Real estate holding: box privilege and only 1.54% tax on sale

L_kinski — Sat, 03 Feb 2024 16:36:46 +0000

Nesting privilege, my new favorite word! Although I’ve known about the holding model for ages, today was the first time I heard the term “Schachtelprivileg”. Simply put: only 1.54% tax on the sale of real estate! If you’re wide-eyed now, check out this short article on real estate holding. Tip! Learn more about legal forms and alternatives in Germany here: Legal forms in Germany.

Box privilege: save taxes when selling real estate

Nesting privilege: a term worth knowing!

Although I have been using the holding model in the real estate industry for years, I only recently came across the term “nesting privilege”. The bottom line? Only 1.54% tax on real estate sales! If you’re wondering, let me introduce you to the world of real estate holding in this short article.

The taxation of a real estate GmbH

A GmbH is subject to corporation tax, the solidarity surcharge and trade tax, which results in an effective tax rate of approximately 30%.

However, if you set up your GmbH in the context of real estate projects, you can benefit from the extended reduction in trade tax.

In this case, you only pay 15.83% tax on rental income and lease fees.

The same low tax rate also applies to the sale of real estate. However, care must be taken here to avoid falling into the category of commercial property trading. You may sell a maximum of three properties within five years, otherwise the tax rate rises to 30%.

The share deal offers an even more tax-efficient option for real estate sales.

Real estate holding company: Reduce the tax burden to 1.54%

By cleverly structuring your GmbH, you can reduce the tax burden on the sale of real estate to just 1.54%. A little more striking:

1.54% Taxes on sale

This concept, known as a share deal, benefits from a holding structure and the nesting privilege. Your business structure consists of two limited liability companies. One of the companies acquires the real estate, while the second limited company acts as the parent holding company. If you now want to sell your property, the holding company transfers the shares in your real estate GmbH to the buyer.

The nesting privilege comes into play here

If a corporation sells shares in another corporation, 95% of the profits remain tax-free.

This means that your effective tax rate on the profit from the sale of the property is only 1.54%.

More about GmbH & asset-managing GmbH

Learn more about the GmbH here

Set up a foundation & save taxes: tax benefits and asset protection

L_kinski — Thu, 24 Aug 2023 14:05:03 +0000

A family foundation is one of the most powerful tools for the long-term security of real estate assets – but also one of the most commonly misunderstood. It combines a corporate tax rate of only 15%, protection from creditors, and intergenerational asset binding. At the same time, you pay inheritance replacement tax every 30 years and must calculate the gift tax at establishment. This guide shows with concrete figures when a family foundation becomes worthwhile, where the tax traps lie, and how it compares to a real estate GmbH.

Family Foundation: When does it really pay off?

The family foundation is not a mass product. Founding and ongoing costs as well as structural complexity only make sense from a critical asset size.

Rule of thumb equity: From about 1 million euros of free assets or from a real estate portfolio with a sustainable cash flow of 60,000–100,000 euros per year.
Setup Costs: 15,000–40,000 € (notary, foundation charter, tax planning) – details under Family Foundation Costs
Ongoing Costs: 5,000–15,000 € per year (accounting, annual report, foundation supervision, board)
Below this threshold: Real Estate GmbH or asset management GmbH are usually more efficient – overview of all Legal Entities in Germany
Time Horizon: A foundation is only worthwhile if it is bound over two generations (50+ years)

Overview: What you will learn in this guide

The central tax effects of a family foundation establishment at a glance.

Tax Topic	Key Message
Corporate tax on rents	Only 15 % instead of up to 45 % income tax in private assets
Trade tax	For purely asset-managing foundations: 0 € (extended reduction possible)
Gift tax upon establishment	Tax class privilege under § 15 para. 2 Inheritance Tax Act – usually class I, exemption up to 400,000 €
Succession tax	Every 30 years, simulated inheritance case with exemption of 800,000 € (doublable)
Sale profits on real estate	Tax-free after 10-year speculation period (§ 23 Income Tax Act analog)
Distributions to beneficiaries	25 % final tax + solidarity surcharge
Asset protection	After 4 years (§ 3 AnfG) or 10 years in case of intent protected from creditors

Tip! Family foundation from A–Z with insider tax tips on Tax Savings One.

