In its decision of April 10, 2018 (BVerfG, decision dated April 10, 2018 - 1 BvL 11/14, 1 BvL 12/14, 1 BvL 1/15, 1 BvR 639/11, 1 BvR 889/12), the German Federal Constitutional Court declared the previous valuation regulations for determining the property tax assessment basis (assessed value) to be unconstitutional and imposed a duty on the legislature to introduce new regulations. The legislature has fulfilled this obligation through the Real Estate Tax Reform Act of November 26, 2019 and the Fund Location Act of June 3, 2021.
The previous regulations for levying property tax will apply for a transitional period until the end of 2024. However, the first main determination of the new property values will take place as of January 1, 2022. Property owners will thus be required to submit a declaration for the determination of the property values (presumably from the second half of 2022). The previously determined assessed values will be replaced by the property tax values to be newly determined.
Future taxation procedure/assessment models
For property tax purposes, one must still distinguish between agricultural and forestry assets (Property Tax A) and real property (Property Tax B). Real property (Property Tax B) includes, for example, business properties, rental buildings, detached houses and undeveloped land. The new regulations specified by the federal government are based on the previous basic structure. Thus, property tax will continue to be calculated as follows: Property value x assessment factor x assessment rate. In a first step, the real property values are determined. These are generally determined in the federal model, depending on the type of property. However, an amendment to the Basic Law allows the states to enact deviating regulations on property tax. Some federal states have used the opening clause regarding the valuation of real property. The following summary is intended to provide you with an up-to-date overview (as of February 2022):
- Federal model (value-based model)
- North Rhine-Westphalia
- Federal model (with deviating assessment factors)
- Modified land value model
- Value independent area-related model
- Area-location model
- Lower Saxony
- Location model
- Area factor method
In a second step, the responsible tax offices determine the taxable amount by multiplying the real estate value by the assessment factor. In a third step, the taxable amount is multiplied by the municipalities' individually determined assessment rate.
Need for action: Revaluation of properties
In light of the new real estate tax reform, the properties in the portfolio must be revalued. Therefore, we recommend starting to obtain the information relevant to the valuation as soon as possible.
Many thanks to the co-author of the article, Max Körner.