Innovations in the reform of property tax

Are you the owner of a developed or undeveloped property in Krailling? Then you should already have heard that the previous form of property tax has been classified as unconstitutional. Anyone who is or was the owner of a property on January 1, 2022 has until October 31 of this year to submit a new property tax declaration. As your real estate agent in Krailling, we have summarized all the important information for you in this property tax blog post.

Even if owners still have to submit a declaration this year, the new property tax reform will not come into force until 01.01.2025, as the old property tax will continue to apply up to and including 2024. If you are a tenant, you have the privilege of not having to make any effort, but the new property tax can be passed on to the tenant by the landlord, which means that the property tax will be included in the utility bill or that the monthly utility costs will increase due to the property tax.

Why is the property tax being reformed?

Broadly speaking, the new property tax reform is primarily about fairness. The current property tax payments are calculated according to a unit value, which varies from property to property. At first glance, this calculation of property tax sounds pretty fair. However, the standard values in the old federal states have not been updated since 1964. In the new federal states, the unit values for calculating property tax were not recalculated after reunification, but were instead taken from 1935 - even though the Valuation Act stipulates that they should be updated every six years. For this reason, the unit values currently in use, which are nevertheless completely outdated, do not reflect any development in the value of different properties, which means that some owners have to pay disproportionately high property tax, while other owners pay too little property tax.

After many years, the Federal Constitutional Court also recognized this. On April 10, 2018, it ruled that the regulations on standard valuation since 2002 are partially unconstitutional. On November 26, 2019, the federal government responded with the Property Tax Reform Act. The long period of time until this property tax reform is applied in 2025 is due to the high expense involved in recalculating the standard values of 36 million properties across Germany for property tax purposes.

What does the newly calculated property tax consist of?

With the new property tax reform law, it can be seen that the calculation of the property tax consists of fewer components, which makes the calculation of the property tax less complicated for the time being. What is causing confusion, however, are the different calculation methods of the individual federal states - especially if you are the owner of property in several federal states and have to calculate the new property tax.

So if you want to work on your property-specific property tax declaration, you first need to know which calculation model the respective federal state provides and therefore which data is relevant for calculating the property tax.

To calculate the property tax for a property in Krailling, two factors are required in each federal state:

1. Firstly, the property tax file number. This can be found in the last property tax assessment notice or in the information letter from the tax office for the property tax return. While almost all federal states ask for a file number, the federal states of Hamburg, Berlin, Bremen and Schleswig-Holstein require the tax number.
2. Furthermore, land register data is required to calculate the property tax, which can be found in the land register extract of the property.

In the value-based model, which is used in the federal states of Berlin, Brandenburg, Bremen, Mecklenburg-Western Pomerania, North Rhine-Westphalia, Rhineland-Palatinate, Saarland, Saxony, Saxony-Anhalt, Schleswig-Holstein and Thuringia, the type of property, the standard land value, the year of construction, the living/usable space and the number of garages and parking spaces are required to calculate the property tax.

In the other five federal states, less information is sufficient to calculate the property tax: In Bavaria, Hamburg, Hesse and Lower Saxony, only the living and usable space is required, while in Baden-Württemberg only the standard land value is needed.

How high will your property tax be in Munich in 2025?

The changes in property tax are directly related to the assessment rate of the respective municipality. For this reason, it is difficult for property owners to calculate their future payment, as the assessment rate could be redefined by the municipality by the end of 2024, which will have a direct impact on the amount of property tax. Experts are currently assuming this to be the case, as there has been a trend towards increasing property tax rates since 2020.

However, the new property tax reform is not expected to increase total revenue. In conclusion, the municipalities are therefore obliged to make the property tax reform "revenue-neutral". The bottom line is that there will be winners and losers in property tax from 2025. Some property owners in Krailling will pay more property tax, some owners will pay less property tax. According to the Federal Constitutional Court, however, the new property tax reform will be one thing above all: fairer.

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