Initial situation
The phase of low interest rates and burden of negative interest rates on savings deposits has led to a sharp rise in real estate investments as a lower-risk and higher-return investment in recent years.
But also families who have held their own real estate assets for generations enjoy a steadily increasing appreciation of their assets, especially in high-yield locations and metropolitan areas.
Are property owners now simply allowed to consider themselves lucky and “rest” on the investment once made?
In our opinion: NO!
What tax burdens regularly arise with real estate?
In the life cycle of a real estate investment, which includes both undeveloped and developed land and shares in real estate companies, different tax burdens will arise at different times depending on the initial situation:
- Land tax: regular quarterly payments for the owner of the property according to the land register
- Real estate transfer tax: on purchase and transfer of ownership
- Income tax/corporation tax: in the case of ongoing letting and leasing and the disclosure of taxable increases in value on disposal
- Value added tax: on construction/acquisition, ongoing management and sale of rented property
- Trade tax: in the case of holding real estate as part of commercial company assets
- Gift tax / inheritance tax: for transfers of assets during lifetime and in the event of death
Where is there room for manoeuvre and which pitfalls should be avoided?
Due to the numerous regulations for real estate in various areas of tax law, on the one hand, many things can be overlooked and done wrong, but on the other hand, there is also a great deal of room for manoeuvre.
Here is a small excerpt:
There is often ignorance of the latently increasing inheritance tax burden in the case of estates with a high proportion of real estate, and those who do not make provisions in good time run the risk of confronting their descendants with a considerable tax burden, which can often only be financially serviced by selling the assets. This can be avoided by planning lifetime transfers by taking advantage of personal allowances and reducing the taxable base by assuming debts or imposing conditions.
Depending on the intended use, the right course must be set as early as the construction or acquisition of real estate and a decision must be made as to the assets and legal “shell” under which the real estate will be sensibly held. This has an impact on the current tax burden as well as the tax exemptions applicable in the case of later transfers of assets to subsequent generations or the sale of a property.
In the case of shares in real estate companies, it must be regularly reviewed to what extent land transfer tax can be avoided in the event of transfers.
The purchase and ongoing management may give rise to input tax refund claims which are linked to later use and which may change both to the detriment and in favour of the taxpayer and must be regularly adjusted within the scope of an input tax correction.
The letting of the property for residential or commercial purposes entails ongoing tax declaration obligations, and with regard to modernisation expenses, there are capitalisation obligations to be observed and the immediate deductions that may reduce tax liability to be made.
How do we advise you “all around real estate”:
Through our specialist real estate team consisting of tax advisors, lawyers, financial experts and accountants, we can offer you a comprehensive consulting package from a single source and the “lighting” of the property from all legal and economic perspectives.
This can include the following topics, for example:
- Accompanying the acquisition of real estate and the related financing
- Taking over the ongoing bookkeeping and tax management of your rental properties with the support of your property management
- Tax-optimized sale and monitoring of allowances and time limits
- Planning the transfer of assets to future generations and drafting a will or corresponding provisions in partnership agreements
- Lived transfer of real estate subject to usufructuary rights and conditions for the financial provision of the donors
- Valuation of real estate for inheritance tax and gift tax purposes and determination of the potential tax burden
- Preparation of the gift tax and inheritance tax return
Your ACCONSIS contact person for tax advice
Andreas Jovanic
Taxconsultant
Main focus:
Real estate valuation, Purchase price allocation (land/building), inheritance/ gift tax
Service-Phone
+49 89 547143
or per E-Mail
andreas.jovanic@acconsis.de
My recommendation
Whether it is the real estate property of a company, the home and the rented apartment in private assets or the more extensive real estate portfolio of a community of heirs:
The examination and optimisation of the tax situation in connection with the acquisition, administration, management, sale and transfer of the property is necessary in any case and only makes economic sense when rounding off a real estate investment!