Property tax reform: Crafts disappointed

The property tax reform is a done deal. The Federal Council has approved the controversial law. The skilled trades sector is now relying on the opening clause.

This article is part of the special topic on property tax: What's changing and what property owners can expect.

On November 8, 2019, the Federal Council approved one of the most important tax policy projects of this year: the reform of the property tax.

The German Confederation of Skilled Crafts reacted with disappointment. ZDH Secretary General Holger Schwannecke said: "It is very regrettable that with the approval now given by the Federal Council for the reform of the property tax, the opportunity for a reform with less bureaucracy has been missed."

The skilled trades sector is now appealing to the states to use the opening clause contained in the draft law to apply significantly simpler and less bureaucratic models than those provided for in the federal law.

Schwannecke cites the appropriate area-based model from Bavaria as a model . "Especially given that it has already been legally ruled out that a shadow accounting system must be maintained for the purposes of fiscal equalization between the states, this presents real opportunities for the states to reduce bureaucracy."

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Since the reform of the property tax was decided in time, the states will levy property tax according to the new rules from 2025 onwards .

Main features of the reform

The reform will primarily change the valuation of properties . This stems from a 2018 ruling by the Federal Constitutional Court, which declared the currently applicable standardized valuation system unconstitutional.

In the future, valuation will be carried out according to the value-dependent model :

In the case of an undeveloped plot of land, the decisive factor is the value determined by independent expert committees.

If the property is developed , income such as rents is also taken into account when calculating the tax.

To simplify the process, a predetermined average target yield in the form of a net rent per square meter is assumed for single-family and two-family houses, rental properties and condominiums, depending on the location of the property.

Exception: The value-dependent model

Instead of this value-based model, the federal states can also choose to calculate property tax according to a value-independent model (opening clause). This is made possible by an amendment to the Basic Law.

If the states then incur tax revenue shortfalls, these may not be taken into account in the state fiscal equalization system.

structure is retained

The basic structure of the property tax remains unchanged. It will continue to be calculated using a three-stage process :

• Valuation of the properties,
• Multiplying the property values ​​by a tax assessment rate
• and a municipal assessment rate.

Transition phase

There is now time until 2025 to collect the necessary data. The existing regulations may remain in effect for the same period. 

Sources: Federal Council; ZDH