What is the real estate transfer tax when buying a property?

When you purchase a property, you will receive mail from the tax office after the notarization. This is because real estate transfer tax (Grunderwerbsteuer, GrEst) is due and mandatory when buying a plot of land or a building. It is levied in accordance with the Real Estate Transfer Tax Act. The real estate transfer tax varies depending on the federal state and is currently between 3.5 and 6.5 percent. In Bavaria, the real estate transfer tax rate is currently 3.5 percent. Under certain conditions, the tax can be reduced. Here you will find everything you need to know in the context of real estate transfer tax when purchasing property...

For which real estate contracts is a real estate transfer tax due?

The taxation of legal transactions regulates the Real Estate Transfer Tax Act (GrEStG). All legal transactions concerning domestic real estate are regulated by this law. This applies to both built-up as well as undeveloped land, through which Purchase agreement is concluded (cf. Section 433, Section 311b BGB). The tax is assessed on the basis of the value of the consideration (Section 8 (1) GrEStG).

In return, the law considers any performance that the purchaser grants as consideration for the acquisition of real estate or that the seller of real estate receives. Simply put, the consideration is the real estate purchase price.

Below are some examples of acquisition processes that incur real estate transfer tax and for which the buyer must expect a real estate transfer tax assessment notice:

• Real estate purchase agreement
• Land exchange agreement
• highest bid at a foreclosure auction

Not all acquisitions are subject to real estate transfer tax. Below are some examples where no real estate transfer tax is incurred:

• The value of the acquisition transaction is less than EUR 2,500.
• Purchase by the seller's spouse. Purchase of real estate by the former spouse during the division of property following a divorce.

Even when establishing a leasehold right, the leaseholder must pay the real estate transfer tax, even though they do not acquire ownership at all.

Sample calculation for the calculation of real estate transfer tax

In Bavaria, the tax rate is 3,5 %. If a purchase price of 600,000 EUR is notarized, according to the example calculation, the buyer will receive a real estate transfer tax assessment in the amount of 21,000 EUR. This amount must be paid so that the property transfer to the new owner can be entered in the land register.

Valuable knowledge about real estate transfer tax

The The basis of assessment for the amount of tax is the purchase price or the current real estate value. However, there is the possibility to determine the value of the of accessories sold with it or the movable objects to be deducted from the purchase price. These are not subject to real estate transfer tax. The accessories must be listed in detail and quantified in terms of value in the purchase agreement.

The buyer has one month from the notification of the tax assessment to pay the real estate transfer tax. Only once the tax has been paid will they be entered in the land register as the owner. In order for the entry to be made by the land registry, a so-called clearance certificate is issued for this purpose by the responsible tax office. Only then can the property transfer or change of ownership take place in the land register.

The faster the assessed tax is paid, the quicker the Certificate of non-liability issued and the notary can Registration of the new owner in the land register expedite.

Vis-à-vis the tax office, both the buyer and the seller are jointly and severally liable for the real estate transfer tax, even if the purchase agreement states that the buyer bears the real estate transfer tax. Joint and several liability also applies to the notary fees and land registry costs.

During the notarization, the notary informs the buyer about the upcoming ancillary purchase costs, including the real estate transfer tax. This is recorded in the notarial contract documents. If the buyer withdraws from the purchase contract for any reason and does not pay the purchase price, the real estate transfer tax already paid will be refunded by the tax office.

Save real estate transfer tax – what you need to consider

Buying real estate is expensive in itself and comes with additional costs. Before purchasing, real estate buyers should check whether savings on the real estate transfer tax are possible. Depending on whether you are planning to buy an existing house, a condominium, or a new construction, we would like to inform you about the following tips.

Save on real estate transfer tax when buying an existing house

Basically, the real estate transfer tax is levied on the Lot calculated, on which the structure is located. The tax refers to all components of the house. If the seller in the property movable objects leaves behind, such as the fitted kitchen, various furniture, or the carport, it is advantageous to list these components separately in the purchase contract and assign a specific value to them. The real estate transfer tax may then not be applied to the listed movable items (also referred to as accessories within the meaning of Section 97 (1) sentence 1 of the German Civil Code (BGB)) and is thus reduced. It is important that all information is truthful and the value corresponding to the age of the accessories corresponds.

We recommend every buyer to discuss the valuation of the movable property with the lender or the financing bank in order to avoid any complications with the financing. Because every Strictly speaking, a tax reduction affects the current real estate value out.

