Real Estate Law

Taxes to Pay on Selling a House in Germany

Capital Gains Tax (Spekulationssteuer)

In Germany, capital gains tax (Spekulationssteuer) is levied on the profit made from selling a property within ten years of purchase. According to § 23 of the Income Tax Act (EStG), the sale of private real estate is considered a speculative transaction if the time between acquisition and sale is less than ten years.

However, a crucial exemption to this tax applies if the property was used exclusively for personal residential purposes by the owner in the year of sale and in the two preceding calendar years, or if the property was inherited and the heir also meets the residential usage requirement.

The tax rate is not fixed, but depends on the seller’s personal income tax rate, which can range from 14% to 45%. This is in addition to the solidarity surcharge (5.5% of the tax amount) and possibly church tax.

Consider the following example:

You bought a flat in Berlin for €250,000 in 2018 and sold it for €400,000 in 2025.
If you did not live in it, the €150,000 gain would be taxed. Assuming a 30% tax rate, you would owe approximately €45,000 plus the surcharge. However, if you had lived in the same flat from 2022 to 2025 as your main residence, the gain would be exempt from tax under the personal use exemption.

Property Transfer Tax (Grunderwerbsteuer)

This is a tax on the transfer of real estate imposed when ownership of property changes. Although it is technically paid by the buyer, responsibility for payment can be transferred by contract, so sellers should be aware of this during negotiations.

The tax is calculated based on the purchase price.

The tax rate varies by federal state, currently ranging from:

• 3.5% in Bavaria and Saxony
• 6.5% in North Rhine-Westphalia, Thuringia, Brandenburg, Saarland, and Schleswig-Holstein

Some exceptions exist, such as:

• transfers between close relatives
• certain corporate restructurings
• sales where the buyer and seller are the same legal entity

Umsatzsteuer in real estate sales

The value-added tax (VAT), also known as Umsatzsteuer, typically does not apply to the sale of private residential property in Germany because the general rule is that the sale of land and buildings is exempt under § 4 No. 9a UStG.

However, while private property sales are generally exempt, VAT can become relevant in specific types of real estate transactions, particularly in commercial contexts.

VAT may apply in cases involving:

• Sale of commercial property by a business entity: If a commercial property (e.g. office buildings, retail spaces or warehouses) is sold by a company that is registered for VAT purposes, the transaction may be subject to 19% VAT, especially if the buyer is also a business intending to use the property for taxable purposes.
• Sellers who are businesses can voluntarily waive the VAT exemption if the buyer is also a VAT-liable entrepreneur and will use the property exclusively for business purposes that are subject to VAT. In such cases, the sale becomes subject to VAT, but both parties can typically deduct the input tax, making it a net-neutral transaction.
• Sale of new buildings: If the seller is a developer or entrepreneur and the property is a new building (generally defined as being less than five years old), the sale will automatically be subject to VAT, unless the buyer is a private individual in which case the exemption will remain in place.

In these instances, VAT is charged at 19%.

Municipal Property Tax (Grundsteuer)

The Grundsteuer is an annual tax levied on real estate in Germany, including residential and commercial buildings and land.

Unlike one-off transactional taxes such as property transfer tax, Grundsteuer is a recurring local tax collected by the municipality in which the property is located.

It is imposed regardless of income and applies to property owners until the legal transfer of ownership has been registered in the Grundbuch (land register).

• Grundsteuer A (Agrar): Applies to agricultural and forestry land
• Grundsteuer B (Bebaute oder bebaubare Grundstücke): Applies to developed or developable land, including residential and commercial properties

The legal owner of the property is responsible for paying the municipal property tax until ownership officially changes in the land registry. Even if a purchase contract has been signed, the seller remains liable until the notary completes the registration, which can take several weeks or months.

Grundsteuer is billed annually and is often divided into quarterly payments (February, May, August and November).

In 2018, Germany’s Federal Constitutional Court declared the Grundsteuer system unconstitutional due to outdated property valuations based on data from 1964/1935. This prompted a nationwide Grundsteuer reform, which came into effect on 1 January 2025.

Key changes under the reform include:

• a new property valuation system based on actual property data from 2022 (land value, building type, rental value, etc.).
• owners were required to submit Grundsteuer declarations in 2022.
• each state may adopt its own model (federal vs. state-specific).
• the reform aims to be revenue-neutral overall, but individual tax bills may rise or fall depending on location and property features

Until the property is officially transferred, the responsibility to pay Grundsteuer still lies with the owner. Sellers must ensure that municipality property tax assessments are up to date, since buyers may now scrutinise Grundsteuer levels as part of their due diligence.

How to declare the sale of real estate to the German tax authorities

When selling property in Germany, the sale must be declared in the annual tax return (Steuererklärung). This involves declaring the sale and any capital gain, as well as providing supporting documentation such as purchase/sale contracts and valuation reports.

Failure to properly declare the sale can result in financial penalties, interest charges and, in severe cases, criminal tax fraud investigations.

A qualified tax lawyer can ensure that all the necessary documents are submitted, that any exemptions are applied correctly, and that deadlines are met, thereby avoiding audit risks.

Legal risks and fines for non-payment of sales tax

In Germany’s tightly regulated real estate and tax environment, failing to fulfil your tax obligations properly can have serious and costly consequences.

Penalties may include:

• Late payment fines
• Interest on unpaid tax (6% per annum)
• Administrative penalties up to €25,000
• Criminal charges for tax evasion, with potential imprisonment in extreme cases

A real estate tax lawyer acts not only as a legal shield but also as a strategic advisor ensuring you pay only what is due, on time, and with the proper paperwork in place.

A lawyer will help you with:

• ensuring complete tax compliance
• accurate and timely declarations to tax authorities
• avoiding penalties and late fees
• managing complex situations (e.g. VAT in commercial sales)
• coordinating with other professionals, such as tax advisors, notaries, and municipal offices
• handling audits and inquiries
• preventing legal liability after sale

Even if you think your sale is straightforward (e.g. selling your main residence), a lawyer can confirm whether you are exempt from capital gains tax and help you compile the necessary documentation to avoid disputes later on.

Risks of not choosing an experienced real estate tax lawyer in Germany

At first glance, selling real estate in Germany may seem straightforward: sign a contract, agree on a price, and hand over the keys.

However, beneath the surface lies a complex legal and tax framework that must be properly managed to avoid significant financial and legal risks. Even straightforward sales can be subject to intricate regulations concerning capital gains tax (Spekulationssteuer), real estate transfer tax (Grunderwerbsteuer), VAT on commercial properties and the ever-changing Grundsteuer (municipal property tax).

Missteps can result in audits, fines, late payment penalties or even criminal charges for tax evasion. Without the guidance of an experienced real estate tax lawyer, you may face avoidable costs, compliance failures, and legal disputes.

An experienced lawyer will ensure that your sale is legally sound and tax-efficient.

They will handle the correct classification of the sale, the timely declaration to the tax authorities and the proper drafting of contract clauses to avoid hidden liabilities. They can also help to optimise the transaction structure to reduce your tax burden, and represent you in any dispute with the Finanzamt (tax office).

Partner with LSI Berlin to sell your property with confidence, efficiency and legal clarity

Our real estate tax lawyers specialise in guiding property sellers through every legal and fiscal aspect of the sales process.

We ensure full compliance with German tax law, optimise your tax position and protect you from hidden risks.

Contact us today to safeguard your next sale.

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