register. It is therefore advisable to clearly regulate the obligation to pay in the purchase contract to avoid misunderstandings. Our page on the process of purchasing a property provides a good overview of the necessary steps.
The Land Transfer Tax Notice and Clearance Certificate
After notarizing the purchase contract, you will receive a land transfer tax notice from the tax office. This notice contains the amount of tax due as well as the payment deadline. As a rule, the payment deadline is one month after receiving the notice. After paying the tax, you will receive a so-called clearance certificate from the tax office. This certificate is required to obtain entry in the land register. The page from Schwäbisch Hall provides a good overview of the necessary steps.
The requirement of the clearance certificate for land register entry is an important aspect of property purchase. Without this certificate, entry into the land register cannot occur, which means that you are not yet officially the owner of the property. It is therefore essential to pay the land transfer tax on time to obtain the clearance certificate and enable land register entry. Inform yourself about the options for financing your property.
Exemptions from Land Transfer Tax
In certain cases, there are exemptions from the land transfer tax. For example, the acquisition of a property by gift or inheritance is generally exempt from the tax. Also, the acquisition by spouses or direct-line relatives (parents, children) is often tax-free. Additionally, there is a threshold for low-value acquisitions. Currently, this threshold is 2,500 EUR. However, it is important to note that this is an allowance, not an exemption limit. This means that the tax applies to the entire purchase price if it exceeds the threshold. The Wikipedia page on land transfer tax provides further information.
Attention to gift and inheritance tax is important, as gift or inheritance tax may still apply even if an exemption from land transfer tax exists. It is therefore advisable to inform yourself about the tax implications before a gift or inheritance and to seek professional advice if necessary. Ensure a correct valuation of the property's worth.
Share Deals to Avoid GrESt
Another way to avoid real estate transfer tax is through so-called Share Deals. In this case, you are not purchasing the property itself, but rather shares in a company that owns the property. If less than 90% of the shares in the company are acquired, no real estate transfer tax is due. This planning option is particularly interesting for businesses looking to acquire larger property portfolios. The Wikipedia page on real estate transfer tax offers more information.
When acquiring company shares instead of direct property purchase, it is important to observe the holding periods and conditions. Typically, the shares must be held for a specific period to benefit from the tax exemption. Furthermore, certain conditions must be met to utilize this planning option. Therefore, it is advisable to thoroughly inform yourself about the legal and tax implications before a share deal and seek professional advice. Our page on the process of purchasing a property provides a good overview of the necessary steps.
Group Clause (§ 6a GrEStG)
For restructurings within a corporate group, there is the so-called Group Clause (§ 6a GrEStG). This clause allows for tax advantages when transferring properties within the group. The prerequisite is a minimum holding period of five years and a minimum participation of 95%. The Group Clause can significantly reduce the tax burden during restructurings. The Wikipedia page on real estate transfer tax provides further information.
The minimum holding period of five years and minimum participation of 95% are key requirements for applying the group clause. Hence, it is essential to carefully check and ensure that these requirements are met. Additionally, thorough documentation of the restructuring is necessary to claim the tax benefits. Inform yourself about the possibilities of financing your property.
Significant Rulings on Property Transfer Tax
The case law on property transfer tax is varied and complex. There are numerous rulings that address different aspects of the tax. These rulings have a significant impact on practice and should therefore be considered when structuring property purchases. It is advisable to keep informed about the current case law and where necessary, seek professional advice. The Finanztip page on property transfer tax provides further information.
The implications of the rulings on practice are diverse. For example, certain structuring options that were previously considered permissible may be deemed impermissible by a ruling. It is therefore important to keep an eye on the case law and, if needed, adjust one’s strategies for tax optimisation. Our page on the process of purchasing a property offers a good overview of the necessary steps.
Changes in Legislation and Their Consequences
Amendments to the Property Transfer Tax Act (GrEStG) can also have significant consequences. This can include adjustments to tax rates or changes in exemptions and exceptions. It is therefore important to stay informed about current legislative changes and adjust one’s strategies for tax optimisation accordingly. The Wikipedia page on property transfer tax offers further information.
The adjustments to tax rates can have a direct impact on the amount of property transfer tax to be paid. Changes in exemptions and exceptions can also mean that certain property purchases, which were previously tax-free, are now taxable. It is therefore essential to stay informed about current legislative changes and adjust your plans appropriately. Learn about the financing options for your property.
Risks in Contract Drafting
In contract drafting, there are several risks that need to be considered. For example, incorrect wording in the purchase agreement can lead to tax disadvantages. The invalidity of clauses can also have significant consequences. Therefore, it is advisable to have the purchase agreement reviewed by a lawyer or tax advisor before signing. The Finanztip page on property transfer tax provides further information.
The invalidity of clauses can result in certain agreements in the purchase agreement not being effective. This can occur if a clause violates applicable law or is not clearly formulated. Therefore, it is important to carefully review the purchase agreement and ensure all clauses are effective. Our page on the process of buying a property provides a good overview of the necessary steps.
