Sudden increase in land tax in cities and municipalities
In a significant shift for the German property tax landscape, a comprehensive reform was implemented in 2025, introducing a new valuation model for properties [2][4]. This change, aimed at replacing the old system that was deemed unconstitutional by the German Federal Constitutional Court, does not directly alter the property tax rates for cities with over 20,000 inhabitants.
The new valuation model, designed to assess property values more accurately, may lead to changes in individual tax payments, even though the overall system is intended to remain revenue-neutral [2]. Some property owners may experience increased property tax due to incorrect initial assessments or changes in valuation methods [4]. However, incorrect information provided by taxpayers can be corrected, potentially reducing property tax payments [4].
It is important to note that the real estate transfer tax, which ranges from 3.5% to 6.5% depending on the state, remains unchanged and is not a part of the property tax reform [2][3]. This tax is applicable when buying or selling property and is part of the broader taxation system.
One of the key aspects of the reform is the introduction of a new property tax called "Property Tax C," which will allow municipalities to tax previously undeveloped, developable properties at a higher rate [3]. This measure is intended to reduce the incentive to hold properties for speculative purposes and to create more new housing [3].
The property tax system in Germany will now feature different valuation rules in 10 federal states, marking a significant change 35 years after reunification [5]. The study by the German Chamber of Industry and Commerce (DIHK) examined the development of tax rates in all 711 municipalities with more than 20,000 inhabitants nationwide [6].
The study, however, did not provide specific details about the impact of the property tax changes on property owners in 2025 [6]. It also did not provide specific details about the changes in Property Tax A revenue or the changes in Property Tax A itself [6].
In 2023, municipalities generated approximately 15 billion euros in revenue from Property Tax B, which is levied on built and undeveloped properties, perpetual usufruct rights, and co-ownership [7]. The average weighted tax rate for property tax B has risen from 554% to 568% this year in German cities with over 20,000 inhabitants [7].
The reform from 2025 will provide municipalities with the opportunity to tax previously undeveloped, developable properties at a higher rate, potentially increasing their revenue [3]. In 2023, municipalities generated approximately 400 million euros in revenue from Property Tax A, which is levied on the property of businesses in the forestry and agriculture sectors [8].
The reform also sees several federal states, including Berlin, Brandenburg, Bremen, Schleswig-Holstein, North Rhine-Westphalia, Rhineland-Palatinate, Thuringia, Saxony-Anhalt, and Mecklenburg-Western Pomerania, following the new federal model for property tax valuation [9]. Meanwhile, Bavaria, Hamburg, Hesse, and Lower Saxony will practice a "simplified" property tax valuation model [1].
In a notable development, 160 cities and municipalities increased the most important property tax rate this year, while only three municipalities reduced it [10]. Saxony and Saarland have implemented a modified federal model for property tax valuation [6].
The individually set tax rates by cities and municipalities are crucial for the amount of real estate tax revenue [11]. The changes in the property tax system are expected to have far-reaching implications for property owners and municipalities alike. As the reform continues to unfold, it is essential to monitor its impact and potential adjustments.
The new valuation model, introduced as part of the property tax reform in 2025, might lead to changes in individual property tax payments, despite the intention for the overall system to remain revenue-neutral [2]. The implementation of Property Tax C, designed to tax previously undeveloped, developable properties at a higher rate, may affect municipalities' revenue [3]. This measure is intended to reduce speculative property holding and stimulate new housing development [3].