Calculation example: Family foundation vs. private assets vs. GmbH

An investor owns an apartment building with the following key figures:

Market value: 2,000,000 €
Annual net cold rent: 90,000 €
Depreciation & advertising costs: 30,000 €
Taxable profit: 60,000 € per year
Personal marginal tax rate of the investor: 42 %

Tax burden per year in comparison

Position	Private Wealth	Asset Management GmbH	Family Foundation
Taxable Profit	60,000 €	60,000 €	60,000 €
Tax Rate	42 % Income Tax + Solidarity Surcharge	15.8 % Corporation Tax + possibly Dividend Tax	15.8 % Corporation Tax
Trade Tax	—	0 € (reduced deduction)	0 €
Tax per year	approx. 26,600 €	approx. 9,450 €	approx. 9,450 €
Net per year	33,400 €	50,550 €	50,550 €
Tax savings vs. Private	—	+17,150 €	+17,150 €

Over 30 years, this results in a liquidity advantage of approximately 515,000 € compared to private wealth. The family foundation, however, deducts the Succession Tax from this amount (see below).

The five central tax advantages of the family foundation

1. Only 15 % Corporation Tax on rental income

Once real estate is held within the foundation, the rental income is no longer subject to income tax (up to 45% + solidarity surcharge + possibly church tax), but to corporate tax of 15% plus solidarity surcharge – effectively 15.825%.

Rental income in the family foundation is taxed at only 15.825% – instead of up to 47.475% in private assets.

2. Exemption from Trade Tax through Extended Deduction

As long as the foundation exclusively manages its own real estate (no trade, no commercial character), the extended trade tax deduction under § 9 No. 1 Sentence 2 of the Trade Tax Act applies. Effect: 0 € trade tax despite the formal commercial nature of the foundation.

Insider Alert: Photovoltaics, holiday rentals with hotel characteristics, or subletting of business equipment can overturn the extended deduction – then suddenly 14–17% trade tax may apply to the entire profit.

3. 10-Year Speculation Period Also in the Foundation

Dispositional gains from real estate are tax-free in the family foundation – unlike in the GmbH – after the ten-year speculation period has expired. The foundation thus combines the advantage of low ongoing taxation (KSt) with the privilege of private assets upon exit. More information can be found in the speculation tax calculator.

4. Low taxation of distributions to beneficiaries

Contributions to the beneficiaries (beneficiaries) are subject to the final tax of 25% plus solidarity surcharge – thus 26.375%. As a result, the total burden (KSt + final tax) is also lower than the top tax rate in private assets, even with full withdrawal.

5. Protection against exit taxation

If the founder plans to move abroad (Switzerland, Dubai, Portugal, etc.), the exit tax under § 6 AStG applies to the private assets or shares in a GmbH – a fictitious disposal with full tax liability on silent reserves. The family foundation, as a legally capable owner, remains in the country and does not trigger this tax. For large assets, this can result in savings potential in the seven-figure range.

Gift tax upon establishment: The tax class privilege

Contrary to common claims, the transfer of assets into a family foundation is not exempt from gift tax. However, the tax class privilege under § 15 Paragraph 2 Sentence 1 of the Inheritance Tax Act applies: The decisive factor is the family relationship to the most distant beneficiary of the foundation.

Tax classes and exemptions

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Furthest Recipient	Tax Class	Exemption	Tax Rate
Spouse	I	500.000 €	7–30 %
Children	I	400.000 €	7–30 %
Grandchildren	I	200.000 €	7–30 %
Siblings, Nieces, Nephews	II	20.000 €	15–43 %
Non-relatives	III	20.000 €	30–50 %

Design Tip: The foundation’s bylaws should consciously limit the beneficiaries to close family members to ensure Tax Class I. Whoever includes “all descendants as well as their spouses” runs the risk of costly errors.

Inheritance Replacement Tax: The Price of Eternity

Since a foundation does not die, the legislature simulates an inheritance case every 30 years – the Inheritance Replacement Tax according to § 1 Abs. 1 No. 4 InhStG.

Calculation and Exemptions

Basis for calculation: Foundation assets minus two tax-free allowances of 400,000 € each (total 800,000 €)
Tax class: Class I (hypothetically: two children as heirs)
Tax rate: 7–30 % depending on the amount of assets
Deferral: With real estate assets, the tax can be spread over up to 30 years (§ 24 Inheritance Tax Act)

Calculation Example Inheritance Replacement Tax

Foundation assets after 30 years: 5,000,000 €

Minus tax-free allowance: 800,000 €
Taxable value: 4,200,000 €
Tax rate Class I: 19 %
Inheritance replacement tax: approx. 798,000 €
With deferral over 30 years: approx. 26,600 € per year

Liquidity trap: Pure real estate foundations without cash reserves get into difficulty every 30 years. Those planning for the long term should build up a liquidity reserve early on or use the deferral option.

Transferring real estate to the foundation: What you need to know

The transfer of existing real estate into a family foundation is legally and taxatively demanding.

Attention: Speculation period when contributing

If a property from private assets is contributed to the foundation before the end of the 10-year period, this can be assessed as a disposal under § 23 EStG – with full speculation tax on the capital gain. A gratuitous transfer can help here, but must be carefully structured.

