Published by Focus, Wirtschaftswoche, Finance100, Stock market online, but also Financial Institutions and Associations like Haus & Grund brought the Annual Tax Act 2022 into the headlines a few days ago. The journalistic tenor is that from next year the tax assessment of real estate will change, which can result in significantly higher taxes on real estate being given away or inherited.
In the following, I will discuss exactly what is behind the news, for which cases this applies and whether an additional tax burden can be avoided by making a donation this year.
1. the legal basis
If you want to know exactly, the draft law can be found at BT pressure. No. 20/3870 look at. Understandable in the sense that you can see what it means exactly, it's for experts only, across several pages it looks like the image at the top of this blog post. In order to make sense of it, the ordinary citizen has to rely on secondary literature, ie the opinions of such experts.
This is probably how it felt for the MPs who discussed the draft on October 14, 2022 in the first reading. To the report about this, which is posted on the website of the German Bundestag, there is not a word to be inferred that its implementation will increase the gift and inheritance tax on real estate. The FDP praises it as "socially balanced and economically smart" and says that it contains "a whole bouquet of important relief measures" that "will benefit the citizens of our country". That doesn't sound like an awareness of the problem, and since both the Ministry of Finance and the Ministry of Justice are FDP-led, there is little reason to expect the opposite.
Let's dig a little deeper. On page 2, indent 7, there is a note that the "Property Valuation Rules" are to be adjusted. Specifically, the so-called Valuation Act is to be attached to the Real Estate Valuation Ordinance of July 14, 2021 (ImmoWertV) be adjusted. This is then implemented on pages 25 to 35 with a separate article dedicated to the "change in the valuation law". With the new rules, the tax assessment of developed properties, ie single-family houses, multi-family houses, commercial real estate, etc., is more closely linked to the valuation of the expert committees and thus to the current market values. In times of significantly higher real estate prices, this results in significantly higher valuations, which in turn will form the basis of inheritance and gift tax as well as real estate transfer tax.
In substance this is logical: if one wants to tax wealth (through property taxes) or the gratuitous transfer of wealth (through inheritance and gifts), one must assess the value of the wealth. The BVerfG decided in 2018 (1 BvL 11/14 and others) that realistic values are to be used here. If you don't want to increase taxes when valuations rise, you have to lower rates. In the case of property tax, this was discussed in detail and Promised revenue neutrality. This does not appear to be planned for the inheritance and gift tax, nor is it being discussed politically.
The legislative process is not yet complete. However, since all coalition partners have expressed their praise, major changes are no longer to be expected. It is scheduled to come into force on January 01.01.2023st, XNUMX.
2. What does this mean for gift and inheritance tax?
Inheritance and gifts are treated essentially the same for tax purposes. Depending on the degree of relationship/close relationship, there are three tax brackets, different allowances and different tax rates:
Calculation example: if you give your spouse a rental property with a value of 550.000 euros, 500.000 euros are tax-free. The additional 50.000 euros are taxed at 7%, the tax is 3.500 euros. If you donate to your daughter or son, 400.000 euros are tax-free, the other 150.000 euros are taxed at 11%, the tax is 16.500 euros. If you give the same apartment to your brother, 20.000 euros are tax-free and 530.000 euros are taxed at 25%, the tax is 132.500 euros.
If the real estate value now increases, the tax increases for two reasons: on the one hand, a higher value is above the exemption amount and is taxed, on the other hand, the percentage of the tax increases when the threshold values specified in the table are exceeded. If, for example, the aforementioned apartment is no longer assessed at EUR 550.000, but at EUR 800.000, your spouse pays tax on EUR 300.000 at a tax rate of 11% = EUR 33.000. That is 9,5 times the previous tax. Your child pays tax on EUR 400.000 at a tax rate of 15%, the tax amounts to EUR 60.000. That's 43.500 euros more and 3,6 times the old rules. Your brother pays taxes on EUR 780.000 at a rate of 30%, the tax then amounts to EUR 234.000. That is 101.500 euros or 77% more.
Is such a massive increase in real estate values realistic as a result of the changed rules? Sibylle Barent, head of tax and financial policy at the Haus und Grund Germany owners' association, explained to the "Wirtschaftswoche" that an increase of 20 to 30% can easily come together and that some properties can even double (see here ).
If necessary, you should work out with your tax advisor whether and to what extent the changed valuation rules will lead to higher rates as of January 01.01.2023, 2022. If it turns out that the tax burden increases massively and you intend to transfer it to children or other family members, it makes sense to consider using the old values by transferring them to XNUMX. But is that even possible?
3. Can the previous (lower) rates still be used this year?
This question addresses the point at which the tax accrues. The process of donating land takes a while. Legally, a gift is a contract. If it relates to real estate, a notarial deed is required. This must then be submitted to the land registry by the notary and rewritten in the land register by the land registry official. If the re-registration does not take place until next year, the question arises as to which process in this chain the tax is linked to - if it were the land register re-registration, you would be able to do it in a hurry. already no longer helped.
§ 9 Inheritance Tax Act stipulates that the tax on inter-living gifts arises “at the time the donation is made”. According to the settled case law of the Federal Fiscal Court, the donation is carried out "if the contracting parties have submitted the declarations required for the entry of the legal change in the land register in the appropriate form and the recipient is able, on the basis of these declarations, to effect the entry of the legal change at the land registry". (BFH II R 52/02, II R 16/06). That is given when the Consignment declared and the registration the change of law in the land register by the beneficiary, i.e. the donor, approves has been. These two declarations are regularly included in the notarial deed of transfer, which means that the tax arises at the time the deed is notarized.
Transfers to the previous tax rules are therefore by notarization by the end of this year is possible.