Act now! As of 01 January 2023, there is a risk of a significantly higher tax burden for gratuitous property transfers
> November 2022

A planned amendment of the Bewertungsgesetz (Valuation Act) as of 01 January 2023 may lead to significant disadvantages in inheritance and gift tax for gratuitous property transfers.
The planned Jahressteuergesetz 2022 (Law of 2022 amending the tax law) includes amendments to the Valuation Act that may lead to a significant increase in real estate valuations as of 01 January 2023. Initial test calculations by tax consultants show increases in value of more than 50% in some cases. Real estate valuations according to the Valuation Act are in particular the basis for calculation of inheritance and gift tax and therefore have a significant impact on gratuitous transfers of real es-tate, e.g. by way of anticipated succession.

The Valuation Act comprises the different methods for property valuations. As a result of the amendment, two of them, the capitalised earnings value method and the net asset value method. will be adjusted to the changed economic environment, such as the general increase in the value of real estates and the development of interest rates. These two valuation methods apply to all built-up plots except for detached and semi-detached houses. The net asset value method is only applied to those in exceptional cases.

The first reading of the law in the Parliament took place on 14 October 2022. The Federal Council dealt with the draft on 28 October 2022. There were no comments by the Federal Council on the planned amendments to the Valuation Act. The law has been submitted to the relevant committees of the Parliament. The legislative process is expected to be completed before Christmas. In that case, the amendments can come into force on 01 January 2023.

Whether a transfer will be assessed according to the old or the new valuation rules is generally determined by the date of the transfer agreement’s notarisation. So, there is still time for making the right decision. In any case, anyone planning to transfer a rented residential property - such as an apartment building, or a business property - free of charge, e.g. by way of anticipated succession, should check whether this can be done before the turn of the year. The planned changes of the law could lead to a considerable increase in tax burden as of 01 January 2023, or at least to a stronger consumption of allowances.