Real estate transfer tax: Saxony plans drastic increase
What buyers must now expect
In June 2022, an increase in the land transfer tax for the federal state of Saxony was decided as part of a two-day closed meeting in Radebeul. This tax, which is payable on every property purchase, is currently the lowest in Saxony compared to other federal states and is at a level of 3.5 %. This is now set to change from next year. Find out everything you need to know about land transfer tax for a property in Saxony, what consequences property buyers should draw and where it is still worth buying property.
Saxony's government agrees on increase
It has been official since the closed meeting on June 14 and 15, 2022: the real estate transfer tax in Saxony will be raised from 3.5% to a rate of 5.5%, an increase of 57%. This new rate is expected to apply from January 1, 2023. The level of land transfer tax in Saxony was previously one of the lowest in Germany. The drastic increase will therefore significantly increase the additional costs when buying a property, as the tax incurred when buying houses, apartments or building plots is part of the ancillary purchase costs. The purchase price serves as the assessment basis for the real estate transfer tax, but other considerations in connection with the property – such as rights encumbering the property – also influence the amount of the tax. Real estate transfer tax can also be payable on gifts, but there are exceptions, for example when a spouse or relative acquires a property.
Effects on the real estate market in Saxony
The increase in land transfer tax, especially in combination with higher interest rates and increased costs for construction itself, for building materials and for electricity and gas, can put increased pressure on property prices in Saxony. These effects will be felt by anyone planning to purchase property, as the cost of buying a plot of land, house or apartment will rise as a result. This applies both to the purchase of a finished property and to the land transfer tax for a new build. One possible consequence may be a fall in demand, and investments in particular are often a consequence of rising tax rates. However, it should also be noted that the real estate transfer tax for the federal states is even higher in some cases compared to the rest of Germany, and even those states where the tax rate is similarly low are considering increasing the rate. Especially for owner-occupiers, it cannot be assumed that the demand for property ownership will fall to any great extent.
Buying real estate in Saxony is still worthwhile here
Despite the rising land transfer tax, there are still some regions and cities in Saxony where buying real estate is worthwhile. Worthwhile investments can be made in the coming years, especially in Saxon cities such as Leipzig. A continuous increase in value is forecast for properties in urban locations in the coming years due to the constantly growing demand. The land transfer tax also results in higher ancillary purchase costs in Leipzig, but these are offset by the rising property value. Buying a property here is therefore a worthwhile and sensible decision for both owner-occupiers and investors.
In principle, the tax office located in the district in which the property or at least the most valuable part of the property is located is responsible for determining the real estate transfer tax. If the property is located in several districts of tax offices in different countries, each authority is responsible for taxing the part of the property located in its own country.
In principle, the tax must be paid on every property purchase, but there are exceptional cases in which no real estate transfer tax is payable. This applies to transactions between people who are related to each other in a direct line, for example parents and children or grandparents and grandchildren. This includes purchases, but also gifts or the inheritance of a property. Real estate transfer tax is also waived for married couples if there is a sale from one partner to the other. However, this does not apply to real estate transactions between siblings.
Real estate transfer tax is payable by anyone who purchases a property. Its amount depends, among other things, on the purchase price including VAT. The tax is one of the ancillary purchase costs and must therefore be added to the purchase price. It is due as soon as the buyer receives notification from the tax office, which is usually after the purchase has been notarized. The amount of the tax is regulated by the respective federal state. In Saxony, the rate for real estate transfer tax will increase from 3.5% to 5.5% from 2023.
For the private purchase of a property, neither the purchase price nor land transfer tax or notary costs are tax-deductible. However, if you rent out your property, you have the option of declaring the land transfer tax as income-related expenses in your tax return. The declaration must be added to the annex of the tax return. Income from letting and leasing must be stated there, and the deduction is made directly from the tax burden in the year in which it arises. Real estate transfer tax can also be deducted from tax if the property is used commercially. In this case, they are considered business expenses.
When you buy a property, you must have the transaction notarized by a notary. As part of the notarization process, the notary will also inform the relevant tax office. The tax office will then promptly send the tax assessment notice and the request for payment. As soon as you have received both, the amount for the real estate transfer tax must be paid within four weeks, regardless of whether the purchase price has already been paid or not. The buyer and seller are jointly and severally liable – regardless of the provision in the purchase contract – although the tax is usually paid by the buyer. However, the tax office can also approach the seller and demand payment of the tax if the buyer does not comply with the payment obligation.
