Real Estate Tax Reform - Nasty surprises in initial assessment notices
Since the start of the year, the German municipalities have been sending out real estate tax assessment notices. This (presumably) concluding phase of the Real Estate Tax Reform can now finally give property owners certainty about their real estate tax charges as of 2025 - sometimes with nasty surprises.
An overview of the reform process
After the Federal Constitutional Court declared, in 2018, that calculating real estate tax on the basis of assessed values from 1964 (West) and 1935 (East) was unconstitutional, there ensued a multi-stage reform process. This included the determination of indicative land values by committees of valuation experts, real estate tax returns from owners and the determination of values by the local tax offices as a basis for the preparation of new real estate tax assessment notices by the municipalities.
The calculation methodology for the new real estate tax returns and real estate tax basis amounts in the individual German federal states resembles a patchwork rug. In Baden-Wuerttemberg, solely the plot area and the indicative land value were used for the calculation. By contrast, in other German federal states, the year of construction and the living area, among other things, were taken into account. Irrespective of the different types of calculation logic, the procedure in the German federal states has been identical, namely, the local tax office has issued a real estate tax value assessment notice (a so-called notice of assessment basis) and a real estate tax basis notice.
Procedural classification
The real estate tax assessment notices that property owners have been getting since the beginning of the year constitute so-called follow-up assessment notices. The municipalities accept the real estate tax basis amount from the local tax office that appears on the real estate tax assessment notice without further review. The final payable amount of real estate tax can therefore admittedly be influenced by the municipalities only to a certain degree by setting a multiplier (Hebesatz) that is mostly revenue neutral; however, in individual cases this has still resulted in very high increases.
A comparison of tax burdens
After years of deadlock, most property owners only learned a few weeks ago how much their real estate tax charge would actually be as of 2025. With regard to the amount of tax levied, in some cases marked shifts between types of real estate and locations have been observed. For example, up to now in Baden-Wuerttemberg it has been possible to identify the following trends:
- The tax charge has gone up considerably for undeveloped plots and large plots with single-family or two-family houses.
- Generally, the charges are more favourable for commercial plots and plots on which there are several units and, therefore, the real estate tax burden is shouldered by more parties.
Possibilities for making changes
Lodging an appeal against a real estate tax assessment notice is however unlikely to be successful because, as described above, it is a follow-up assessment notice. If justified doubts exist as to the calculation of the real estate tax value, then these would have to be presented to the fiscal administration and not to the municipality. In the event of an amendment by the local tax office, the municipality would subsequently then automatically and retroactively go along with the adjustment for the whole of 2025.
In Baden-Wuerttemberg, there is the possibility of providing proof of a real estate tax value that is 30% lower via a detailed expert report. In the German federal states where the federal model (Bundesmodell) is used, this similarly applies to proof of a real estate tax value that is, at least, 40% lower. In most cases, it is likely that this will be the only way to change the values that have been determined by the local tax offices.
