Speculation tax applies to the sale of non-owner-occupied properties and is due if the house or apartment is sold at a profit within ten years of purchase. The reason for the sale is irrelevant, as it is assumed that the seller is speculating on a short-term increase in value.

In the case of undeveloped properties, use for own residential purposes is systematically excluded, meaning that speculation tax is always due if the sale takes place within ten years.

There are various ways to avoid speculation tax or at least reduce it to a minimum:

First option: stick to the holding period

Anyone who has rented out their property for more than ten years can sell without deducting speculation tax. The period begins with the notarization of the purchase contract and ends with the conclusion of the sales contract. This option is only available in cases where the money isn’t urgently needed. For estate planning, however, the holding period is the easiest way to avoid speculation tax.

Second option: owner occupation

There is no speculation tax if the owner lives in the property himself. To this end, the owner or his children must use the house or apartment as their main residence. In this case, a shortened speculation period of three years applies. And even this period is not a full 36 months but relates to the year of sale and at least the two preceding years. In any case, self-use must be proven by means of a registration confirmation (amtliche Meldebestätigung).

Third option: claiming costs incurred during the purchase

The speculation tax is calculated according to the profit made and the personal tax rate. Costs incurred in connection with the sale reduce the taxable profit and therefore the amount of speculation tax. These include:

• Notary and estate agent costs
• Property valuation costs
• Travel costs for viewings
• Maintenance and modernization costs (under certain circumstances)
• Losses from other sales transactions in the same accounting year

Inheritance and gift

For heirs, the holding period of the previous owner applies. If the house was acquired by the testator or donor more than ten years ago, the speculation tax has also expired for the heir. In the event of a sale, the purchase date of the previous owner is therefore relevant.

In the context of a community of heirs (Erbengemeinschaft) and the acquisition of the children’s inheritance shares by the parents, care must be taken to avoid a private sale transaction (privates Veräußerungsgeschäft) in accordance with § 23 EStG. 

Please note: speculation tax is not a purely German invention!

Speculation tax in France (“Taxe sur la plus-value immobilière”)

The profit made in France from the sale of real estate within 5 years is subject to a tax of 19% taxe sur la plus-value immobilière + 17.2% prélèvements sociaux (38.2% in total). For a holding period of 6-21 years, 6% per year taxe sur la plus-value immobilière is deducted and 1.65% per year is deducted for prélèvements sociaux (abattements). The taxe is only waived after 22 years and the prélèvements sociaux after 30 years. 

The tax does not apply to the sale of the main residence (résidence principale). In this case, the holding period does not matter. It is not uncommon for our clients to have acquired or inherited a property in France. In most cases, however, it is a vacation apartment or a vacation home. For second residences (résidence secondaire), the tax is only waived for a holding period of 22 or 30 years (see above).

There are exceptions for non-residents if an international agreement has been concluded. However, Article 3 of the double taxation agreement between Germany and France stipulates the situs principle (Belegenheitsprinzip). Income from real estate (loyer ou plus-values issues de la vente) is therefore taxable in the country in which the property is located.

There is a further exception if the second home is sold in France in order to buy or build the main home (also in France). To do this, you must have lived in your main residence for rent for the last four years. 

Certain expenses can also be claimed in France when calculating speculation tax:

• Taxes incurred at the moment of the purchase
• Notary fees (exact amount or standard rate of 7.5%)
• Renovation costs (exact amount or standard rate of 15%) after 5 years of ownership

Speculation tax in Switzerland

Switzerland does not have a speculation tax as in Germany. However, the holding period is also important in the context of “property gains tax“ (Grundstücksgewinnsteuer).

Here too, the longer the holding period, the lower the tax burden.

If a property in Switzerland is transferred within a family, the special feature is that real estate gains tax can be deferred. This tax then only must be paid when the property is sold outside the family.

Speculation tax in England

There is no speculation tax in England, but there is capital gains tax. This depends on whether the taxpayer is subject to the basic rate or the higher rate. Tax advantages may exist in certain cases – also in the context of estate planning – through the establishment of a trust.

In the event of inheritance, no capital gains tax is payable, but inheritance tax is payable at a rate of 40% for amounts above the current allowance of £325,000.

Early estate planning is also worthwhile here!

Several court decisions in recent years have shown how speculation tax can become a tax trap and significantly minimize the proceeds. We would be happy to advise you or your community of heirs on this topic, as well as on other tax issues, and find the simplest and most favorable solution for you!