If the defined lending limit of the property is undershot, the property is worth less on paper. However, the property serves as collateral for the bank in the event of a potential loan default. If the collateral decreases, the financing risk increases.

This can have a negative impact on the terms and conditions or the interest rate, and the financing conditions can become less advantageous for the buyer overall. Because the bank must compensate for reduced security with higher interest rates. Therefore, an important note for any buyer who is financing their property: Inform the bank about your procedure and find out exactly where the loan-to-value limit is located. Before buying a house, have the financing bank review the purchase agreement., to avoid later inconvenience.

Save on real estate transfer tax when purchasing a condominium

When purchasing a condominium, you should state the maintenance reserve proportionally in the purchase agreement, because the Maintenance reserve is exempt from real estate transfer tax. If the amount allocated for the apartment is explicitly stated and precisely quantified in the contract, this has a tax-reducing effect on the real estate transfer tax assessment, allowing the apartment buyer to save a little money. You can find out the current amount of the reserve fund from the responsible property manager.

If there are movable items in the apartment, such as a fitted kitchen or other furniture, you can also include them in the purchase contract. It is important to state the value so that the real estate transfer tax can be reduced.

As real estate agents, we ensure that the maintenance reserve fund and items sold along with the property are specified in the notarized real estate purchase agreement and that their value is quantified accordingly. We are in constant communication with the seller and the notary chosen by you, ensuring that all parties involved are satisfied.

Save on real estate transfer tax with new construction

If you are planning to build a house, you can save a lot of real estate transfer tax under certain circumstances. This is possible, if the property is acquired first and a new building is planned later. Since there is a very high potential for saving on real estate transfer tax, the tax office examines this procedure very closely. The tax authorities will only accept it if the buyer purchases the plot of land and the subsequent property from different contracting parties. There must be no business relationship between the seller of the land and the seller of the new build.

Furthermore, it is very advantageous if between the acquisition of the building plot and the commissioning of the construction company a Period of at least 6 months lies. The tax office will conclude at the slightest hint that the purchase of the plot of land and the construction of the property are connected. This means that it is a so-called linked transaction.

It becomes problematic if the seller of the plot is at the same time a property developer and the property is to be built on the acquired plot at a later date. It also becomes difficult if the seller is simultaneously a property developer and has the plot sold via another company in order to enable the buyer to save on taxes.

If the seller of the property insists that the buyer must have the property built by a specific architect or property developer, saving on real estate transfer tax is also not possible.

It is important that the purchase of the property is not subject to any other conditions set by the seller with regard to its subsequent development. The buyer must be completely free in their decision as to when, how, and by whom they want the property to be developed. In principle, the buyer must also be able to dispense with the development of the property entirely.

The tax authorities carefully examine the purchase contracts and demand precise information from buyers to determine whether the intended real estate transfer tax savings are justified. The inquiry takes the form of a questionnaire with which the tax office attempts to find out whether there is a connection between the acquisition of the land and the subsequent construction of the house.

Historical real estate transfer tax rates

The saying "everything used to be better" does not apply in many cases, but when it comes to real estate transfer tax, it is actually justified. Here is an interesting look into the past, the assessment of the real estate transfer tax. Until the end of 1982, 80 percent of all real estate transactions exempt from real estate transfer tax, in particular owner-occupied residential property.

This was very advantageous for buyers. This facilitated and indirectly promoted the acquisition of their own real estate. Then there were several increases in the real estate transfer tax.

From January 1, 1983, to 1996, the Real estate transfer tax nationwide 2 % and the possibilities for tax exemption were severely restricted. From 1997 to August 31, 2006, nationwide it was 3.5 percent of the assessment base. Since then, several federal states have significantly increased the tax rate and made purchasing real estate more difficult.

While basic real estate transfer tax revenues stood at 6.1 billion euros in 2006, they totaled 16.1 billion euros in 2020. This is certainly due to rising property purchase prices, but also to sharp increases in real estate transfer taxes by some federal states. Here you will find the Report on federal and state tax revenues for the 2020 fiscal year.

Tax benefits, the group clause and real estate transfer tax

For businesses, the legislature wanted to design the conditions for restructuring to be crisis-proof, seizure-proof, and friendly to small and medium-sized enterprises. This is intended to enable companies to react flexibly to changes in market conditions. For this purpose, the so-called corporate group clause (see Section 6a of the Real Estate Transfer Tax Act - GrEStG) was created, which is intended to allow an exemption from real estate transfer tax under certain conditions.

