Property tax reform – How will property tax be calculated in Bavaria in the future?

Property tax in Bavaria will change starting in the year 2025. All plots of land and buildings in Germany are subject to property tax, regardless of whether the plots and buildings are used for living, freelance activities, commercial purposes, or for an agricultural and forestry business. The property tax reform grants the federal states the opportunity, via the state opening clause, to deviate from the federal model and make their own decisions regarding property tax. Real estate owners in Bavaria can rejoice because the Free State has opted for the so-called area model. Thus, the area of the property, the size of the building, and the type of use are decisive for the property tax. The location, the value of the property, the age, and the condition of the object play no role in determining the tax burden. In this article, you will learn how the property tax will be calculated in the future and what needs to be considered during the recalculation due to the property tax reform.

Basics of property tax

The Property tax is closely related to parcels of land and buildings linked. This means that it is not tied to the property owners. The tax collected remains with the respective city or municipality where the property is located. Therefore, it is not decisive where the owner lives. The property tax revenue should for public services of the municipalities. This could include expenses for fire protection, infrastructure, street lighting, childcare, playgrounds, or cultural facilities.

The Federal Constitutional Court has ruled that starting in 2025, the property tax will be calculated and reformed based on a new basis must be. The Federal Constitutional Court views the current assessed values as outdated, low, and unconstitutional, making a new regulation necessary. Although the new property tax will only apply from 2025, the data for this is being collected at the Deadline January 1, 2022 surveyed. Thus, the basis of calculation for all properties in Bavaria is established.

For the calculation of the property tax amount are in Bavaria from 2025 only the areas of the property and the buildings crucial. This is intended to ensure that the amount of the property tax is transparent and can be calculated without bureaucracy. The value of the property plays no role in this. As a result, properties do not have to be reassessed over and over again, and the property tax is not automatically linked to rising real estate prices. This is advantageous for property owners in Bavaria.

How high will the property tax be in the future?

Due to the real estate tax reform, the tax amount will change because continuing the old real estate tax is not constitutionally possible. However, how high it will turn out cannot be answered in a general way. Within a municipality, shifts in burden between properties can nevertheless be expected. Some owners will have to pay less, others more than before. The amount of property tax is primarily determined decisively by the assessment rate of the respective municipality. The municipalities are expected to set the assessment rate in 2024.

Do property owners have to submit a property tax return?

Property owners must submit a property tax return to the tax office so that the municipalities can determine the new property tax. For each property or agricultural and forestry business, a Property tax return from July 1, 2022 to October 31, 2022 can be submitted. The declaration can be submitted, for example, via ELSTER or using paper forms.

When will property owners receive the new tax assessments?

Once owners have submitted their declaration, it can be expected that the tax office will begin processing it promptly. The assessment notices will be issued starting in July 2022 depending on when the property tax return was received. Since the new assessment rates only in 2024 are decided upon, property owners can expect to receive the property tax assessment notices. The tax office will send a letter with two notices, namely the property tax equivalent amount notice or property tax value notice as well as the property tax assessment figure notice. Property owners will receive another letter with the actual property tax assessment notice from the municipality. This will state the amount of property tax due starting from the year 2025.

Who pays the property tax?

The owner of the property must pay the property tax. Does the property belong multiple owners, they are jointly liable for the property tax. When an apartment or a house is rented out, the Landlord is entitled to pass on the property tax paid by them to the tenant. A corresponding agreement regarding this is the prerequisite for the landlord to pass on the property tax via the Utility bill can demand from the tenant. As an experienced Real estate agent let's pay attention to Rental that a legally secure clause regarding this is included in the rental agreement.

For properties encumbered by a leasehold, the leaseholder must pay the property tax for the entire property, i.e., the person who owns the leasehold.

If the building belongs to someone other than the owner of the land (building on land owned by a third party), the property owner the property tax for the building and the Owner of the land the real estate tax for the land.

