What owners and tenants can expect
A comprehensive reform of property tax will come into force in 2024, which will bring noticeable changes for owners and tenants from 2025. The reform of property tax, which represents one of the biggest tax changes in the history of the Federal Republic of Germany, became necessary after the Federal Constitutional Court declared the previous basis for calculating property tax to be unconstitutional in 2018. The reason for this was the outdated assessment basis, which was still partly based on values from 1964, and in the old federal states even from 1935.
Key points of the property tax reform
The new property tax regulations include several important changes that will have a significant impact on both private individuals and companies. Property tax is now determined on the basis of new calculation models that better reflect the current value of land and real estate.
Two calculation models
- Federal model: Here, the property tax is calculated on the basis of the property value, the area of the property and the type of building. Key factors are the standard land value and the rent level. These factors ensure that the tax is adjusted to the actual market values.
- Opening clause for the federal states: The federal states have the option of developing their own models for calculating property tax. Baden-Württemberg, for example, has introduced its own land value model in which the property value and the size of the property play the main roles. The building itself is largely disregarded.
Property tax A and property tax B
The reform also distinguishes between property tax A for agricultural and forestry land and property tax B, which applies to developed and undeveloped land in urban areas. In both cases, the reform is aimed at making the tax fairer and more transparent.
The importance of property tax for local authorities
Property tax is one of the most important sources of income for cities and municipalities. The reform will mean that local authorities will have to adjust their property tax rates in order to make the changeover to the new calculation models budget-neutral. This means that the revenue from property tax should remain stable, although the tax burden for individual owners may change.
Effects on owners and tenants
The reform will have a direct financial impact on owners of single-family homes, apartment buildings, condominiums and commercial properties. As property tax has to be paid to the tax office on a quarterly basis, the reform will not only affect owners, but also tenants, as property tax is often allocated to operating costs.
In areas where property prices have risen sharply, such as Karlsruhe, property tax is likely to increase significantly. Regions in which standard land values are high are particularly affected, as these represent a significant factor in the new calculation.
Karlsruhe: What can owners expect from 2025?
For Karlsruhe, the new property tax is expected to place a heavier burden on owners of properties with large gardens in particular. As the standard land value and plot size form the basis for calculation in Baden-Württemberg, the land value model will result in an increase in property tax in urban areas with high land value development, such as Karlsruhe.
Karlsruhe municipal council plans to set the new assessment rate for property tax in 2025. With the approval of the municipal council, the assessment rate will apply from January 1, 2025. However, the City of Karlsruhe’s budget is to remain neutral – the annual revenue from property tax will remain at around 60 million euros. Commercial properties are to be relieved by around 9 million euros as a result of the reform, while private owners and tenants will have to bear a correspondingly higher tax burden.
In some cases, property tax for private households could rise by up to 300%. In many cases, owners of single-family homes with gardens will have to pay significantly more property tax. Even if the city does not generate any additional revenue from the tax, the shift in the tax burden means that the contributions of the various taxpayer groups will change.
How is property tax calculated?
The property tax is calculated in several steps:
- 1. property tax value: First, the value of the property is determined on the basis of the new valuation principles.
- 2. property tax assessment amount: A so-called property tax assessment amount is applied to the property tax value. This results from a percentage rate set by the state.
- 3. multiplied by the assessment rate: The final tax is calculated by multiplying the measured amount by the assessment rate of the respective municipality.
The City of Karlsruhe’s new assessment rate for 2025 is set by the municipality in order to keep revenues stable. However, the taxpayers’ association warns that many municipalities could use the reform to increase the assessment rates and thus significantly increase the tax burden for citizens.
Conclusion: What do citizens need to consider in Karlsruhe in 2025?
From 2025, property tax in Karlsruhe will be calculated on the basis of the new land value model. For many owners, especially of residential properties, the tax burden will increase, while commercial properties will be relieved. Tenants could also be affected by the allocation of property tax via the operating costs. It remains to be seen how high the new assessment rate will be set, but it is certain that the reform will result in an additional financial burden for many citizens.
The Taxpayers’ Association recommends that all citizens inform themselves about the changes at an early stage so that they can better assess the financial impact of the reform.
