Initial situation

The ongoing phase of low interest rates and the increasing 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.

However, families who have held their own real estate assets for generations are also enjoying a steady increase in the value 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: 

Often there is 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 often can only be financially met 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 the property and it must be decided in which assets and under which legal “shell” the property should be sensibly held. This has effects 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 the 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.

Your ACCONSIS contact person for tax advice

Birgit Larisch

Birgit Larisch
Steuerberaterin
Prokuristin Acconsis GmbH Steuerberatungsgesellschaft

Service-Phone
+49 89 547143
or per E-Mail
b.larisch@acconsis.de

Your ACCONSIS contact person for real estate and financial consulting

Klaus Nützl

Dipl.-Bankbetriebswirt (BA)
Klaus Nützl
Leitung Immobilien- und Finanzberatung

Service-Phone
+ 49 89 547143
or per E-Mail
k.nuetzl@acconsis.de

Our 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!