The Federal Ministry of Finance is planning significant changes and tax breaks regarding the real estate transfer tax (GrEStG).
Tax Break for Private Residential Real Estate Under Discussion
According to Finance Minister Lindner, the Federal Ministry of Finance is proposing to abolish the real estate transfer tax on the purchase of a private residential property for owner-occupancy, or at least to reduce the real estate transfer tax rates on a state-by-state basis (so-called relief for owner-occupiers). This measure is intended to alleviate the additional financial burden on citizens in light of the sharp rise in the cost of financing a mortgage.
The real estate transfer tax rates are set separately by each federal state. In Bavaria, for example, the tax rate is 3.5% (minimum rate), whereas many other federal states apply the maximum permissible tax rate of 6.5% in full, including Brandenburg, North Rhine-Westphalia, Saarland, and Schleswig-Holstein. Baden-Württemberg and Lower Saxony are in the middle at 5.0%.
Nationwide, total real estate transfer tax revenue amounted to approximately 17.12 billion euros in 2022, down from over 18.33 billion euros in 2021. [1] Due to higher financing costs for mortgage-financed home and apartment purchases, as well as persistently high construction costs, the Federal Ministry of Finance expects, according to a recent tax estimate from June 2023, a significant decline in real estate transfer tax revenue for all federal states—by approximately 24%—for the year 2023.[2]
The state of Bavaria is generally open to the proposals from the Federal Ministry of Finance, while Baden-Württemberg is reported to have taken a negative stance, according to a report by Bayerischer Rundfunk. [3] Numerous federal states have not yet formed a firm opinion on this matter, especially since real estate transfer tax revenues—which have already declined due to the drop in real estate transactions—would decrease further if private residential real estate for owner-occupancy were fully exempted or if state-specific tax rates were lowered.
Individuals who are currently considering purchasing their first residential property (a house or apartment) should continue to follow the discussions on this topic in the coming weeks and, if possible, postpone any concrete plans to purchase real estate.
The Fight Against Remaining Share-Deal Advantages
The tax relief for private individuals is to be accompanied by a further tightening of real estate transfer tax rules for real estate transactions structured under corporate law. Since 2021, the criteria for subjecting share deals to real estate transfer tax have been expanded, so that, in principle, all share deals involving a transfer or consolidation of more than 90% (previously 95%) of the relevant company shares within a 10-year period (previously 5 years) are subject to real estate transfer tax, provided that the underlying company owns real estate.
Despite these legislative changes in 2021, the Federal Ministry of Finance estimates that not all “tax loopholes” have been closed yet and that further legislative action is needed. This is to be pushed forward as a parallel measure to offset the cost of any potential tax breaks.
Amendments Required by Corporate Law for Legal Reasons
On January 1, 2024, the so-called MoPeG will take effect with regard to partnerships, leading in some cases to substantive amendments to existing legal principles in corporate law. A significant change concerns the asset structure of partnerships: instead of the previous joint ownership, the so-called fractional ownership approach will apply from now on, i.e., starting in 2024, real estate held by a GbR will be allocated directly (pro rata) to its partners for property law purposes and will no longer—as was previously the case—be considered part of the GbR’s jointly held assets, which were treated as a separate entity.
To address the potential impact of the new MoPeG principles on real estate transfer tax, the Real Estate Transfer Tax Act should also be revised by the end of the year; an initial draft for discussion from the Federal Ministry of Finance is already available. In some cases, only the wording of the law needs to be changed—for example, to ensure that restructurings between two affiliated partnerships with the same shareholder structure remain exempt from real estate transfer tax in the future.
Conclusion
The proposal to reduce or even eliminate the real estate transfer tax burden on private real estate purchases for personal residential purposes is to be welcomed from a social perspective, given the significant rise in purchase costs due to inflation, material shortages, and interest rate hikes. The changes required by corporate law are largely of a technical legal nature and are simply made necessary by other legislative amendments. However, the other proposed changes—such as raising the threshold for triggering taxation on the acquisition of corporate shares to 100% of the shares—with exceptions for targeted circumvention measures (via so-called “purchaser groups” or “persons with a serving interest”) —are generally desirable, provided that their legal framework creates a legally certain environment for taxpayers and tax advisors.
Sources:
[1] https://de.statista.com/statistik/daten/studie/235811/umfrage/einnahmen-aus-der-grunderwerbsteuer/
