Real estate tax reform: background of the real estate tax reform

In 2018, the Federal Constitutional Court ruled that the property tax in its current form was unconstitutional and demanded a new regulation in line with the constitution, which will take effect from 2025.

With an annual revenue of over 13 billion euros, property tax is one of the most important sources of revenue for local authorities. At the same time, it has long been one of the most controversial taxes. The property tax is politically controversial because, in its current form, it favors speculation with building land and thus promotes the shortage of housing rather than counteracting it. Much older is the constitutional criticism of the property tax, which the Federal Constitutional Court (BVerfG) confirmed in spring 2018.

The standard values on which taxation is currently based are in fact based on value ratios from 1964 (western Germany) and 1935 (eastern Germany). The basis of assessment for the land tax therefore bears little relation to the current values of land and buildings. The BVerfG fully endorsed this line of argument and ruled that the regulations on the valuation of real property for land tax purposes have been unconstitutional since at least 2002.

The BVerfG had therefore ordered the legislature to find a new regulation of the real estate tax by December 31, 2019 at the latest. Once a new regulation has been promulgated, the unconstitutional rules may be applied for a further five years from the date of promulgation, i.e. until December 31, 2024 at the latest. With this long transitional period, the BVerfG recognizes that a new regulation of the real estate tax inevitably also requires lengthy reassessments of the real estate.