If real estate is transferred as a gift or as part of an inheritance, these transactions are subject to gift or inheritance taxation.
These properties must be evaluated to obtain the tax “value” of such property transfers.
In these cases the evaluation law (Bewertungsgesetz) basically provides three different options: the comparative value method, the earnings value method and the material value method.
The law lays out that the material value method is applicable for the valuation of residential property, part ownership as well as detached and semi-detached houses if no comparative value is available.
Although only designed as a catch-all event, in practice it is by far the most commonly used procedure to evaluate these properties. Only in large cities such as Munich (urban area) is the valuation of residential property (condominiums in apartment buildings) almost exclusively based on the comparative value method.
In practice comparative values, especially those including recend data, can frequently not be determined for the properties under consideration. Regularly comparable objects don`t exist.
How does the material value method work?
Land and the building are evaluated separately. These values are then merged.
Evaluation of land
This article will only deal with the evaluation of the land.
This is initially a multiplication of the ist size with the applicable standard land value (Bodenrichtwert) per square meter for the area the land is located.
Changing land values
It should be noted that the standard land value is officially recalculated in regular intervalls, usually every 2 years.
With rising real estate prices, it therefore makes perfect sense to carry out planned real estate transfers before an upcoming change in the standard land value in order to still be able to benefit from the previous, more favorable standard land value.
You have to be careful, especially when prices are generally rising, when transferring real estate after the previous standard land value has expired. Even if changed standard land values are often only announced several months late, they already apply to transfers after the date on which the standard land value was changed. In such a situation the gift tax value of these transfers cannot be precisely predicted in advance, which can lead to expensive surprises. Here it might make sense to wait for the publication of the new guidelines bevor a transfer.
Adjustment of standard land value to existing GFZ
The standard land value can not always be based on the existing square meter area of the property.
It is often overlooked that the fixed, applicable standard land value for an area is based on a certain utilization density of the property. This is referred to as the floor area ratio (GFZ). However, the specific property is valued and taxed as a gift or inheritance with its actually permissible GFZ under building law.
If for example the standard land value is based on a certain price per square meter with a GFZ of 0.5, then the gift tax value of the land to be applied will increase by about 40 % if the development plan actually allows for a GFZ of 1.0. The expert committees publish the corresponding conversion coefficients in the respective real estate market report
Effects of changing valuations of land and soil
If the adjustment of the standard land value is overlooked and not included in your own considerations, for example about the amount of gift tax, there are often two unpleasant surprises.
If the adjustment of the standard land value is overlooked and not included in your own considerations, for example about the amount of gift tax, there are often two unpleasant surprises.
Firstly, the value of the transfer increases and with it the amount subject to gift or inheritance tax.
In addition, the tax rate applicable for taxing the entire donation may also increase. In principle, the Inheritance Tax Act taxes the entire donation at a uniform tax rate, the amount of which depends on the total value of the transfer.
Of course, the above applies with the opposite sign if the actually permissible scope of use is lower than the GFZ on which the standard land value is based.
In these cases, it is advisable to seek professional advice in order to work with correct values and to be able to plan the consequences of taxation, as well as the extent to which existing gift tax allowances can be exhausted.
As a tax office with offices in Munich and Deggendorf, the tax office Alexia Huber & Partner Steuerberatungsgesellschaft supports its clients in all questions relating to gift and inheritance tax.
Our tax consultants take a holistic approach. Based on the wishes and ideas of our clients, we look for and find solutions that not only focus on gift and inheritance tax, but also consider other taxation consequences, such as income tax or real estate transfer tax, and also take into account corporate law and business issues and integrate them into a uniform solution concept.