Real estate transfer tax when buying a house – amount, calculation and savings potential

What is the property transfer tax?

The real estate transfer tax is a tax that is incurred when buying a house. It is paid by the buyer and depends on the purchase price or the market value of the property. This makes it one of the transfer taxes that are always due when items change from one owner to another. That is the legal basis Real Estate Transfer Tax Act (GrEStG).

The tax is particularly relevant because it can significantly increase the total price of the property purchase and is due immediately after the transfer of ownership. There is also the fact that the amount of the property transfer tax can also affect the financing options and the amount of mortgage loans required. It is therefore important not least for people who use real estate as an investment. Ultimately, a higher property transfer tax reduces the profitability of an investment.

Your payment of the property transfer tax must be made within four weeks. After signing the purchase contract, the notary reports the transaction to the tax office. This then creates the property transfer tax notice, which must be paid within the deadline. Once the payment has been made, the tax office issues a clearance certificate. Only then can the owner be registered in the land register. Unlike property tax, property transfer tax is only due once upon purchase.

The responsible authority is the tax office of the region in which the land or property is located.

Information on determining the assessment basis

The value of land and structures is the basis for calculating the real estate transfer tax – and at the same time a starting point for saving taxes. You can often deduct something from the purchase price, which reduces the assessment basis and incurs fewer taxes.

The important question here is whether the property transfer tax has to be paid for the purchase of the property, the house or both. The following scenarios can be distinguished here.

• Undeveloped property: In this case, you only pay the property transfer tax on the property.
• Existing property: Here you pay for the property and also for the corresponding land area. This also applies to condominiums in apartment buildings.
• Land for building a house: Joint taxation of land and house is provided if land and house construction are inseparably linked. This is the case, for example, if you buy from property developers or house providers who offer the building site and the building together. However, if you first buy the property and later commission the house to be built, the property transfer tax only has to be paid for the land.

As the list shows, the difference between the individual federal states is sometimes considerable, which can result in high additional costs when purchasing real estate.

Calculate property transfer tax

The following formula is used to calculate the property transfer tax:

Purchase price * tax rate = property transfer tax

For example, let's take a property with a value of 400,000 euros. Here the buyer in Bavaria pays 14,000 euros in taxes, while in North Rhine-Westphalia it is 26,000 euros. This means that the property purchase here is a full 12,000 euros more expensive. It is therefore important, especially if you have a tight budget, to think carefully about the region in which you want to buy a property.

In this context, you should also inform yourself about any further issues at an early stage Additional purchasing costs for real estate inform.

In which cases does property transfer tax not have to be paid?

There are various exceptions to the property transfer tax that exclude taxation. The first stipulates that no real estate transfer tax has to be paid if the purchase price is less than 2,500 euros. Likewise, no tax has to be paid if the property is sold, given away or inherited between direct relatives.

A linear relationship includes:

• Children (including adopted and stepchildren)
• Parents
• grandparents
• spouse
• Registered life partners

Special case – property transfer tax for donations with usufruct

If someone purchases a property and has a residential or usufruct right (including the right to rent) registered in the land register for the seller, this does not bring any tax advantages with regard to real estate transfer tax. In this scenario, the buyer is still obliged to pay the property transfer tax.

In addition to the fact that the buyer cannot generally move into or rent the property as long as the right of residence or usufruct exists, the agreed purchase price reduction, which was negotiated as part of the granting of the right of residence/usufruct, does not lead to a reduction in the real estate transfer tax. According to Section 9 Paragraph 1 No. 1 of the Real Estate Transfer Tax Act, the value of the right of residence (which corresponds to the value of the purchase price reduction) is counted towards the total value of the property. Therefore, the assessment basis on which the property transfer tax rate is based does not change.

Example:

Assume the value of a property is 400,000 euros. The granted usufruct reduces the value of the house/apartment by 50,000 euros. The buyer therefore only pays 350,000 euros to purchase the property. However, the assessment basis for the real estate transfer tax is still 400,000 euros, as the value of the right of residence or usufruct is added to the actual purchase price.

The property transfer tax for long-term leases

Although no land is acquired in the traditional sense with a leasehold, the obligation to pay the property transfer tax remains. However, the calculation is different than with a traditional purchase.

The amount to be paid is made up of various components, including the tax rate, the multiplier (according to Appendix 9A of the Valuation Act) and the ground rent. The calculation is carried out according to the following scheme:

• Ground rent × 12 = annual value
• Annual value × multiplier = consideration
• Real estate transfer tax rate × consideration = real estate transfer tax

Example calculation:

• Monthly leasehold interest: EUR 200
• Annual value: 200 EUR × 12 = 2,400 EUR
• Consideration: EUR 2,400 × 20.5 = EUR 49,200
• Real estate transfer tax: EUR 49,200 × 6% = EUR 2,952

Can you deduct property transfer tax?

If you use your property privately, the purchase of the house and other acquisition costs cannot be claimed for tax purposes by the tax office. This applies to the purchase price, but also to the property transfer tax and notary costs. However, there are various ways to save money when buying a home.

Separate purchase of house and land

One way to reduce property transfer tax is to purchase the house and land separately. The amount of the tax depends not only on the purchase price of the property, but also on the value of the house that stands on it. So if you first buy an undeveloped piece of land and then build the house on it later, you can save a lot of money. This is also the case if you choose a property on which there is a demolished house.

Residential Riester

There are also tax advantages if you have concluded a building savings contract with Wohn-Riester. Here you can invest the capital received from the residential Riester contract in your real estate financing. The Riester contributions can be tax-deductible, as can the allowances received.

Setting up a home office

If you plan to have a study in your new home, you may be able to claim it for tax purposes. One requirement is that there is no other possible workplace and that you use the home office exclusively for work.

Work-related move

If you have to change your place of residence because of a new job, the associated financial burdens can be recognized as business expenses. However, this is only possible if the journey to work is significantly shortened by the move or if you are returning from abroad to work for your employer.

Conclusion

The real estate transfer tax plays an important role when purchasing real estate. Depending on the location of the property, it can lead to significant additional costs, a reduction in financing options and limited profitability. Therefore, it should be carefully taken into account when planning your budget. One way to reduce the tax burden is to purchase land and buildings separately.