In more detail
The Annual Tax Act 2022, adopted on December 16, 2022, includes notable changes to the German Valuation Act ("Valuation Act"). These changes could lead to an increase in German inheritance tax and gift tax for German real estate assets of 20, 30 or even 50%.
While the German Inheritance Tax and Gift Tax Act has not been modified, the amendments to the Valuation Tax will have a direct and tangible impact on the valuation of German real estate in the context of an inheritance or gift. More specifically, the changes to the Valuation Tax will affect German real estate valued using the real value method ("Sachwertverfahren") and the capitalized earnings method ("Ertragswertverfahren") (e.g., single family homes and rental properties), bringing their valuation closer to fair market values. These changes apply to transfers taking place after 31 December 2022.
In conclusion, the testamentary transfer of German real estate can still benefit from significant exemptions (e.g., exemptions for transfers of family homes or shares of housing companies). However, in many other cases the changes introduced by the Valuation Act will radically alter the tax cost associated with the gift or bequest of German real estate. This will be of concern to German tax residents, as well as non-German residents holding real estate in Germany.2 Due to the rising land values in many regions, it can already be expected that the real estate values determined on the basis of the Valuation Act will increase significantly.
1. Children 400'000 Euro/Grandchildren 200'000 Euro - these are quickly utilized, particularly in the case of real estate.
2. As a general rule, inheritance tax treaties that Germany has entered into will reserve to Germany the taxing right over German real estate owned by a non-resident decedent.