Land transfer tax upon transfer

The transfer into the foundation generally triggers land transfer tax (3.5–6.5 % depending on the federal state). If the property is gifted to the foundation, the exemption under § 3 No. 2 GrEStG may apply – a prerequisite is a genuine gratuitous transfer.

Asset Protection: When does the protection apply?

4 years after transfer (§ 3 AnfG): Protection against challenge by the foundation’s creditors
10 years in case of intent (§ 3 Para. 1 AnfG): If there was an intent to disadvantage, the period is extended
Voiding of Insolvency (§ 134 InsO): 4 years for unpaid services

Insider: Whoever founds the foundation only when things get tight has no protection. Asset Protection only works “in good times”.

Family Foundation vs. Real Estate GmbH: Which Structure Fits?

Criterion

Family Foundation

Real Estate GmbH

Minimum meaningful assets

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Selling a condominium tax-free: speculation period, speculation tax and 3-object rule (commercial trade)

L_kinski — Thu, 10 Aug 2023 15:16:11 +0000

In Germany, there are certain ways to sell a condominium tax-free, depending on whether you used the apartment yourself, rented it out or whether commercial activities are involved. Here are the relevant aspects for each situation for your apartment sale.

Speculation period for owner-occupiers

If you have used a condominium yourself and want to sell it, a speculation period of 3 years applies. This means that you can sell the apartment tax-free at any time after buying it, as long as you have lived in it yourself in the meantime. This is an advantageous regulation, as you do not have to adhere to a specific holding period in order to benefit from the tax exemption.

Speculation period of 3 years

Speculation period for capital investment (rented out)

If you have used a condominium as an investment and rented it out, the speculation period is 10 years. This means that you can only sell the apartment tax-free after this period has expired. If you sell the apartment before this period expires, speculation tax could be payable on the proceeds of the sale.

Speculation period of 10 years

Commercial trading in Germany

If the sale of condominiums becomes a commercial activity, the profits from the sale could be subject to income tax. This may be the case if, for example, you regularly buy, renovate and resell apartments with the intention of making a profit (more on the 3-object rule). In such a case, you could be classified as a commercial trader and the profits would be taxable.

Direct intention to make a profit “or” 3 properties in 5 years

Note that tax laws can be complex and individual circumstances need to be taken into account. To ensure that you take advantage of the best possible tax situation for your specific case, it is advisable to consult a tax advis or. A professional tax advisor can educate you on all the tax implications of selling a condo in Germany and help you plan optimally.

Apartment building for sale Taxes: Speculation tax for owner-occupation, Heritage & Co.

Laura — Mon, 06 Mar 2023 07:43:04 +0000

Sell an apartment building – Control – Do you want to sell your apartment building? This not only involves the usual costs for control, notary and land registry office, but also some control payments. Find out here which controls you have to consider when selling your apartment building. Additionally: How you can save on controls and what matters when selling an inherited apartment building. Questions? Write to me or call, completely non-committal: Contact us.

Control when selling an apartment building

Which taxes apply when selling an apartment building?

Selling an apartment building can be associated with significant tax payments. At a glance:

Tax type	Due	Amount	Avoidable?
Speculation tax	When selling within 10 years	Personal income tax rate (up to 45%)	Yes, after 10 years
Trade tax	Commercial real estate trading	15–17% + municipal surcharge	Yes, with the right structure
Value added tax	Only if VAT option is chosen	19%	Yes, standard case tax-free
Corporate tax	When selling through a GmbH	15% + solidarity surcharge	–

Speculation tax on an apartment building

Also for multi-family homes, the 10-year speculation period (§ 23 EStG) applies. The period begins with the notarized purchase contract. Decisive:

After 10 years: Capital gain from sale fully tax-free (private individual)
Under 10 years: The prize is taxed at the personal income tax rate
Self-Occupancy: For MFH, the 3-year self-occupancy rule applies only to the unit occupied by the owner, not to the entire building.
Exemption: 600 € per year (§ 23 Abs. 3 EStG) – usually not relevant for MFH sales

Calculation of the capital gain

Formel: Selling price − purchase costs − additional costs − depreciation (depreciation Real Estate Depreciation: Depreciation & Rates) + taxable depreciation amounts

Important: Depreciation already deducted (AfA) is added back to the taxable profit upon sale (AfA recalculation). This significantly increases the effective tax burden.

Commercial Tax: When Does It Apply?

