Selling: Reasons from business closure to inheritance

Age, financing pressure or spontaneous inheritance – When a forest property is to be sold or has to be sold, it is therefore also often an emotional matter for the seller side. As I said, quite different from typical building land.

Nevertheless, it happens that a property is to be sold or has to be sold. Sometimes it is a financial reason, for example due to ongoing financing that requires liquidity, sometimes it is a spontaneous inheritance or an early gift…

What to do with a forest plot?

Location of the property – Especially if the property is not in your own region and is 200 km, 300 km or even further away from your home.

When the time comes, it’s on to the big question:

How do I sell (m)a forest plot?

Those who have not had any experience in selling real estate or land face a lot of challenges:

• How does a land sale work?
• What is the very, very first step?
• Can any broker sell forest land? In terms of personal network and expertise
• What are the typical mistakes when selling real estate?
• What taxes are due on the sale?
• …

Many rely on a regional real estate agent whom they know from their personal circle of friends, for example, or have received as a recommendation.

But, does this real estate agent have the right contacts in his network? In the end, your forest plot will only end up on various portals and accordingly everyone will know that your forest plot is for sale.

Is that what you want?

Tip: Trade your woodland property off market.

Forest valuation: Valuation of forests

What is a spruce forest still worth? A typical question, especially if you yourself have not been active in trading for a while and / or do not have time, for example because it is a small part of your own investment portfolio.

The condition of the forest is of course the criterion for the offer price, but also for the ultimate selling price of your forest. Has the forest been maintained or is it lying fallow? Location, transport connections but also the condition of the terrain are further value factors.

Forest evaluate, among others by:

• Condition of the forest
• Sustainable care of the forest
• Soil quality; forest soil expertise
• Location and transport links
• Condition of the terrain

Some factors increase the price, others decrease it. The valuation should always be carried out by an expert, i.e. a surveyor. The geotechnical expert, a civil engineer or geologist, prepares the soil expertise on site.

Selling forest land: Expiration

Of course, at this point we can’t give you a one-to-one guide to how land sales work in each individual case. Especially when it comes to the forest floor, there are still special factors to consider. But to give you a rough idea, we would like to refer you to our guide to selling land.

Checklist: Fast track forest sale

That’s how it works:

1. You should allow sufficient time for your forest sale
2. Valuation by an expert
3. Broad marketing on portals OR targeted off market sales
4. Credit assessment and buyer selection
5. Purchase contract and notary appointment

Here we show the different phases, from the first step, to the purchase contract and the settlement.

• Sell land

Sell the land and the spring?

Anyone who already owns land is familiar with the subject, but anyone who has spontaneously come into possession of their own forest land, as described for example by inheritance, divorce, donation, has many questions! It becomes particularly interesting when the forest plot not only has good quality soil, but also its own water source.

Sell water source: special case

With sufficient capacity (millions of liters / year), you have quite an interesting piece of land, for very many investors. Would you have thought of buyers from the food industry before the sale? Especially large food companies are very hot on quality water sources, because water sources are one of the most sought-after raw materials today. Just think of the water shortages that already exist today, even in countries like Spain or South Africa, when there is no water from the ground for weeks in the summer.

If you happen to have come into possession of a water source and are wondering, what do I do with it? Read more about the topic here:

• Sell water well

Real estate transfer tax: buyer or seller?

The first important question for those selling for the first time: As a seller, do you have to pay land transfer tax? Good news! This tax is payable by the buyer.

Buyers pay land transfer tax, not you as the buyer.

As a rule, the real estate transfer tax ranges between 3.5 percent and 6.5 percent, depending on the federal state in which the property or plot of land is located. For quick orientation, we have summarized the real estate transfer tax rates for all 16 federal states here, with example purchase prices from 1 to 5 million euros, from Bavaria to Hamburg.

• Real estate transfer tax – table and calculation example

This tax is important for you:

Speculation tax: selling tax-free, when?

The speculation period explained more quickly:

• Owner-occupied = 3 years
• Rented = 10 years

If you sell within the speculation period, you must – simply put – pay tax on the profits as normal, just like income from work, regardless of whether you are employed or self-employed. After the period has expired, the sale is tax-free. If you want to do a quick calculation, use my free speculation period calculator.

Tax calculation: Example

If you sell within the speculation period, you must – simply put – pay tax on the profits as normal, just like income from work, regardless of whether you are employed or self-employed. As a single person, this would typically mean a top tax rate of 42%.

