In a letter dated January 28, 2020, the Federal Ministry of Finance published new standard values for calculating real estate values for inheritance and gift tax. Depending on the type of building, the index value is now 127,2 or 128,1, reaching a new high. The index value has also increased by over 2016% since 20 alone.
Basics of Real Estate Valuation for Inheritance and Gift Tax Purposes
For inheritance and gift tax purposes, different procedures are used depending on the type of building. What they have in common is that they attempt to approximate the actual value of the building. However, a simplified, standardized procedure is always used for reasons of legal certainty and to avoid high administrative costs. Since the legislator was aware of the vagueness of the determination, the taxpayer can always prove a lower value by means of a proper valuation report from an expert. There is currently legal uncertainty as to whether the report must always be prepared by the local valuation committee. The associated costs must also be weighed up against possible tax savings in each individual case.
asset value method and consideration of published index values
The comparative value method is generally used for single-family and two-family houses. However, extensive property market reports must be available for this, which is often not the case depending on the federal state and municipality. In these cases, the so-called asset value method is used, which initially requires a separate determination of the land and the building value. The value of the land is derived from the size of the property and the current land value. For the building, a level of equipment (five different levels) is first determined based on various building features (e.g. roof), from which so-called standard costs per square meter of gross floor area can be derived. It is important to note that the gross floor area is generally much higher than the more common size of the living/usable area!
The annually updated index value plays an important role in the determination, as it is directly included in the standard costs and thus also in the building value.
Consequences for inheritance and gift tax
The increase in the value of real estate, which, as shown, is also taken into account in inheritance and gift tax, means that the tax-free allowances, such as 400.000 euros for children, are used up more quickly. It is therefore advisable to think about usufruct arrangements when transferring assets, for example, or to take advantage of the fact that the tax-free allowance is available every 10 years.
Dr. Rainer Bräutigam
Certified Tax Advisor
rainer.braeutigam@moore-tk.de
0621 42508-20
