Real estate transfer tax: exploit savings potential & reduce costs

Property buyers not only have to pay the purchase price if they intend to buy a property or plot of land. Prospective buyers should also consider the ancillary purchase costs in their calculations. One of the biggest items here is the land transfer tax. This is paid once to the tax office when purchasing an undeveloped or developed property. There are a few potential savings that some buyers can benefit from. Below, the VON POLL FINANCE experts (www.vp-finance.de) provide helpful tips on the situations in which you can save on real estate transfer tax.

What is real estate transfer tax?

Real estate transfer tax is one of the incidental purchase costs and is paid once to the tax office - regardless of whether the buyer acquires a developed or undeveloped property. The amount of land transfer tax is based on a percentage of the purchase price of the property including the land. Depending on the federal state, the land transfer tax rate is between 3.5 percent and 6.5 percent. The tax rate is currently lowest in Saxony and Bavaria at 3.5 percent each. In contrast, prospective buyers pay the highest real estate transfer tax rate in Brandenburg, North Rhine-Westphalia, Schleswig-Holstein, Thuringia and Saarland at 6.5 percent each.

"In principle, prospective buyers should find out about the amount of real estate transfer tax to be paid before purchasing a property, as it is up to the federal states to increase the tax rate at the beginning of a new year," says Dr. Lucie Lotzkat, Managing Partner at VON POLL FINANCE. She adds: "Once the property buyer has paid the real estate transfer tax, the notary receives the clearance certificate from the tax office. This is necessary after payment of the purchase price in order to have the ownership transferred in the land register." Property tax makes up a considerable proportion of the incidental purchase costs. Nevertheless, there are a few ways to reduce the tax and, at best, save costs.

Tip 1: Save on property transfer tax by making your own contribution to the new build or separate contracts

If you decide to buy an undeveloped plot of land and then build a new build on it, you may be able to save on property transfer tax - provided that both components are purchased separately.

The basis of assessment for a developed plot of land is usually the purchase price stated in the notarized contract - i.e. the total value of the land and building. If an undeveloped plot of land is purchased separately, it is possible to pay tax only on the land. To do this, the contracts for the land and the building contract must be concluded independently of each other in terms of both content and time. It is also important that the seller of the land and the construction company are not related to each other - in other words, they must not belong to the same group of companies. "However, buyers should note that the purchase of a new build from a property developer is made at a total purchase price and is therefore VAT-free," says real estate finance expert Dr. Lotzkat. He continues: "However, if the land is purchased first and the developer's services are then invoiced individually or separately, they are subject to VAT. Prospective buyers should take this into account in advance when making their calculations."

Buyers can also save on real estate transfer tax if the process is a single transaction. Builders can contractually undertake to make their own contributions in order to reduce the assessment basis for property transfer tax. Painting walls or laying floors independently can therefore not only save on tradesmen's costs, but also on taxes.

Tip 2: When buying a property, factor out movable accessories

It is not only possible to save on real estate transfer tax for new-build projects, but there are also savings opportunities for existing properties. "If, when purchasing a property, you also acquire movable fixtures and fittings such as a fitted kitchen, stove, sauna or garden furniture, you can instruct the notary to list these separately in the purchase agreement after consulting with your financing bank," says Dr. Lotzkat from VON POLL FINANCE. He continues: "This is because only the land and the building with the fixtures and fittings that are inseparably linked to the building count as taxable items. The tax office deducts the value of the movable accessories from the purchase price, thus reducing the assessment basis for the real estate transfer tax." But be careful: However, if the value of these components makes up too large a proportion of the purchase price (for example, more than 10 percent or 15 percent), the tax office could become suspicious and ask questions. For this reason, it is advisable to request the purchase receipts for the movable inventory from the previous owner in advance so that you can present them to the tax office if necessary. It may also be advisable to consult your own tax advisor beforehand.

Tip 3: Inherit, give away or sell property within the family

A property sale between relatives in the direct line is exempt from real estate transfer tax. This means that if the property is sold to a spouse, parents, children, grandparents or grandchildren, the buyer is exempt from real estate transfer tax. The same exemption also applies to adopted children, parents-in-law and purchases from ex-partners as part of a divorce.

"Real estate transfer tax can also be saved by donating or inheriting a property within the family. However, gift or inheritance tax may be payable here. However, depending on the degree of relationship, there are allowances that do not have to be taxed. However, consultation with a tax advisor is essential here," says real estate finance expert Dr. Lotzkat.

Tip 4: Deduct real estate transfer tax from tax

In some cases, real estate transfer tax can be deducted from tax. For example, if you are an entrepreneur or self-employed person and use your property commercially, you can claim the real estate transfer tax paid on the purchase as a business expense in the form of depreciation. However, this only applies if the property generates taxable income. The same applies if the property is partly used for commercial purposes. Care must be taken here to ensure that the private and business parts of the property are clearly differentiated. Owners of a rented property can later write off the real estate transfer tax on a straight-line basis as income-related expenses.

Conclusion

"Before buying a property, it is important to find out about the incidental purchase costs that will be incurred - real estate transfer tax is a significant part of this. For this reason, it is worthwhile for prospective buyers to check whether they can make any savings here," sums up Dr. Lucie Lotzkat from VON POLL FINANCE.