At present, property tax is still levied on the basis of standard values. Consequently, these standard values are still based on completely outdated valuation criteria. On 10 April 2018, the Federal Constitutional Court ruled that property tax in its current form was unconstitutional. Subsequently, the Federal Government introduced the Reform of property tax It has been decided that, from 2025, property tax will be levied on the basis of new valuation criteria. However, property owners will need to take action well before then.

As part of a major reassessment with effect from 1 January 2022, a tax return will have to be submitted for all property in Germany in order to determine the new property tax value. To this end, from next year onwards, the tax authorities will require all property owners to submit a return in electronic form from 1 July 2022.

How is property tax calculated?

The federal states may determine the calculation model themselves or use a model developed by the Federal Ministry of Finance. The federal states of Hamburg, Lower Saxony and Hesse use the area-location model, which takes into account the key factors of plot area, building area and the property’s location. Baden-Württemberg and Bavaria use the area model/land value model, which takes into account plot area, type of use and the standard land value, or building area.

All other federal states use the federal model, although Saarland and Saxony apply it with some variations. Under the federal model, the key factors are plot size, type of building, year of construction, standard land value and the statistical net rent excluding charges. The obligation to submit a tax return remains the same in all cases.

What are the rules for flats?

In the case of residential properties that have been divided into separate flats, a separate declaration must be submitted for each flat. This also applies where a single person, a group or a company owns several flats in a divided block of flats. It is therefore not permitted to combine several flats in a single declaration.

What information is required?

A declaration must include, in addition to general personal details (contact details), various details relating to the property, including its location, the type of building, its floor area and the age of the property. In the case of flats, the relevant floor area is the co-ownership share in a jointly owned property as set out in the declaration of division. In particular, ancillary rooms and communal areas are not included in the living area.

Things get complicated when it comes to the information relating to the calculation: for example, the standard land value for the property must be taken from portals such as BORIS if it is not otherwise known. The amount of the statistically determined net rent (excluding service charges) must also be obtained from external sources. The biggest hurdle to meeting the obligation to provide a declaration will lie not only in the data to be provided but, above all, in the method of submission to the tax office. This presupposes that every person subject to the obligation to provide a declaration has the means to communicate electronically with the tax office.

The tax adviser helps with the tax return

When completing the declaration for the assessment of property tax values as part of a main assessment under Section 228(1) of the Property Valuation Act (BewG), it is advisable for taxpayers to consult a tax adviser. Tax consultancy firms are already preparing intensively for property tax and can relieve property owners of the burdensome task of completing the declaration to the greatest possible extent.

A tax adviser can undertake the following tasks:

1. Drafting of the statement

Tax advisers may need to transfer data from various sources – manually where necessary – into a tax return and check it for completeness. This data may come from paper notices, the firm’s internal software, contracts, external databases such as BORIS-D, or data provided by government agencies.

2. Approval and transmission

As things stand at present, the declarations of assessment can be submitted to the tax authorities from 1 July 2022. Submission deadlines may vary depending on the federal state. Some federal states have already announced that the assessment notices must be submitted by 31 October 2022 at the latest. For large client portfolios involving many properties, it may be time-consuming for clients to review and approve each tax assessment declaration before submission.

3. Receipt and review of the decision

Tax advisers must keep a close eye on appeal deadlines. As the firm is likely to receive a large number of assessment notices, the monitoring of deadlines must be well organised and should, where possible, be automated.