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As of January 1, 2025, a significant property tax reform will take effect in Germany, updating property valuations to current market values. This change, however, has led to an increase in inheritance tax liability for many heirs due to higher assessed property values.
The reform, declared necessary after the previous system was declared unconstitutional, introduces a new valuation model based on current property values. As a result, property values are generally higher, which can potentially lead to increased taxes due from heirs.
The higher inheritance tax burden is a consequence of the fact that inheritance tax in Germany is calculated on the assessed value of the inherited property. This typically causes a rise in the taxable amount, leading to increased taxes due from heirs.
It is essential to note that while the property tax reform is designed to be revenue-neutral on average, individual taxpayers may see significant changes. Some may pay more, others less, depending on the new valuations of their specific properties.
The new valuation process also requires property owners to provide data not previously held electronically by tax authorities, complicating assessments and increasing compliance requirements.
To manage or mitigate increased inheritance taxes, property owners and heirs should engage in proactive estate and tax planning. This includes obtaining updated appraisals, consulting tax advisors to understand new tax exposures under the revaluation, and considering inheritance tax exemptions and reliefs, such as transferring property earlier to benefit from tax-free thresholds or lower valuations.
Using trusts and estate planning tools can also help optimize tax liabilities and manage distributions more flexibly. However, it is crucial to understand that specific German mechanisms differ from other jurisdictions.
If the heir or property owner plans to move abroad, they should be aware of the German exit tax rules that tax unrealized capital gains on shares in companies, adding to potential tax burdens.
Given the complexity and changing nature of property and inheritance tax laws, specialized tax consultation is crucial to develop tailored strategies.
Property owners were required to submit relevant property data to tax authorities for the reevaluation process around 2024 and early 2025. Taxpayers inheriting property must file inheritance tax returns within three months of the inheritance coming into effect, but exact deadlines can vary by case.
It is worth noting that real estate cannot be divided equally among heirs and must be sold and the proceeds divided. Differences in intentions among heirs can lead to disputes, such as one wanting a high purchase price and another wanting a low one.
However, it is possible to inherit or receive property as a gift before the new property values are set, but time is running out. The deadline for submitting declarations to inherit or receive property as a gift before the new property values are set has been postponed to next spring.
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Financially weak heirs may be forced to sell their inheritance share if the inheritance community cannot agree on a quick sale of the property. Banks often refuse loans for tax debts, putting financially weak heirs in a difficult position.
In conclusion, the 2025 property tax reform in Germany has caused an increase in inheritance tax liability for many heirs due to higher assessed property values. To address this, affected individuals should engage in proactive estate and tax planning, be aware of relevant deadlines, and consider professional guidance to mitigate possible tax increases and navigate the complex regulations effectively.
- Given the increase in inheritance tax due to higher property values after the 2025 property tax reform in Germany, it would be beneficial for property owners and heirs to seek updated appraisals, consult tax advisors, and explore inheritance tax exemptions and reliefs, such as transferring property ahead of time to capitalize on tax-free thresholds or lower valuations.
- As the new property tax valuation model bases inheritance tax calculations on the assessed value of the inherited property, individuals may experience a rise in their taxable amounts and subsequently face increased taxes. Therefore, it is essential to understand the new tax implications under the revaluation and utilize tools like trusts, estate planning, and the available tax consultation to manage tax liabilities effectively.
