Germany's highest fiscal court confirms new property tax rules

Germany’s property tax (Grundsteuer) rules were updated at the start of 2025, changing the way that property taxes are calculated.

As a result, new property tax bills were drafted and delivered to homeowners across Germany around the turn of the year, with many home and property owners upset to learn that the amount of tax they owed had increased significantly. The homeowners association Haus & Grund, as well as millions of individual homeowners, then brought legal challenges against the change in tax law.

Now the Federal Fiscal Court in Munich (BFH), which is Germany’s highest authority for fiscal disputes, has ruled that the change to the property tax code is legal and does not violate the Basic Law. 

In doing so the court has rejected lawsuits brought by property owners from Cologne, Berlin and Saxony. The ruling also suggests that the updated property tax calculation is likely here to stay.

However, further legal challenges can be expected.

Flat-rate averages allowed

In this case, the plaintiffs argued that the law violated the principle of equality, because it allows tax offices to calculate property taxes based on flat-rate average values for net rents and land value. 

So instead of looking at how much rent a landlord actually collects, or at the value of their land based on a recent assessment, property tax rates are based on average values in a given region.

The Federal Fiscal Court has now ruled that doing so does not violate the principle of equality, and that calculating taxes based on these figures is “constitutionally justifiable”.

How property taxes affect everyone

Property tax is one of the most important income sources for municipalities, many of which have fallen deeper into debt in recent years.

But it also affects virtually the entire population, whether you own property or not.

READ ALSO: Can the German states afford to approve planned tax relief?

Technically, the tax is owed only by landlords, but often the cost of this tax is passed on to tenants in the form of increased rents.

The property tax reform was meant to be "revenue-neutral", meaning that it was not intended as a tax increase. Some property owners would end up paying more or less taxes, but overall the revenue generated from these taxes was supposed to be maintained at a similar level. 

Many critics of the reform suggest that it has raised taxes in most cases. This is especially true in places where land values have increased dramatically, such as in many major cities.

Tagesspiegel recently reported that several Berlin clubs are now facing exorbitant tax increases due to the reform.

At Berghain, the cost is said to have risen from €20,000 to €90,000 per year. For Yaam the property tax cost has reportedly risen by 1300 percent, up to €213,000 per year.

Whether the reform was really revenue-neutral will only be known when the full revenues for 2024 and 2025 are published.

Further challenges

For property owners and their tenants, the court ruling confirms that the new property tax rules will not be overturned or suspended for now.

However further legal challenges may be expected.

Haus & Grund and the Association of Taxpayers subsequently announced a constitutional complaint in Karlsruhe – meaning they intend to challenge the court ruling at the Federal Constitutional Court.

The cases from Cologne, Berlin and Saxony concerned the federal model for property taxes, which applies in eleven federal states. 

Meanwhile the states of Baden-Württemberg, Bavaria, Hamburg, Hesse and Lower Saxony have adopted their own regulations, and other legal challenges are also being brought against those.

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With reporting by DPA.