Grunderwerbsteuer is Germany’s tax on the transfer of real property (equivalent to stamp duty in the UK). Whether you are a developer buying land earmarked for construction, a potential owner-occupier considering a condominium or an investor on the market for a property portfolio, all transactions involving land and property will be subject to Grunderwerbsteuer. Read on to find out more about the tax, how it is levied and how to reduce the amount you will have to pay.
Who pays Grunderwerbsteuer?
Strictly speaking, both the seller and the buyer in a deal are subject to Germany’s property transfer tax. In reality though, almost all contracts specify that the buyer will be liable for the full payment of the Grunderwerbsteuer. In certain cases, for example if the buyer does not pay the tax as required, the tax authorities will then pursue the payment from the seller, even if the contract says otherwise.
Who doesn’t pay Grunderwerbsteuer?
There are a number of exclusions contained in the property transfer tax legislation (GrESt) that deal with transfers of ownership within a family, to direct relatives or deals involving extremely low-value property. If the property in question is worth less than €2,500 then no tax is due. Even with comparatively low prices for real estate in Berlin, it is not very likely that many transactions will be on such a small scale. If you inherit property, you are also free from property transfer tax, although you may well be subject to Erbschaftsteuer (inheritance taxes). The same applies if you receive property as a gift, in which case you may have to pay Schenkungssteuer (gift taxes) instead. There are other exceptions, so you should make sure that you consult a tax adviser before you go ahead with any property transfer.
How much is Grunderwerbsteuer?
The amount of property transfer tax you will have to pay depends on two things: the location of the property you have bought and the value of the property as recorded in the notarised contract.
Every federal state for itself
Up until 2007, Grunderwerbsteuer tax rates were set at a federal level. Since then, each federal state has had control over rate setting. It shouldn’t come as a surprise that this has led to fairly rapid increases in some regions of Germany. A number of commentators have even likened the situation to an arms race, except in this case it is local governments constantly outdoing each other in a race to the top. The rates currently range from 3.5% in Bavaria to 6.5% in Brandenburg, Saarland, Schleswig-Holstein and North Rhine-Westphalia. There is even talk in Bremen of setting a 19% rate for transactions involving 50 or more individual apartments, in order to discourage property speculation amongst investors.
Cutting your liabilities
Once it is clear at what rate Grunderwerbsteuer is due, there are a number of approaches that can be taken to trim some fat off the final bill. The first thing to do is to make sure that any notarised contract clearly divides the cost of the land and property from the cost of (re)movable fixtures, fittings, furnishings, etc. in order to achieve the lowest possible property price. These should not exceed 15% of the total value of the property, but can include a kitchen, sauna, garden shed and anything else that is not a fixed element of the property.
If you are buying a condominium from a previous owner, you will probably also be buying their share of the condominium association’s maintenance reserves. Make sure this is listed separately from the price for the condo and you can also minimise your tax liability. Many people in Germany buy a plot of land from a developer with the intention of building a house. Some developers offer complete packages, i.e. you buy the land from them and they build your home for you. In such cases, the property transfer tax is calculated on the basis of the total amount involved for both land and house. If, however, you first buy the land and then later, in a completely separate transaction, organise construction of your home, it is possible to reduce the amount of Grunderwerbsteuer considerably. Again, always talk to your tax adviser before buying or selling property.
The only way is up
As mentioned above, each federal state has had control over its Grunderwerbsteuer rates since 01.01.2007. The only state that hasn’t raised its tax rate in the meantime is Bavaria, although there is wide speculation that it won’t hold off for much longer. The most recent increase was seen in Brandenburg (up from 3.5% to 5% in 2011 and now 6.5% from 01.07.2015). Berlin and Saarland are the other two serial rate increasers, also having current rates of 6% and 6.5% respectively. In the spirit of the world debt clock, the Sjkerven Group’s Part-B subsidiary launched a real-time counter that shows the volume of property transactions in Germany’s top 7 residential markets and the amount of tax this has generated for the states‘ coffers.
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