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Property valuation – Important changes to the German Valuation Act in the 2022 Annual Tax Act

The draft of the 2022 Annual Tax Act (Jahressteuergesetz, JStG) contains – besides many other changes (please see our previous report) – amendments to provisions in the Valuation Act (Bewertungsgesetz, BewG), which we describe in the overview below. 

In view of the amendments that were already made to the German Regulations for Determining Property Value, in 2021,– which mainly included adjustments to the calculation of assessed market values –, the provisions in the BewG on the valuation of land and property for the purposes of inheritance and gift taxes will now be adapted accordingly. 

In this respect, the following important changes are planned.

  • The service life of residential properties will be raised from 70 years to 80 years.
  • For the income capitalisation method, approximated operating expenses based on a percentage of the annual rent will no longer be taken into account. In future, the regulations will allow for a differentiated calculation broken down by administrative and maintenance costs as well as loss of rental income risk in accordance with Appendix 23 to the BewG. The values that are provided there have to be adjusted to the consumer price index.
  • The property yields pursuant to Section 188 BewG, which lower the building value in the income capitalisation method, have been reduced when compared with the previous provision.
  • For the asset value method, regional factors will be introduced and these have (yet) to be published by the committees of valuation experts. 
  • The valuation of cases where there are heritable building rights will be revised.
  • In future, cases where there are buildings on third-party land will be valued analogously to cases where there are heritable building rights.
  • In future, statements illustrating the determination of the bases for tax assessment will have to be submitted electronically. This will be implemented as soon as the technical conditions have been met. 

The new provisions will apply to valuation cut-off dates after the 31.12.2022. It is anticipated that real estate values calculated in this way will be above the previous values. However, an accurate calculation of the appreciation in values is however not possible at this juncture. 

Recommendation: If transfers of property through gifting are already envisaged then you should consider still making the gift in 2022 in order to secure real estate values that are likely to be more favourable. It is still nevertheless possible to provide an expert report as proof of a lower assessed market value.

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