The controversial new property tax will only take effect from 2025 – provided that it stands up to the Constitutional Court. But an analysis shows that many owners are already having to pay more.
It wasn’t long ago that millions of citizens were desperate for the new property tax forms. The anger has just calmed down a bit, then the next excitement arises. Although the property tax reform, which will affect around 36 million property owners, will not take effect until 2025, many are already having to pay more.
This is shown by an evaluation by the consulting company EY. According to this, the property tax in 2022 nationwide has risen more than it has in years. The last time there were so many increases was in 2016. What that means for owners – and what that has to do with the actual property tax reform.
How much has property tax increased?
According to the analysis, every eighth German municipality increased the so-called assessment rate last year. The assessment rate is the property tax factor that each municipality can set itself. If the assessment rate increases in a municipality, every property and property owner has to pay more taxes there. On average, the assessment rate has risen by five percentage points, reports EY. If you look at the past five years, the assessment rate has risen in 38 percent of the municipalities – and only fallen in two percent.
Who is affected?
Property owners in North Rhine-Westphalia are currently most affected. There, in 2022, every fourth municipality (26 percent) increased the assessment rate for property tax B, which affects most properties. In Saarland it was one in five municipalities, and there were also comparatively many increases in Rhineland-Palatinate (17 percent), Baden-Württemberg and Mecklenburg-Western Pomerania (16 percent each). There were hardly any increases in 2022 in Thuringia, Saxony and Saxony-Anhalt.
NRW is also the federal state in which the average assessment rates are the highest in absolute terms, followed by municipalities in Hesse and Saarland. On average, they are lowest in Schleswig-Holstein, Bavaria and Baden-Württemberg.
Why has the property tax increased?
The property tax is one of the most important sources of income for municipalities. In 2021, the municipalities took in around 15 billion euros. “The poor financial situation of many municipalities often requires an increase in the assessment rates, which leads to an additional burden on citizens,” says Heinrich Fleischer, real estate expert and person responsible for the study at EY. “Municipalities groan – just like the citizens – under cost increases that they have to pass on.”
What does the assessment rate have to do with the property tax reform?
Actually nothing and yet a lot. The property tax to be paid is calculated using the formula “property tax value x tax index x assessment rate”. The reform of the real estate tax means that new real estate tax values are set for each property because the old calculation was no longer constitutional. Since it is to be expected that many property tax values will increase as a result of the reform, the federal government is reducing the tax index at the same time. The promise of the federal government was that the reform should not make it more expensive on average (although possibly for the individual). However, if the municipalities now increase the assessment rates for their part, it will be correspondingly more expensive for owners.
How expensive will the new property tax for property owners be from 2025?
That is still unclear. Because even in 2023 and 2024, municipalities can increase the assessment rates and thus change the equation. EY expert Fleischer sees a nationwide trend towards higher property tax rates. And the Haus & Grund owners’ association also fears that other municipalities will increase their assessment rates. “Theoretically, a municipality can change the assessment rate every year,” says a spokesman for the association.
From January 1, 2025, the then current assessment rate will be multiplied by the new property tax value and the tax index to determine the new property tax. If everything is not overturned beforehand. The owners’ association Haus & Grund and the taxpayers’ association consider the new property tax model to be unconstitutional and want to overturn it with the help of model lawsuits. However, it can take years before a legal decision is reached. The owners’ association advises anyone who considers the recalculation of their property tax value to be incorrect to lodge an objection to the decision.
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Source: Stern
