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Update: What you need to know about the German property tax reform that affects us all

The Bundestag on Friday paved the way for the reform of Germany's property tax, which most of us have to pay in some form. Here’s what you need to know.

Update: What you need to know about the German property tax reform that affects us all
An aerial view of the city centre in Munich. Photo: DPA

What’s happening?

Last year the Constitutional Court ruled the Grundsteuer (property/land tax) obsolete and gave the government until the end of 2019 to come up with a new way of calculating the tax for Germany's 36 million properties.

On Friday the Bundestag paved the way for reform with an amendment to the Basic Law.

As put forward by Finance Minister Olaf Scholz, of the centre-left Social Democrats, the tax will now be calculated according to land value and rent, which means 36 million properties and houses have to be revalued.

However, due to pressure from the state of Bavaria, there will be a clause that means states can introduce their own regulations.

Here's the background and who has to pay it:

What exactly is the Grundsteuer and do I have to pay it?

It’s the tax on the ownership of land and buildings. And almost all of us pay it, either directly or indirectly. The tax is levied on everyone who owns a property. But even if you are a tenant, you still probably pay, as landlords almost always pass the cost onto tenants in the form of Nebenkosten (supplementary costs) in their contract.

One tax expert told mortgage specialists Hypofriend that property tax for an 80 square meter apartment in Berlin (Altbau, located in a 1,500 square meter property and in good condition) amounts to €260 per year.

Research by the Institute for the German Economy shows that the Grundsteuer on a typical apartment is €299 each year.

Owners of whole apartment buildings often have to pay four-digit amounts.

READ ALSO: The words you need to know before renting a flat in Germany

Why is it important?

For local governments, property tax is one of the biggest sources of income. It makes up 15 percent of their tax revenue, contributing to the building of community facilities such as roads and swimming pools.  According to the Federal Statistical Office, revenue from property tax last year totalled €14.2 billion – all going to local governments.

How is the tax currently calculated?

How much you pay depends on the assessed value of the property, the property tax rate and the assessment rate set by the local government where you live. Germany has 11,000 local municipalities, so there are lots of variations on the typical amounts that people have to pay.

For houses with the same basic tax rating for example, the final tax due could end up being €100 in one municipality and €1000 in another.

READ ALSO: Germany's top court just made a landmark ruling that affects us all

Why does it have to be changed anyway?

There's been debate for years about the fairness of the tax. Why? Well, the tax is based on an estimate of the value of a property which is seriously out of date.

Properties were last valued for the tax in west Germany in 1964 and in east Germany in 1935. So when your local Finanzamt calculates the tax, they are doing so based on the value of your property over half a century ago.

It's fair to say the value of homes has changed somewhat since then. For instance an apartment that was stuck next to the Berlin Wall in 1964 could now be in one of the trendiest neighbourhoods in Germany.

It's been on the agenda with the government for a while. A majority of states even suggested a new way of assessing the tax back in 2016.

Homes in Stuttgart, Baden-Württemberg. Photo: DPA

The proposal back then prescribed that property value would be replaced by a calculation based upon size of property, location, transport connections and cost of build.

But both Bavaria and Hamburg blocked the change, fearing that it would lead to a rise in taxes for their residents.

How will the tax be calculated in the future?

This will depend on the state where you live. Finance Minister Scholz wants a general rule that will see the value of the land and the average rent play a role in the calculation. 

At the same time, however, there is to be an opening clause in the bill which will allow individual states to introduce their own regulations. Bavaria, for example, wants to use only the size of the property for the calculation. No matter which model a federal state chooses, the local governments still have the last word on assessment rates.

Will anyone have to pay more – or less – tax?

This is hard to predict. Scholz has said that the “good news” for taxpayers is that overall there won't be higher rates.

But it is likely that, in individual cases, some people will have to pay more than before, and others less. The details are hard to predict because of the varying collection rates by local governments and how they will be adjusted after the change.

Which model is best for residents in Germany?

This is controversial. With the Scholz model, all houses and undeveloped land would have to be regularly revalued. This is not only costly and time-consuming for local authorities, but as property values and rents continue to rise, the property tax would automatically increase. 

But the model proposed by Bavaria also has disadvantages: a farm in the north-east of Bavaria would have to pay just as much tax as a property of the same size but much more valuable in the centre of Munich. Many consider this unfair.

SEE ALSO: How Berlin's housing crisis leaves women vulnerable to sexual predators

What happens next?

Despite criticism, especially from the Free-Democrats, the Bundestag has voted for the reform.

Once the new law has passed through the Bundesrat too, which is considered certain as the details of the reform have been agreed with the federal states, the government will have a transition period to carry out the assessments necessary to start levying the tax accordingly, with plans to launch the new tax in 2025.

Those five years are needed because it will take some time to reassess all of the country's some 36 million properties.

What does reform mean for tenants?

People who live in locations where rent has gone up significantly in recent years, such as large cities, may have to pay more because the average rents in locations is to play a role in how to calculate property tax.

However, the German Tenants' Association wants the property tax removed from costs that tenants have to pay so that they no longer have to pay it.

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RENTING

EXPLAINED: How to sublet your apartment in Germany

If you’re going away for a period of time or want to cut your living costs, subletting your flat can seem like an appealing option. But there are a lot of things you need to consider first. We break them down.

EXPLAINED: How to sublet your apartment in Germany

What is subletting?

A subletting arrangement is when a subtenant is allowed to use the main tenant’s apartment, or part of it, in return for payment.

