The annual tax law indirectly increases inheritance and gift taxes. This can become a problem for real estate heirs.
The most important things at a glance
Anyone who has been concerned with property tax in recent months will already know it: real estate such as houses and apartments must be revalued. The data used to date is too old, and the resulting property values are too far removed from reality.
There will also be a revaluation for tax purposes. However, since the annual tax law does not provide for the allowances for inheritance and gift tax to increase, inheriting and receiving gifts will become significantly more expensive from January 1, 2023. Without a tax increase in the literal sense.
This Friday, the Federal Council approved the law. However, there has recently been some movement on the issue of tax allowances. We have summarised the answers to the most important questions for you.
For heirs and recipients, the new tax assessment can make a difference of five to six figures if they do not receive a property until the new year. An example calculated by lawyer and tax consultant Iring Christopeit for the “Süddeutsche Zeitung” makes this clear.
According to this, a detached single-family house from 2004 with 220 square meters of living space and 700 square meters of land, for which a land value of 500 euros per square meter applies, will increase in value by 61 percent at the turn of the year – from 487,505 euros to 785,704 euros. If the owner now wants to transfer the house to his child, he would have to pay 57,855 euros in gift tax for it from 2023. In 2022 it would have been only 9,625 euros.
The higher tax is due, among other things, to the fact that from 2023 the assumed useful life of a residential property will increase from 70 to 80 years. This will reduce the amount that is deducted from the construction value of the property due to the age of the building. This means that a larger residual value remains. But another innovation is even more crucial.
This also increases the so-called material value factor, by which the residual value of the house or apartment is multiplied. This figure adjusts the structural value of a property to the sales proceeds that can actually be achieved in the region. It is determined by appraisal committees based on sales from the previous year. If the material value factor increases from 1.0 to 1.4, for example, this means an increase in value of 40 percent.
There is also a new regional factor for particularly sought-after residential areas. It is intended to reflect differences between the national average and the construction cost level in the region in which the property being valued is located.
Rented buildings are also affected by the revaluation. However, the asset value method described above does not apply to them, but rather the income value method. Here, the so-called property interest changes. It is a kind of forecast of how the value of the property could develop. In addition, the deductible management costs, such as maintenance costs, are adjusted.
The property owners’ association Haus & Grund Deutschland estimates that the increase in inheritance and gift tax on residential houses and condominiums could easily be “20 to 30 percent.” Those who use real estate in whole or in part for commercial purposes should expect the increase to double.
This could overwhelm many of those affected, said Sibylle Barent, head of tax and financial policy at Haus & Grund Deutschland, to the “Wirtschaftswoche” newspaper. Then there is the threat of an emergency sale.
However, the changes in the valuation procedures do not necessarily mean that heirs and donees will have to pay more inheritance or gift tax from 2023. “If the personal allowances are not exceeded even after the new valuation, the planned changes will have no effect,” says Claudia Kalina-Kerschbaum, Managing Director of the Federal Chamber of Tax Consultants.
The amount of the tax exemption for inheritance and gift tax depends on how close the relationship is between the testator or donor and the heir or donee. While spouses and registered life partners can receive up to 500,000 euros tax-free, the amount for children is 400,000 euros per parent.
Grandparents can leave their grandchildren 200,000 euros without the tax authorities taking action. If the grandparents’ children are already dead, the grandchildren are also entitled to an allowance of 400,000 euros. Read here what applies to other family relationships.
