Further rises ahead for Grunderwerbsteuer, or property transfer tax
The applicable rate of property transfer tax, or Grunderwerbsteuer, a sort of stamp duty payable on the purchase of property in Germany, has been rising steadily in Germany over the past six years, a subject on which we have often reported in REFIRE.
The beginning of January saw further rises in the tax rate payable in the states of Berlin, Bremen, Lower Saxony and Schleswig-Holstein. The state of Hessen, which includes Frankfurt and Wiesbaden, is also planning to increase its rate from 5% to 6% on January 1st, 2015. This puts Hessen among the top three federal states in terms of property tax, and increases the transfer tax element on a €400,000 apartment from €20,000 to €24,000.
The current level of property transfer tax is Germany’s federal states is:
Baden-Württemberg: 5%
Bavaria: 3,5%
Berlin: 6%
Bremen: 5%
Brandenburg: 5%
Hamburg: 4,5%
Hessen: 5% (6% from 01.01.2015)
Mecklenburg-Vorpommern: 5%
Lower Saxony: 5%
North Rhine-Westphalia: 5%
Rhineland-Palatinate: 5%
Saarland: 5,5%
Saxony: 3,5%
Saxony-Anhalt: 5%
Schleswig-Holstein: 6,5%
Thuringia: 5%
Up until some years ago the rate of property transfer tax was a uniform 3.5% across the country. However, as part of the federal reform programme, it is now up to the federal states themselves to determine how much they charge property buyers. Not surprisingly, since then it has risen in nearly every state, albeit at different rates. It is invariably seen as a ‘soft option’ when state governments and politicians are looking for new sources of tax revenue.
This year so far, revenues from the property transfer tax have been rising strongly, due to higher transaction volumes and the higher rates themselves. According to Berlin’s federal finance ministry, the individual länder took in €845m in March alone, up 23.2% year-on-year. For the first quarter, revenues rose 11.3% to €2.4bn, well ahead so far of full-year projections of an increase of 4.5% for the period, with most states putting in increases. Saxony (up 64%), Bremen (up 46%) and Saxony-Anhalt (up 45.5%) led the way, while in absolute terms - not surprisingly - Germany’s most populous state of North Rhine-Westphalia was up 17.1% with a total intake of €511.9m, ahead of Bavaria (up 11.6% to €392m) and Baden-Württemberg, up 1.7% to €345.1m).
Industry associations always respond to increases in the tax rate with a volley of criticism, decrying its skewing effect and the disincentive it offers to property purchases. Dr. Wulff Aengevelt of the Düsseldorf-based property advisors Aengevelt Immobilien commented on the upward trend to REFIRE recently: “To fill gaps in state coffers, every federal state except Bavaria and Saxony have raised the original uniform federal rate of 3.5% in the shortest period of time by between 40% and 80% without any concrete reason, with Berlin and Schleswig-Holstein at the top end with 6% and 6.5% respectively.
“The logical effect of this is to divert particularly investment deals into so-called “share deals”, where the assets are traded without the tax imposition by acquiring the company that owns the asset. This has seen volume of these “share deals” rising in Berlin in 2013 by 41% to €4bn, the number doubling in Frankfurt to over €2bn, and a five-fold increase in Düsseldorf to €840m. This is a huge loss of exchequer income, but also a lowering of market transparency, as such deals are not included in the data gathered by the urban valuation experts.
“What’s even worse is that the rise in the transfer tax disproportionally hits the smaller buyers, such as young families trying to buy their own homes for the first time. With their tight budgets, increases of even a few thousand euros can delay or even scupper their plans to buy property.
“As with the other government measure, the Mietpreisbremse or cap on rental price increases, the increase in property transfer tax will not create a single new residential unit. If anything it acts to discourage owner-occupiership, and encourages tax avoidance, which is both unfair and anti-social.”