Private individuals who hold real estate as an investment generally pay no commercial tax. The situation becomes risky with the so-called Three-Property Threshold:

Anyone who buys and sells more than three properties within five years is considered a commercial real estate dealer
Consequence: All profits – even retroactively – become subject to commercial tax
Commercial tax: approximately 15 % corporate tax + local surcharge (effectively 30–40 %)
The 10-year speculation exemption is lost in commercial trading!

Solution: Hold each property for longer than five years or structure ownership through separate GmbHs/holding structures.

Asset Deal vs. Share Deal in the Sale of MFHs

When selling larger multi-family homes owned by a company, there are two sale structures:

	Asset Deal	Share Deal
What is being sold?	The plot/building itself	Shares in the GmbH/KG that holds the MFH
Purchase tax buyer	Full 3.5–6.5 % applicable	For <90 % acquisition: waived (structuring model)
Tax seller	Corporate tax on profit (15 % + solidarity surcharge)	Partial income procedure (60 % taxable)
Buyer preference	Possible to increase depreciation	Saving on purchase tax
Risk	Higher transaction costs	Liability for old debts

Saving taxes: Strategies for MFH sellers

Wait 10 years: For privately held MFH the simplest way to achieve tax exemption
Sell in a bad income year: For example, after retirement or in a loss year
Offset losses: Losses from other property sales in the same year reduce the profit
Transfer to children before sale: Gift to children in a lower tax class (observe holding periods!)
Limited liability company structure: MFHs sold within the GmbH structure are subject to only 1.5 % effective tax when retained (§ 8b KStG) — complex structure, tax advisor necessary
1031-Exchange Analogue (DE: Reinvestment): No direct equivalent, but tax advisors can delay the tax burden through clever reinvestment planning

MFH Inheritance: Taxes when selling an inherited apartment building

If an apartment building is inherited and then sold, special rules apply:

The speculation period starts from the deceased’s purchase date – not from the inheritance
If the deceased bought the MFH more than 10 years ago: Sale after inheritance is tax-free
If the deceased lived in the MFH themselves (only one unit): The 3-year rule applies to this unit
Inheritance tax and speculation tax can apply simultaneously – independent of each other
Exemptions for inheritance tax: 400,000 € (children), 500,000 € (spouse)

Apartment sale taxes: How to save taxes when selling an apartment

Laura — Mon, 20 Feb 2023 10:24:46 +0000

Sell Apartment Taxes – If you are looking to sell an apartment, it is important to look into the relevant tax regulations. After all, tax payments are one of the most significant cost factors to consider. Yet, with proper preparation, a variety of taxes can be saved. Speculation tax, inheritance & Co. – we explain how it works here. Everything you need to know about selling an apartment can be found here: Selling an apartment.

Is the sale of an apartment tax-free?

Similar to the purchase of a house, apartment and land, taxes may also be due on the sale. The taxes you have to pay and the amount of tax you have to pay depend on the value of the property as well as on the use of the apartment. Under certain circumstances you can save taxes. The so-called speculation tax plays a major role.

Speculation tax for rental & owner occupancy

As a rule, speculation tax is incurred if a property is resold within a certain period after purchase and was not used as a primary residence. In Germany, this speculation period is generally 10 years. If the sale takes place within this period, the profit generated by the sale is subject to income tax and is referred to as speculation tax.

Tax-free if there are more than 10 years between purchase and sale

If you or your children have lived in the apartment yourself, no speculation tax is due, even if less than 10 years have passed between the purchase and sale. However, if the apartment is a rental property, you should observe the speculation period.

Commercial trade from three-object limit

The three-property limit usually affects real estate dealers and speculators who buy and sell a large number of properties in a short period of time. If a seller sells more than three properties within a five-year period, this may result in the seller being classified as a commercial real estate dealer and thus becoming liable for tax. In this case, the capital gains may be taxed as income, resulting in a higher tax burden.

So, if you have already sold several properties recently, it is recommended that you sell your home only after 5 years to avoid additional taxes.

Taxes on inheritance and donation

But what taxes apply if the apartment is an inherited property? If you decide to sell an inherited apartment, it may well be subject to a speculation period. Here, too, the decisive question is: owner-occupation or rental?

However, a special feature must be taken into account: The start of the speculation period is not the date of inheritance or gift, but the date on which the apartment was acquired by its original owner.

With the inheritance, the speculation period attached to it therefore also passes to the heir

If, for example, you inherit an apartment as a rental property that was purchased 15 years ago, the speculation period is over and you can sell the apartment without having to pay speculation tax.

Conclusion: How to save taxes

In summary, various taxes can be incurred when selling an apartment. The speculation period and the three-object limit play a particularly important role. Special regulations also apply to the sale of an apartment after an inheritance or gift, which require consideration. It is therefore advisable to find out about the relevant tax rules and regulations before selling an apartment and to factor the tax payments involved into your costs.

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