Gifting and bequeathing real estate will become significantly more expensive from 01.01.2023!

On 10.10.2022, the German Federal Government forwarded its draft of the Annual Tax Act 2022 (JStG 2022) to the President of the Bundestag (Federal Parliament) for adoption in the Bundestag (BT printed matter 20/3879). The Parliament held the first reading in the plenary session on October 14, 2022, and then they referred the proposed law to the Bundestag’s Finance Committee for further discussion.

This so-called omnibus law (law to bring about changes in various individual laws – here in the area of tax law) is particularly important for the area of gifts or inheritance of real estate assets, as it stipulates that the principles and regulations for the valuation of developed real estate are to be adapted to the valuation standards of the amended Real Estate Valuation Ordinance (ImmoWertV) of 14.07.2021 (BGBl. I p. 2805). According to the draft, this should apply to any developed property, regardless of whether you held it as a private or business asset.

In Articles 12 and 13 of the JStG 2022, the authors of the draft provide for changes to the two valuation methods, “capitalized earnings value method” and “asset value method,” which, according to initial projections by professional associations, will lead to increases of between 20% and 50% in the property values relevant to the Inheritance and Gift Tax Act (ErbStG).

In its ruling of November 7, 2006 (Ref. 1 BvL 10/02, BStBl. 2007 II p. 195), the Federal Constitutional Court called for a change in the valuation regulations for real estate for taxation under the Inheritance Tax Act. It effectively formulated a petition for valuation according to current values. The legislator followed this by establishing the currently valid standards through the Inheritance Tax Reform Act 2008.

As property values have developed rapidly in recent years, the legislator had already adapted ImmoWertV, relevant for the real estate market, to the changes on July 14, 2021. Section 199 BauGB contains the authorization basis for issuing the ImmoWertV. The regional expert committees work with it (Sections 192ff BauGB). Therefore, the adaptation of these adjustments in the corresponding valuation regulations under tax law comes as no surprise. However, the timing is surprising, as this initiative has yet to be previously announced politically.

The JStG 2022 is due to come into force on 01.01.2023, which means that citizens who are already thinking about transferring real estate assets by way of anticipated inheritance/gift and who can bring forward the transfer in 2022 to take advantage of the more favorable valuations that still apply are advised to act quickly.

However, tax planning for transfers after 2022 or inheritances must also be adapted to the new circumstances. As the content of the Inheritance Tax Act is not to be changed (the standards to be amended are all contained in the Valuation Act (BewG)), the existing options for avoiding or reducing the tax burden will continue to apply. It will only be necessary to reckon with higher individual property values. As specialist tax lawyers and consultants, we will be happy to advise you anytime on the current options for avoiding or reducing tax.

The current ongoing reassessments of property values for property tax assessments due to the amendments to the Property Tax Act and the associated valuation regulations (§§ 218ff BewG) make it clear to anyone who has already fulfilled their property tax declaration obligations and has already received amended valuation notices for their properties what surprising orders of magnitude must be assumed in the future.

TIP FOR THIS

Keep the assessment notices for the valuation of your property for property tax purposes open for as long as possible by appealing. You will receive the property tax assessment notices from the local authorities based on this in 2025/2026. For many people, the reassessments will be a personal tax increase. Only if they have the current assessment notices checked for valuation errors will they be able to correct the resulting errors. Appeals only against the property tax assessment notice in 2025/2026 will not be able to help, as the property tax assessment notice is merely a follow-up notice to the valuation notice. In these constellations, the objection must be lodged against the essential assessment notice in the form of the valuation assessment notice.

The legislator has done its homework. The expert committees have also done their part by setting the standard land values in many valuation regions considerably higher, sometimes between 80% and 120% higher, thereby virtually doubling the value of land ready for building. This will already be felt in the revaluation of property tax. It is pointless to point out that the tax authorities and expert committees have held joint working group meetings on this topic. In any case, it is favorable for the administration. Citizens should also protect their interests in this respect.