Buying a condominium involves a number of bureaucratic processes that are sometimes not so easy for the layperson to understand. Land transfer tax is payable on the purchase, but what is this tax, how much is it and who pays it?
Real estate transfer tax for condominiums: What is it?
Anyone who buys a property in Germany, including condominiums, must pay real estate transfer tax. This is governed by the Real Estate Transfer Tax Act (GrEStG). Since January 1, 2006, real estate transfer tax has been a matter for the federal states. The federal states can therefore set the amount of the tax themselves, which means that the tax rates vary in the different federal states. After Saxony raised the tax rate to 5.5 percent on January 1, 2023, Bavaria is the last federal state to remain at the original, low rate of 3.5 percent (as of 2023). The federal states of Brandenburg, North Rhine-Westphalia, Saarland and Schleswig-Holstein currently apply the highest tax rate of 6.5%, while Thuringia is set to reduce this to 5.0% on January 1, 2024.
Real estate transfer tax is calculated on the basis of the consideration, which usually corresponds to the purchase price of the property. As a transfer tax, land transfer tax generally arises when the purchase contract for the land or condominium is concluded. It is also a direct tax, as the tax debtor and taxpayer are the same.
Which real estate purchases are exempt from real estate transfer tax?
In principle, land transfer tax is due on every property purchase. It is shown on the purchase contract by the notary and is listed under additional costs when purchasing a plot of land or condominium.
However, there are exceptions that are exempt from real estate transfer tax:
- In accordance with Section 3 (1) GrEStG, no real estate transfer tax is payable if the purchase price of the property or land is less than EUR 2,500.
- If the transfer is an inheritance or a gift, no real estate transfer tax is payable. Instead, inheritance tax or gift tax must be paid.
How is land transfer tax calculated when buying real estate?
The real estate transfer tax is calculated on the basis of the purchase price of the property or land. Depending on the federal state, the percentage rate in Germany varies between 3.5 percent and 6.5 percent, which is why the tax does not have a uniform level nationwide.
For example, if you buy an apartment in Schleswig-Holstein for 250,000 euros, you will have to pay a real estate transfer tax of 6.5 percent and therefore 16,250 euros. In Bavaria, the tax rate is 3.5 percent and the resulting tax liability for our example is therefore EUR 8,750.
As the land transfer tax is based on the purchase price of the property entered in the purchase contract, you should pay attention to something very important at the notary, which can lead to monetary advantages for you:
Movable items that are considered accessories under civil law can be listed separately in the contract, thereby reducing the price of the property. If you buy an apartment with a garden, separate extras such as the garden shed, furniture or fitted kitchen from the property. It may take some time to subdivide and separate the entire property, but the tax benefits can be considerable.
When a condominium is purchased, the maintenance reserve is often included in the purchase price. This is a reserve that is saved by the homeowners’ association. This reserve is typically used to pay for repairs and renovations that need to be carried out in the common property.
Be sure to have the maintenance reserve listed separately in the purchase contract. In this way, you can ensure that the real estate transfer tax is calculated on the basis of the actual property.
Real estate transfer tax when buying a condominium: who has to pay it?
In principle, both the buyer and the seller are obliged to pay the real estate transfer tax. In practice, however, it is usually the buyer who pays the tax – following a corresponding contractual agreement. Who will pay the real estate transfer tax for the property is recorded in the notarized purchase contract.
Once the purchase contract has been signed by the buyer and seller, the real estate transfer tax is due immediately. It does not matter whether the purchase price has already been transferred to the seller’s account. The notary informs the tax office, which calculates the amount of tax and then sends the tax assessment together with a request for payment to the buyer of the property.
Section 15 of the GrEStG stipulates that the deadline for transferring the real estate transfer tax is one month after notification of the tax assessment notice. If the tax has been transferred to the tax office by the buyer within the deadline, the tax office issues the so-called clearance certificate. Only with this certificate, which the tax office sends to the notary, can the buyer become the legal owner of the property. The notary sends the clearance certificate to the land registry. The buyer can now be entered in the land register as the owner and assumes all rights and obligations associated with this.
