Substantial Increase in Inheritance and Gift Tax on Real Estate

Almost every autumn, an annual tax act sees the "light of day", also this year: the Annual Tax Act of 2022. While the government representatives in the first reading of the Bundestag on October 10, 2022 welcomed the new regulations and the opposition asked for further improvements, an area was not mentioned whatsoever, which is of enormous importance in practice: the changes or additions to the Valuation Act. If these regulations are implemented, an enormous increase in inheritance and gift tax for real estate will occur almost unnoticed. The government draft justifies its amendments with regard to the necessity to adjust the Valuation Act to the Real Estate Valuation Ordinance (ImmoWertV), which was amended in mid-2021, and the principle of "model conformity" between the data determined by the appraisal committees on the basis of the ImmoWertV, and the real estate valuation for the purposes of inheritance and gift tax. 

This primarily affects real estate valued using the real value method and the capitalized earnings method, i.e., in particular single-family homes (real asset value) and rental properties (capitalized earnings method). According to estimates by the homeowners' association Haus & Grund Deutschland, the increase in inheritance and gift tax could easily amount to 20% to 30% in affected cases, or double the value of certain properties.

The planned amendments to the Valuation Act will apply to valuations from the cut-off date of December 31, 2022. Consequently, all those who are considering transferring real estate, especially to the next generation, can only be advised to implement their plans before the end of this year.