Not all acquisitions are affected. The exemption provision within the scope of the group clause is open to interpretation in several places and is controversial. If a company wants to benefit from the clause, guidance from a tax advisor is recommended.

In addition, the legislature grants a tax exemption when a plot of land is transferred from a joint ownership (Gesamthand) into the sole ownership of a person involved in the joint ownership. This primarily affects joint ownership communities.

FAQ – Real Estate Transfer Tax and the Most Frequently Asked Questions

Can the real estate transfer tax be reduced if the purchased property is equipped with a solar or photovoltaic system?

Whether on the purchase price component omitted for a solar or photovoltaic system belongs to the assessment basis for the real estate transfer tax depends on several factors. When calculating the real estate transfer tax, it is crucial whether an item is considered a building component or not. If it is not a component of the building, it is not subject to real estate transfer tax..

In this case, the value of the item should be listed separately in the real estate purchase agreement so that its value can be deducted from the purchase price when calculating the real estate transfer tax. This can result in a lower real estate transfer tax.

Solar systems are mostly used for hot water preparation, for example for water in sanitary areas or for space heating. Since Heating systems are a fixed component of a building are, the corresponding portion of the purchase price is part of the real estate transfer tax assessment base. The Real estate transfer tax thus becomes due.

Photovoltaic systems, which are used for self-generation of electricity, are fixed building components. It follows that the corresponding portion of the purchase price is part of the assessment basis for real estate transfer tax and the real estate transfer tax cannot be reduced.

Commercial photovoltaic systems are classified as operating equipment. The electricity generated is usually supplied to an energy provider so that the high initial costs can be amortized. As a result, the system is not part of the real estate, and no real estate transfer tax must be paid on the portion of the purchase price attributable to it (cf. Section 2 (1) no. 1 of the German Real Estate Transfer Tax Act - GrEStG).

At Roof tile photovoltaic systems real estate transfer tax is payable on their share of the purchase price. Although they can be used as part of a business, at the same time they replace what would otherwise be required roofing, for example with tiles or slate. In this case, the system is integrated into the real estate property and The basic commercial tax cannot be saved (see § 68 para. 2 sentence 2 BewG).

Important for the purchase agreement: If a photovoltaic system is used commercially, the purchase price component for this system should definitely be shown separately from the remaining purchase price of the property. Only in this way does the tax office know the amount at which real estate transfer tax is to be assessed, and the property buyer can save a little on the incidental purchase costs.

Can the real estate transfer tax be financed via a construction loan?

As a rule, banks are not willing to cover the incidental purchase costs with the construction financing., because the risk is usually too high for the bank. Property buyers can currently get financing for a property at very favorable interest rates because the financing risk for the lender remains within limits. By being entered in the land register as part of the creation of a land charge, the financial institution is well secured as a creditor.

In the event of the buyer's insolvency, the credit institution can initiate foreclosure proceedings and sell the property. This compensates for the loan default and allows the construction finance to be offered at advantageous conditions.

At excellent financial circumstances and a above-average and secure income of the borrower, the banks are willing to engage in a so-called 110 percent financing for the property and the incurred incidental costs. However, it may be that the bank attempts to mitigate the risks through corresponding Interest expenses to compensate. The buyer would then have to higher-interest regular installment loan accepted. Along with the registration of the land charge, the bank has additional security.

Are property tax and real estate transfer tax the same type of tax?

The short answer is: no. The Real estate transfer tax, which is part of the property transfer tax, is due once when purchasing a plot of land, a home, or an investment property. It is billed by the tax office. Property tax, on the other hand, is a regular payment obligation. Anyone who owns a plot of land must pay property tax.

The tax for the respective calendar year (annual property tax amount) is assessed by means of a written notice to the tax debtor, or alternatively by public announcement in the Official Gazette of Berlin if the amount to be paid is the same as in the previous year and the method of payment has not changed.

The due annual amount is determined by multiplying the assessed property tax base by the assessment rate. The Property tax is pass-through. This means that landlords who rent out their property are reimbursed for the property tax by the tenant as part of the utility bill.

Do I have to pay real estate transfer tax on the gift of a property?

Basically, real estate transfer tax is always due when purchasing property. Exceptions enables the Real Estate Transfer Tax Act in the case of real estate gifts. This concerns the acquisition of real estate by spouses, registered life partners, children, stepchildren, and other descendants who are related in a direct line to the seller of the property, e.g., grandchildren or great-grandchildren.

Furthermore, the acquirer is exempt from real estate transfer tax, if the acquired property is part of the estatet and is purchased by a co-heir, so that the estate can be divided.