Sale within the speculation period (< 10 years) as a private individual:

• Purchase 2024 = 2,100,000 euros
• Sale in 2033 = 4,100,000 euros
• Taxable profit = 2,000,000 euros
• At 42 % (single person) = 840,000 euros

Sale within the speculation period (< 10 years) as a company:

• Purchase 2024 = 2,100,000 euros
• Sale in 2033 = 4,100,000 euros
• Taxable profit Berlin approx. 19.1 % (trade tax 4.1 %, corporation tax 15 %) = EUR 2,000,000
• At 19.1 % = 382,000 euros

Sale after the speculation period (> 10 years):

• Purchase 2024 = 2,100,000 euros
• Sale in 2034 = 4,100,000 euros
• Taxable profit = 2,000,000 euros
• Tax free

But you can’t buy 10 properties now, wait 3 years and take the profits from property appreciation, because:

3 objects rule in Berlin

There is also the 3-property rule. If you sell more than 3 properties in 5 years, it is commercial real estate trading.

When selling real estate, the “3-object rule” refers to the fact that private individuals in Germany can sell up to three properties within a five-year period tax-free. If a person sells more than three properties within this period, this is considered commercial real estate trading and is subject to income tax – even if they are not rented out but are owner-occupied.

After 10 years of holding, however, the sale is always tax-free.

Why does this rule exist?

Just like the speculation tax, the rule is intended to curb speculation on the real estate market and encourage the sale of real estate for residential purposes.

So how do the “big players” save on taxes?

Commercial property: Value added tax

When selling a commercially used property that is subject to VAT and is rented out, the seller must correct the input tax deduction. If the new owner continues to let the property, no refund of input tax will be granted.

1. Commercial properties subject to VAT require an input tax adjustment on sale
2. The continuation of the rental does not affect the input tax refund for the seller

Share deals: selling a company “instead of” real estate

One option for a tax-optimized sale is the share deal. In this case, however, the property must already have been purchased by a company (such as Immobilien GmbH) (not as an individual).

The typical sale: “asset deal”

The difference: In an asset deal in the real estate context, specific assets such as land and buildings are sold individually, whereas in a share deal the shares in the company that owns the real estate are transferred.

Simply put:

• Asset deal = property is sold
• Share deal = Immobilien GmbH is sold

A share deal means that the buyer does not acquire the property itself, but the – in this case – Immobilien GmbH. Here is a short infographic. Then back to the direct sale of a property, after which I will explain more about holding companies and taxes on the sale.

Only 1.54% tax on sale

A share deal is possible if you have the company in a holding structure. This means you only pay 1.54% tax due to the intercompany privilege(Section 8b KStG).

• Asset deal = property is sold
• Share deal = company is sold (with real estate ownership)

Let us now calculate our example again, starting with the direct sale of a property:

Sale of a property as a company (asset deal):

• Purchase 2024 = 2,100,000 euros
• Sale in 2028 = 4,100,000 euros
• Taxable profit Berlin approx. 19.1 % (trade tax 4.1 %, corporation tax 15 %) = EUR 2,000,000
• At 19.1 % = 382,000 euros

Sale of a real estate GmbH as a company (share deal):

• Purchase 2024 = 2,100,000 euros
• Sale in 2028 = 3,100,000 euros
• Taxable profit = 1,000,000 euros
• For GmbH 1.54 % = 1,540 euros

You can see how huge the difference is.

No real estate transfer tax on purchase

Let’s delve a little deeper into the subject of real estate and tax optimization!

Again, simply put:

• Sale of Immobilien GmbH below 89% = no real estate transfer tax

Why is this the case? In Germany, the sale of shares in a GmbH that owns real estate is not normally subject to real estate transfer tax as long as the shares are below a certain percentage(§ 5 GrEStG).

What is the advantage? Real estate as a capital investment must bring a profit, usually calculated by the rental yield. The land transfer tax increases the purchase price by up to 6.5%, depending on the federal state. For 1 million euros, this is a cost of 65,000 euros. This directly increases the yield by a few percent.

Taxes on gifts and inheritance

If your property is an inherited or gifted property, this also raises the question: What taxes are due? As with properties you have purchased yourself, speculation tax may also be payable on the sale of an inherited property.

However, one special feature should be noted:

Thus, the speculation period does not begin on the day the property was inherited or given away, but on the day it was purchased by the original owner.

If the property is a newly inherited rental property that was acquired more than 20 years ago, the speculation period is deemed to have expired. There is therefore no speculation tax, even if you have only recently inherited the property.

To summarize:

• Speculation tax may apply
• Only for rented or leased properties
• The speculation period begins on the day of the original acquisition

Save tax with real estate

Reading tip! Save taxes with real estate – Learn about taxing taxes! You are the greatest financial professional you can find for your individual setting (private and business). Calculating taxes yourself is the tool to minimize your own tax burden.

The aim is therefore to convert taxes into private assets

The less tax you have to pay to the tax office, the faster you can build up your private wealth. You can find out more about tax optimization in this guide.

• Save tax with real estate

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