It was not planned as a tax change at all. In 2024, partnership law was fundamentally revised. Until then, the assets of all partnerships (GbR, OHG, KG and partnership companies) belonged jointly to the partners according to the legal model, known as joint ownership. The Act on the Modernisation of Partnership Law (MoPeG) abolished this model, which was outdated in many respects, stipulated separate ownership of assets by partnerships and placed them on an equal footing with corporations (GmbH, AG).
In order to take account of the joint attribution of assets, Sections 5 and 6 of the RETT Act have stipulated since the 1940s that the transfer of a property from a partner to a ‘joint ownership’ and vice versa is exempt from tax, provided that the partner has a share in the assets of the joint ownership. However, as a result of the MoPeG, partnerships are no longer joint ownership entities and no longer meet the requirements for exemption under Sections 5 and 6 RETT Act. While the legislature eliminated similar collateral effects of the MoPeG for income tax relatively quickly and permanently through a legal fiction, it was reluctant to do so for real estate transfer tax. Although it also created a joint ownership fiction, it simultaneously regulated its repeal with effect from 1 January 2027. This results in a transitional provision until 31 December 2026 for the application of Sections 5 and 6 RETT Act to partnerships. There is currently no indication that the legislator will extend this again.
There is therefore a need for action if the exemptions under Sections 5 and 6 of the RETT Act are to be utilised.
In which cases is this relevant?
Transfers to partnerships are particularly relevant in the context of corporate reorganisations or disposals and in preparation for succession planning. Here are a few examples:
- If business operations or parts of operations within a group are to be transferred intragroup or incorporated into a joint venture, a roll-over of book values that is neutral in terms of taxation of unrealised gains requires that all essential operating resources be transferred as well. In most cases, business premises are essential operating resources and often stand in the way of restructuring. Either they cannot or should not be transferred, or their transfer would trigger RETT (especially in corporate groups). The solution may be to transfer the real estate asset to a partnership SPV before the actual reorganisation. It is then no longer an essential operating asset of the business.
- In the case of business successions, real estate assets of the are often not to be gifted or bequeathed together with the business in order to enable compensation for other heirs. If business properties are essential operating assets, not only would the business asset allowance for inheritance and gift tax be lost in such a case. Unrealised gains would also be charged to taxation. This applies not only to sole proprietorships, but also to businesses in partnerships. It can also affect real estate assets owned by a partner if it is the partner’s special business assets. Here, too, the solution may be to transfer the land to an partnership SPV.
- If a real estate asset owned solely or jointly by the parents is to be transferred to the children not in its entirety but in stages, it is advisable to transfer it to a family partnership. Shares in a partnership can be transferred to children more easily, especially if this is to be done in stages. Despite the transfers, the parents can also retain control over the assets by means of voting rights and management.
- All of these transfers would be subject to RETT without Sections 5 or 6 of the RETT Act.
Conclusion
It is worth considering transferring real estate asset to partnerships now, as these transfers will be subject to real estate transfer tax after 31 December 2026. Even if succession planning or restructuring is not currently an issue, partnership SPVs and family partnerships can provide options for the future.
Summary of the key facts
- Real estate transfer tax exemption for real estate asset transfers to partnerships will no longer apply from 1 January 2027.
- Real estate asset transfers to partnerships are often very useful In succession plannings and corporate reorganisations.
- It is worth implementing this by 31 December 2026, even if it is only to retain options for the future.