Review by the Tax Office
The tax office scrutinises structuring arrangements very carefully. It is therefore important to demonstrate the economic independence of the individual contracts. Careful documentation and evidence are also essential. If the tax office has doubts about economic independence, it may reject the structuring arrangement and impose the property transfer tax on the total purchase price. The Wikipedia page on property transfer tax provides further information.
Proving the economic independence is crucial to successfully validating the structuring arrangement. This can be done, for example, through separate invoices, different payment streams, or separate negotiations. It is important to retain all relevant documents and evidence to present to the tax office if necessary. Pay attention to a correct calculation of the property value.
Summary of Key Points
Avoiding tax errors when purchasing property is crucial to prevent unnecessarily high tax payments. Strategic planning and design, along with professional advice, can significantly reduce the tax burden. It is advisable to thoroughly inform yourself about the tax aspects before purchasing property and to seek professional advice if necessary. The Finanztip page on land transfer tax offers further information.
Strategic planning and design include, for example, the separate consideration of property purchase and building contract, the separate listing of movable items in the purchase contract, and the use of tax advantages for self-employed individuals and landlords. The choice of federal state can also influence the amount of land transfer tax. Our page on the process of purchasing property provides a good overview of the necessary steps.
Recommendations for Buyers and Sellers
Buyers and sellers are advised to seek early consultation with tax advisors and notaries. A careful review of the purchase contract and adherence to the current legal situation are essential to avoid tax disadvantages. Documenting all relevant documents and evidence is also of great importance. The Wikipedia page on land transfer tax offers further information.
The careful review of the purchase contract should not be underestimated. Incorrect wording or invalid clauses can lead to significant tax disadvantages. It is therefore advisable to have the purchase contract checked by a lawyer or tax advisor before signing. Ensure correct calculation of the property value.
Government support programs and tax incentives offer you an excellent opportunity to invest in your dream property while saving on taxes. Whether you are looking for a building plot or want to purchase an existing house, the available support programs and design options make property acquisition attractive and financially feasible.
With a variety of strategies and expert tips, there are numerous ways to minimize your tax burden when purchasing property. We at Auctoa provide you with comprehensive advice and support in selecting the right property, optimal contract design, navigating through tax regulations, and avoiding potential problems.
By strategically acquiring a property, you invest in your future and secure long-term financial benefits. You not only reduce your tax burden but also lay the foundation for your dream home or investment.
Now is the perfect time to explore the tax benefits and support opportunities for your project. Contact us today to start your individual consultation and minimize your tax burden when purchasing property. Visit our Contact Page to learn more.
On the Finanztip page, you will find detailed information and current tax rates for real estate transfer tax in the individual federal states.
Schwäbisch Hall offers a comprehensive guide on the topic of real estate transfer tax for new builds and extensions, including relevant aspects and tax rates.
Wikipedia provides a broad overview of real estate transfer tax in Germany, including legal foundations and various aspects.
Was ist die Grunderwerbsteuer und wann fällt sie an?
Die Grunderwerbsteuer (GrESt) ist eine einmalige Steuer, die beim Kauf eines Grundstücks oder einer Immobilie anfällt. Sie wird vom jeweiligen Bundesland erhoben und beträgt zwischen 3,5 % und 6,5 % des Kaufpreises.
How can I reduce the real estate transfer tax when buying an undeveloped plot of land and planning to build on it?
One way is the separate purchase of land and building. Ensure there is a certain time period (known as the 'Schamfrist') between the land purchase and the building contract to avoid the appearance of a single economic entity.
What is the 'Schamfrist' in the separate purchase of land and building?
The 'Schamfrist' is a time gap between the land purchase and the building contract that should be observed to prevent the tax office from considering both contracts as a single economic unit and levying the real estate transfer tax on the total cost (land and construction). A waiting period of at least six months is recommended.
Can I reduce the real estate transfer tax when buying an existing property?
Yes, by separately specifying movable items (inventory) in the purchase contract. These include, for example, fitted kitchens or saunas, which are not permanently connected to the building. The value of these items is not included in the calculation basis for the real estate transfer tax.
What is the clearance certificate, and why do I need it?
The clearance certificate is issued by the tax office after payment of the real estate transfer tax. It is required to obtain the entry in the land register. Without this certificate, the entry cannot be made.
Are there exemptions from the real estate transfer tax?
Yes, there are exemptions from the real estate transfer tax in certain cases. For example, the acquisition of land through a gift or inheritance is generally exempt from the tax. Acquisition by spouses or direct relatives (parents, children) is also tax-free in many cases.
What are Share Deals, and how can they be used to avoid real estate transfer tax?
In Share Deals, you do not purchase the property itself but rather shares in a company that owns the property. If less than 90% of the shares in the company are acquired, no real estate transfer tax is levied.
Can self-employed individuals and landlords claim the real estate transfer tax for tax purposes?
Yes, self-employed individuals and freelancers can deduct the real estate transfer tax as a business expense if they use the purchased land or property for business purposes. Landlords can deduct the real estate transfer tax as advertising costs if they rent out the land or property.
