Help, I inherit a house – economy

Klara Obermeier, 34, lives with her boyfriend in a house on Lake Ammersee that her grandfather built almost 70 years ago. Her mother has wanted to sign the house over to her for a long time. Because an early donation saves later inheritance tax. Two weeks ago, both of them went to a tax consultant. “He told us that we might have come just in time,” says Klara Obermeier, whose real name is different. From January 1, real estate would be valued much higher for tax purposes, and that would have a huge impact on inheritance and gift taxes. That’s why everything has to happen very quickly now: Obermeier and her mother have to have the house appraised and make an appointment with the notary.

The reason for the necessary rush is a new law that has so far largely gone unnoticed by the public. It was not until September that the federal government launched the 2022 Annual Tax Act. In addition to a number of benefits, it also contains the passage “Adjustment of the regulations for real estate valuation”. And it has it all. A number of parameters are changing, with which houses and apartments are valued for tax purposes. As a result, from January 1st it will be much more expensive to give away or inherit a property.

Munich lawyer Wolfram Theiss is used to his job getting stressful as the end of the year approaches. But this time it’s particularly bad. “It came as a big surprise to us,” he says. “We did some calculations and came up with increases in real estate values ​​of 30 to 50 percent.” His law firm Noerr in Munich informed the clients about this. “Some are now considering transferring their property before December 31,” he says. The usual end-of-year rally among lawyers and notaries will be particularly blatant this time. Deadlines are already tight: “Two notaries in Starnberg told me that they had absolutely nothing left,” says Klara Obermeier.

For heirs and recipients, the difference can be a five- or even six-digit amount whether they get a property overwritten before or after January 1st. This is shown by an example that the lawyer and tax consultant Iring Christopeit from the law firm Peters, Schönberger & Partner in Munich calculated for the SZ (see grafic): A detached house with 220 square meters of living space and 700 square meters of land is valued at 487,505 euros under the old regulation, from 2023 it will be 785,704 euros – an increase of 61 percent. If the house is transferred to a child, this means that the gift tax increases from 9625 to 57 855 euros.

If parents inherit or give away a property they use themselves to children, the tax office first checks whether there are comparable values ​​from sales in the area. This is often not the case. Then, as in the sample calculation, the tax office uses the so-called material value method. It calculates how much it would cost to buy and build on the same property today. This value combined with a number of factors.

In the future, the tax office will assume that a residential property will be used for 80 years instead of the previous 70 years. As a result, the reduction in the age value is less and the residual value increases. The changes in the so-called material value factor have the greatest impact. This is intended to reflect the market situation and is then multiplied by the calculated residual value of the property. So far, the material value factor has been between 0.9 and 1.1, depending on the region and property, in the future it should be 1.3 to 1.5. Sounds harmless, but increasing the factor from 0.9 to 1.3 alone means an increase in value of 44 percent. In addition, a regional factor is introduced, which comes on top in booming regions. If it is 1.1, as in the sample calculation, the house will ultimately be valued ten percent higher.

Klara Obermeier must expect that the valuation of her property will be similar to the example. House and property are about the same size, it is in a region with extremely high real estate prices. “When the tax consultant calculated what was threatening from 2023, we were shocked,” she says. She expects that from January 1st, as in the example, a mid-range five-digit amount would be due for the gift tax, but in the old year only a higher four-digit amount. “We fear that the notary’s appointment will work out by December 31,” she says.

A 50 percent increase is not uncommon

The Haus und Grund association assumes that the new law will give all real estate in Germany a 20 to 30 percent higher tax assessment. Even an increase of 50 percent is not uncommon, in individual cases it can even be 100 percent or more. It applies to owner-occupied single and two-family houses and apartments as well as commercial properties and rented houses. The so-called earnings value method is used for this, in which the rent achieved minus costs is decisive. So far, owners have been able to claim a generous flat rate for the costs, but in future they will have to prove everything in detail, which usually leads to significantly lower deductions.

The federal government justifies the change with the necessary adjustment to the “Real Estate Valuation Ordinance”, which came into force in mid-2021. Accordingly, the tax assessment should better reflect the market situation, since real estate prices have risen enormously in the past 20 years. For experts, the argument does not hold water. “Already, there are ongoing value adjustments, especially in the construction price index and in the standard land values,” says lawyer Christopeit. His colleague Theiss considers the necessary adjustment to the regulation to be an advance. “The fact that the state is increasing the rating between door and hinge so drastically, almost secretly, suggests that it wants to fill its coffers with it,” he says.

The associations are up in arms, but their chances of success are slim

The real estate associations are up in arms against the planned change. However, the tax expert from one association estimates the probability that the law will be changed in the final stages at “zero percent”. Rudolf Stürzer from the Haus und Grund association in Munich registers that inquiries from members have “increased dramatically” in recent weeks. Many are concerned that they will not be able to bear the inheritance or gift tax. “The problem is that the value is constantly increasing, while the allowances have not changed since 2009,” says Stürzer. Each child has an allowance of 400,000 euros. Especially in boom regions, even small single-family houses are often worth many times that.

The change also comes at the wrong time for lawyer Christopeit, especially since real estate prices are currently stagnating. “Many heirs don’t have enough liquidity to pay the tax,” he says. The only way left for them is to sell the house. In the case of rented properties, the sale usually leads to a rent increase in the end. And with owner-occupied real estate, there is actually the principle that “grandma’s house” should be passed on from one generation to the next as tax-free as possible. “It is worrying that the law is not doing justice to its steering function,” says Christopeit.

Klara Obermeier is very concerned about this right now. “I grew up in the house, my heart is in it and I want to stay in it,” she says. She doesn’t care about the increase in value, she wouldn’t even sell it if it brought a billion. “The fact that we are now getting into trouble due to state regulations is all the more bitter,” she says.

Like her, many parents and children are likely to be startled by the planned change in the law. “But if you still want to benefit from the old regulation, you have to be quick,” says Munich lawyer Julia Roglmeier. The problem is that many tax consultants are hopelessly overburdened.

Shortage of deadlines and a high need for advice are a bad combination. Experts advise not to rush into anything when transferring a property. “Parents should never give away a house they live in to their children just for tax reasons,” warns attorney Theiss. The risk of family conflicts arising from this is too great. “In the worst case, the elderly mother ends up in a substandard nursing home while the children eat breakfast at home,” he says.

There are a number of legal precautions that can be taken to prevent this. One of these is the usufruct right, which allows parents to continue living in the transferred property; at the same time it diminishes the value. Another remedy is the “mortgage ban,” which prohibits children from encumbering the house with a mortgage. And with a “return notice” in the land register, the parents can take the house back if the children become unreasonable. “But such cases require a lot of advice,” says attorney Theiss. He advises those who are not quite sure not to transfer the property – regardless of the fact that it will be so much more expensive from January 1st.