Understanding Property Tax

Since the property tax reform came into effect in 2025, a new basis for calculation has applied. The previous standard assessed values have been replaced by new property tax values, although the specific valuation method varies from one federal state to another. As a result, the amount of property tax payable by owners may change. Tenants often continue to pay the tax through their service charge statements. The actual financial burden depends primarily on the value and location of the property as well as the municipal assessment rate.

Everyone who lives in Germany or uses a property pays property tax, even if they do not own any real estate. This is because Property Tax B, which is levied quarterly on developed land and land suitable for development, is also paid by tenants. Although the tax office collects the amount due from the owner, the owner may pass the full cost on to the people who actually use the property. Tenants therefore pay property tax as part of their service charges. For those who have purchased an apartment as an investment, however, the tax does not generally represent a financial burden but merely involves some administrative work.

Buyers of a standard owner-occupied apartment, on the other hand, should factor property tax into their ongoing costs to avoid being caught off guard by the tax office. With appropriate planning, however, property tax remains a manageable expense compared with mortgage repayments and other ancillary costs. This is unlikely to change significantly in the future, even though the tax is currently causing considerable challenges for the German financial authorities.

In 2018, the Federal Constitutional Court declared Property Tax B in its previous form unconstitutional because it violated the principle of equal treatment. The problem lay in the underlying values used to assess properties.

The calculation is relatively complex. Every property in Germany was previously assigned a standard assessed value that served as the basis for calculating the tax. The potential rental income, the year of construction and the type of building were particularly relevant when determining this value. The size of the municipality in which the property is located also played an important role. Additional premiums or deductions could apply in special circumstances. For example, a detached villa may be considered more valuable than an apartment building of the same size.

Using these details and several additional calculation steps, the property tax assessment amount is determined. This amount is then multiplied by a municipal assessment rate. The rate varies from one municipality to another. Alongside trade tax, property tax is one of the most important sources of income for municipalities, which is why they are able to influence its amount.

As a result, the actual amount of property tax varies considerably depending on the location of the property. In cities with more than 20,000 inhabitants, municipal assessment rates range, for example, from 80 per cent in Ingelheim, Rhineland-Palatinate, to 910 per cent in Witten, North Rhine-Westphalia. The size of the city is not necessarily decisive. With an assessment rate of 810 per cent, Berlin ranks among the ten highest in Germany, while Hamburg, the country’s second-largest city, applies a rate of 540 per cent.

It is important to note, however, that higher property values in Hamburg may still result in a higher property tax bill than in Witten, even when the two properties are otherwise very similar.