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How is property tax calculated and which property data are important?

January 1, 2022 is the key date for the property tax calculation starting in the year 2025. Therefore, owners must complete the property tax return based on what the property conditions were on January 1, 2022. The tax office needs to know who the Owner of the property at this time was and Information on the building stock and use received. The competent tax authority must also be informed of any changes.

The calculation of the property tax for real estate property assets is explained below. The tax for agricultural and forestry businesses is not taken into account.

In principle, the Calculation of property tax in several stages. In doing so, the Size of the property is decisive. You can find the size of the property in the cadastral register (cadastral data), Land Register or take from the notarized contract.

For the calculation, the total area of all parcels belonging to the economic unit, including the built-up area, must be provided in square meters (m²). The total area is rounded down to the nearest full square meter.

The Building area is also included in the property tax calculation. A distinction is made here as to whether the property is used for residential purposes or used otherwise.
For residential real estate, the entire building area, including the area of utility rooms (such as cellars, boiler rooms), is determined in accordance with the Floor Space Ordinance determined.

If the property is used commercially or for freelance work, then the Usable floor area of the entire building be specified. Destroyed buildings or objects that are permanently no longer in use are no longer considered. If the object should be smaller than 30 m², it is also disregarded. Both the Living space as well as the usable area are rounded down to the nearest full square meter.

A standard land value is not required for calculating the amount of property tax in Bavaria., therefore, the reassessment of land, apartments, and houses at regular intervals is not necessary for determining the property tax.

First calculation step: Calculate the equivalent amount

In the first step, the equivalent amount determined. This amount is made up of the area and the equivalence number. The equivalence number is 0.04 EUR/sqm for the land and 0.50 EUR/sqm for the living or usable space.

Due to the equivalence number is determined in which Ratio of the areas of land and the building be loaded against each other. The number says nothing about the value of the area.

To calculate the equivalent amount, the area must be multiplied by the corresponding equivalence number. Here is an example of how to calculate the equivalent amount:
Plot area 700 m² × 0.04 EUR/sqm → 28 EUR.

This step involves determining the equivalent amount for the respective area, meaning for the land, the living space, and the usable floor space.

Under certain circumstances, a reduction of the equivalence number possible.

Second calculation step: Assessed property tax amount

In the next stage of the calculation, the basic federal property tax assessment amount (also known as the assessment amount) is determined. To do this, the respective equivalence amount is multiplied by the corresponding property tax assessment figures and then combined to form a basic property tax assessment amount.

The basic property tax figure or the tax figure for land is 100 percent, for living space 70 percent, and for usable space 100 percent.

Example of the calculation of the property tax assessment amount for land:
Equivalent amount: 28 EUR x 100 % → 28 EUR

The assessed property tax figure can also be subject to a reduction. For listed buildings, for example, the property tax assessment rate is only 25 percent. No reduction applies to land and garden monuments.

Third calculation step: calculation of the property tax

In the final step, the amount of property tax is determined. Here, the property tax assessment amount is multiplied by the municipal assessment rate multiplied. The result is the basic property tax amount to be paid.

How high the property tax for property owners in Bavaria will be depends crucially on the assessment rate of the respective municipality. In principle, every municipality is free to decide how high to set the assessment rate. Neither the Bavarian state parliament nor the Bavarian state government can determine the assessment rate. Nothing has changed in this regard as a result of the reformed Real Estate Tax Act.

Further information on the real estate tax and the reformed real estate tax act

This article gives you an overview of the updated regulations for the future payment of the property tax. Please note that we cannot answer every detailed question here. You can obtain further information from your trusted tax advisor. Otherwise, you can find further information as follows:
– On the website: www.grundsteuer.bayern.de
In the completion instructions for the property tax return forms.
Via the information hotline for the Bavarian property tax – Phone: 089 30 70 0077.
As well as at the valuation office of the competent tax office or the local municipality.