German Federal Fiscal Court Upholds Property Tax Reform, Further Challenges Expected

Court Upholds Property Tax Reform

Germany's highest financial court, the Federal Fiscal Court (Bundesfinanzhof – BFH) in Munich, today, December 10, 2025, upheld the country's controversial property tax reform, declaring it lawful and not unconstitutional. The court rejected three lawsuits challenging the new regulations, asserting that they do not violate fundamental rights, particularly the general principle of equality.

Background to the Reform

The reform became necessary after the Federal Constitutional Court declared the previous property tax system unconstitutional in 2018. The court found that the underlying property values, known as 'Einheitswerte,' had not been updated since 1964 in West Germany and 1935 in East Germany, leading to significant and unconstitutional inequalities in taxation. The new rules for property taxation officially apply from January 1, 2025.

The Federal Model and Judicial Rationale

The BFH's decision specifically addresses the 'federal model' (Bundesmodell), which is currently applied in eleven of Germany's sixteen federal states. Under this model, property values are determined using factors such as land value (Bodenrichtwerte) and strongly standardized net cold rents (pauschalierte Kaltmieten). While acknowledging that the use of flat-rate average values might lead to some distortions and unequal treatment, the BFH deemed these acceptable. The court emphasized the legislator's broad scope for design and the practical necessity of such typifications and generalizations for the re-evaluation of approximately 36 million properties across Germany. The presiding judge, Franceska Werth, stated that 'a flat-rate assessment means that the tax offices do not have to determine individual land values and rental income for each apartment, but can content themselves with average values,' which she found 'constitutionally justifiable.'

Ongoing Opposition and Future Legal Avenues

Despite the BFH's ruling, significant opposition persists. Approximately 2.8 million property owners nationwide had already filed objections against their property tax assessment notices, and more than 2,000 lawsuits were lodged before the 18 financial courts. Following today's decision, leading taxpayer associations, including the Bund der Steuerzahler Deutschland and Haus & Grund, have announced their intention to support constitutional complaints before the Federal Constitutional Court. This indicates that the legal battle over the property tax reform is far from over.

Impact and State-Specific Variations

The reform aims to be 'revenue-neutral' overall, meaning it should not lead to a general increase in property tax revenue for municipalities. However, this does not preclude individual property owners from facing higher or lower tax burdens. For instance, some Berlin clubs have reportedly seen substantial increases, with Berghain's property tax rising from €20,000 to €90,000 per year, and Yaam's increasing by 1300 percent to €213,000 annually. The actual revenue neutrality will only be verifiable once the full revenue figures for 2024 and 2025 are published. It is also important to note that Baden-Württemberg, Bavaria, Hamburg, Hesse, and Lower Saxony have adopted their own distinct property tax models, and the BFH is expected to rule on appeals against these state laws next year. Under the federal model, property tax reassessment is scheduled to occur every seven years.