Having visitors in your home, even for a period of up to six weeks, does not count as subletting and you do not have to inform your landlord. But be careful: If the visitor starts paying rent, this becomes a sub-letting arrangement and if the visitor stays more than six weeks in a row, you have a duty to inform your landlord.

READ ALSO: The most expensive (and cheapest) cities in Germany to rent a room

If close family members such as parents, children, partners or spouses move in with you, this is also not a subletting arrangement and is considered part of the normal use of the rented property. 

However, you should inform your landlord of such a change in circumstance, not least because at some point the new person living in your apartment will at some point need to register with the local authorities.

Do I have to tell my landlord?

Yes. Regardless of whether you are just subletting a room or your whole apartment, you have to inform your landlord and, in most cases, you are required by law to obtain the landlord’s permission to sub-rent. This applies for whatever time period you want to sublet for: whether it’s for a weekend or for six months. 

One exception to this rule is if you rent a room in a WG (shared accommodation) and all of the tenants are equal parties to the contract. In that case, it’s possible to sublet individual rooms without having to get permission from the landlord, but you should still inform them.

If you try to rent out your place or a room without your landlord’s permission and get found out, you could face legal action, or be kicked out of your apartment before the agreed notice period. 

READ ALSO: REVEALED: The most – and least – popular landlords in Germany

Can the landlord refuse to let me sublet?

If the main tenant has a so-called “justified interest” in subletting part of the apartment, they can demand that the landlord agrees to the sublet and even take legal action or acquire a special right of termination of the rental contract if they refuse.

However, this right only applies to a sublet of part of the apartment and not the entire space within the four walls – in this case the landlord is within their rights to say no to the sublet. 

When subletting part of an apartment, a justified interest must be for an important reason such as a needing to move abroad temporarily for a job or personal reasons, or a partner moving out and the tenant no longer being able to cover the rental costs alone.

In general, landlords shouldn’t refuse your request to sublet unless there are good reasons – for example if the apartment is too small. 

The landlord can’t reject your subletting application without good reason and if they do, you can gain a special right to terminate your rental contract, and can even sue for your right to sublet. 

What information will I need to give my landlord? 

Whether you are subletting a room or the whole apartment – you’ll need to give your landlord the following information:

  • Who is moving in
  • How long you will be subletting for
  • For what reason you plan to sublet

If you want to set up a WG (Wohngemeinschaft or shared flat) as the main tenant, you should discuss this with the landlord beforehand, as it may be worth changing the apartment status to a shared apartment in the main rental agreement. That way, you won’t have to send a new application every time a new roommate moves in.

Do I need a special rental contract?

If you are going to subrent your apartment, it is definitely worth having a contract. 

A contract between the main tenant and the subtenant is completely separate from the contract between the main tenant and the landlord, so all responsibilities arising from the sub-rental contract will fall on you and not the landlord. 

A man fills in the details of a rental contract by hand. Photo: picture alliance / dpa | Armin Weigel

At the same time, as the main tenant, you will still be liable to your landlord for any damage caused by the subtenant, so it is best to put a clause in the sub-rental agreement that outlines how this will be covered, and also to make sure that your subtenant has personal liability insurance. 

There are plenty of websites that offer templates of sub-rental contracts for you to use, and you should make sure your contract includes the following information:

  • The personal details of the subtenant
  • The sub-rental cost and any service charges
  • When these are to be paid
  • Which rooms may be used
  • How many keys have been handed over
  • Details of a possible deposit
  • The condition of the rented apartment
  • House rules, such as no smoking, pets, etc.
  • Liability for possible damages

How much can I charge?

You can usually negotiate the sub-rental price yourself, but you should be careful not to overstep the rental limit per square metre for your area. If you charge over this amount and your subtenant finds out, they have the right to demand the local square metre rental price and you may have to refund them the total amount of overcharged rent.

If you sublet a furnished apartment, you can add a surcharge based on what you will be leaving in your apartment. You should also factor in the energy and water costs.

READ ALSO: Everything you should know about renting a furnished flat in Germany

Do I have to get consent from the local authorities?

In some cases, you will also need to get permission to sub-rent from the local authorities to rent out your place. 

If you sublet in Berlin or Frankfurt, for example, and you want to advertise your flat for holiday rentals, you have to get approval first.

A wooden judge’s hammer lies on the judge’s bench in the jury courtroom in the Karlsruhe Regional Court. Photo: picture alliance / Uli Deck/dpa | Uli Deck

If you go ahead and rent on a site like Air BnB without approval, you can expect to pay a hefty fine. Though the highest possible fine of €500,000 is unlikely, there are numerous reports of people getting fines in Germany of several thousand euros.

Another important thing to remember is that, if you make more than €520 profit in a year from sub-renting, you have to include this in your tax declaration.

Can the landlord demand I pay extra?

If a landlord allows subletting, they can also demand a share of the extra income from the main tenant. The amount of the surcharge cannot exceed 25 percent of the sublease, however.

Useful Vocabulary

to sub-let – Untermieten 

sublease agreement – (der) Untermietvertrag

termination without notice – (die) fristlose Kündigung

ban on misuse – (das) Zweckentfremdungsverbot

special right of termination – (das) Sonderkündigungsrecht

justified interest – (das) berechtigtes Interesse

personal liability insurance – (die) Haftpflichtversicherung

We’re aiming to help our readers improve their German by translating vocabulary from some of our news stories. Did you find this article useful? Let us know.

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