German states scoop record 'property transfer tax' haul

Germany's federal states hauled in a record €12.4bn in Grunderwerbsteuer (property transfer tax), a rise of 10.2% over 2015, based on the €240.5bn of property transactions across the country last year, itself up 9.6% on the previous year, according to statistics compiled by national property association IVD. Bavaria topped the list of states with a turnover of €50bn, while Saarland had the highest proportional rise of 39%.

The controversial property transfer tax is the ongoing subject of debate in Germany, as it is universally paid by private individuals and frequently evaded by corporations, who avail of share deal exemptions to avoid paying the substantial tax imposed on property transactions.

The tax can range from 3.5% to 6.5% depending on the federal state, but most states have steadily increased the tax rate to close to the higher level since 2006 when the government in Berlin decentralised the setting of the rate to the individual states. Only Bavaria and Saxony have left the rate at 3.5%.

As in previous years the state with the highest transaction volume in 2016 was Bavaria at €50.83 billion, a rise of 13.3%, followed by North Rhine-Westphalia at €5.34bn (up16.3%). In third place was Baden-Württemberg with €31.92bn turnover (down slightly by 0.5%).

Now Germany's ministers of finance are getting serious about closing off the loophole that favours professional investors. First proposals have been drafted, and the ministers are meeting again in March to progress their plans. They've set themselves a deadline of October this year to have working proposals in place.

Thomas Schäfer, minister of finance in Hesse, a leading proponent of the drive for change, told the media recently that concrete plans were afoot, still shrouded in secrecy "to avoid quickly seeing evasive movement being taken by those involved in transactions worth millions", and so as "not to stimulate the imagination of those involved too early."

Several groups, including the Free Democrats (FDP) and the Institut der deutschen Wirtschaft (IW) in Cologne, are lobbying for the abolition of the tax on first-time purchase of property up to €500,000, to enable medium earners to afford property. The argument is that the high rate in Germany prevents the rise of home ownership, particularly among lower earners, whose rate of home ownership fell between 1990 and 2014 from 25% to 17%, while the overall rate across all income classes has been stagnating at 45% since 2010, according to Dr. Michael Voigtländer of the IW. He says that it should actually be easier to buy property given the low interest rates, but the rise of transactional costs has presented this from happening

The advantage to the states of getting their hands on the tax is that they get to keep whatever they raise – in other words, the revenue is not treated as income for the purposes of determining their contribution to Germany's "Länderfinanzausgleich", or inter-state fiscal adjustment, where wealthier states pay in to subsidise the poorer states. The current relevant Grunderwerbsteuer rates are:

  Baden-Württemberg: 5%

  Bayern: 3,5%

  Berlin: 5%

  Brandenburg: 6,5%

  Bremen: 5%

  Hamburg: 4,5%

  Hessen: 6%

  Mecklenburg-Vorpommern: 5%

  Niedersachsen: 5%

  Nordrhein-Westfalen: 6,5%

  Rheinland-Pfalz: 5%

  Saarland: 6,5%

  Sachsen: 3,5%

  Sachsen-Anhalt: 5%

  Schleswig-Holstein: 6,5%

  Thüringen: 6,5%