Real estate owners: Important inheritance tax changes starting 2023

The inheritance tax is one of those things you only think about when it is too late. It can seem like an abstract topic – something that does not affect you immediately. In everyday life, you are busy with so many different projects and tasks that urgently need to be done. The topic of inheritance tax usually takes a back seat. However, it is advisable to deal with inheritance tax in good time in order to prepare yourself and your family for the future. Here you can find out how the new inheritance tax regulations affect heirs.

Legal regulations impact the tax burden on real estate

Starting in 2023, property values will be standardized nationwide and determined in a more market-oriented manner due to constitutional court requirements. This has a direct impact on the determination of the amount of the tax burden for inheritance tax or gift tax. Since property values will be presented more realistically in the future, it can happen that higher taxes have to be paid, even with tax-free allowances.

This change will lead to rising real estate values, since the valuation is carried out on a more objective basis.

The changes are based on the law passed by the Federal Ministry of the Interior and now within the framework of Annual Tax Act for Inheritance and Gift Tax was implemented.

What specific changes have come into force?

In short, this is a change in the tax valuation of real estate. As a result, the paper value of a property can increase significantly in some regions, which also affects the amount of inheritance tax. The relevant passage in the Annual Tax Act 2022 (JStG 2022) reads: “Adjustments to the regulations for real estate valuation.” This concerns two common valuation methods for real estate: asset value and income value.

Depending on the type of property, one of these two methods is used to value an inherited or even gifted property. To bring the tax value of real estate closer to its actual market value, the bill contains a few changes:
I'm Asset value method should the so-called asset value factor be increased by 0.4 points. Depending on the region, it is currently between 0.9 and 1.1 points.

All these listed factors lead to a Increase in the taxable real estate value. The valuation date is December 31, 2022.

• The Service life A property's remaining useful life was extended by 10 years to 80 years. As a result, the remaining useful life increases, which leads to a reduction in the age-related discount. In other words, the value of the property increases.
• For real estate valuation using the cost approach, a Regional factor introduced. Depending on the region, this can be 1.1 or higher. High-demand areas can thus increase the real estate value even further.
• In the capitalized earnings method, the capitalization rate to be shortened. This describes the future expected ratio between the yield and the purchase price of the property. The lower the capitalization rate, the higher the property value. This drives up the tax burden.
• Furthermore, there is also a change in Determination of operating costs in the income approach method Agreed.

All these listed factors lead to a Increase in the taxable real estate value. The valuation date is December 31, 2022.

Will the inheritance or gift tax be increased in every case?

Unless the individual allowances are exceeded, the changes will have no consequences. The tax-free allowances are currently as follows: spouses can inherit or be gifted 500,000 EUR from each other without incurring any taxes. Children can receive 400,000 EUR tax-free from each parent. 200,000 EUR – that is the amount grandparents can leave to their grandchildren tax-free. For siblings, nieces, nephews, and domestic partners, a tax-free allowance of 20,000 EUR applies.

With gifts, it is possible to utilize these tax-free allowances every ten years..

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Who will be affected by the increased tax burden?

Single-family homes, apartments, and plots of land in major cities and high real estate prices easily exceed the tax-free allowances many times over. Specifically, this means: Anyone who in a region with high real estate prices Anyone in Munich who receives a house or apartment as a gift or an inheritance will find the state dipping deep into their pockets.

Average earners who cannot afford to pay inheritance and gift tax are forced to sell the inherited property, even if they do not want to. In the case of rented properties, there is a risk of a rent increase, which heirs can use to pay off the loan they had to take out because of the tax.

Experts do not rule out the possibility that the inheritance or gift tax for a real estate property valued according to the asset value or income value method could increase by up to 30 percent could increase.

Are there any changes to the allowances?

The current Bavarian Finance Minister, Albert Füracker (CSU), is pushing to increase the tax-free allowances – precisely because the value of real estate, and thus taxation, is rising. “It cannot and must not be the case that children have to sell their parents” house because they cannot afford the inheritance tax," he recently said in a newspaper interview. The inheritance tax must not lead to the transfer of residential property from one generation to the next being prevented. At this point, however an increase in allowances is not planned.

Under what circumstances can you expect a tax exemption?

When you inherit a property, you are entitled to tax exemption if it is the family home. This is possible because children who move into this property pay no taxes.

To qualify for this tax exemption, your new house must be no larger than 200 square meters. In addition, the heirs must live in the property for at least ten years.

Are you planning to sell your property?

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