German Mortgage

Taking on a buy-to-let mortgage in Germany? What you should know about taxation and leasing

Because of sinking interest rates and a volatile stock market, buy to let properties have become very interesting investment objects. In addition, as a result of the growing demand for rental properties in Germany, renting properties has become a great source of income. In this article we will explain the basic concept of buy to let mortgage, as well as the following topics:

  • Which taxes apply for buy to let mortgage or investors?
  • What are some tips and tricks for buy to let investors?

Which taxes apply for buy to let mortgage or investors?


As soon as you want to rent an apartment or a house you own out to third parties, you will have to pay taxes on the rental income. That’s because German law requires every person to tax their income, no matter the type.

In Germany, the interest on mortgages for owner-occupied properties isn’t tax-deductible. However, if you have properties for rent in Germany or if you invest in a buy-to-let object, then you can offset any expenses resulting from generating rental income against your taxable income from rent. This includes mortgage expenses as well as costs for maintenance, improvements and repairs. There is one special clause regarding expenses for improvements: if they are bigger than 15% of the value of the property, they have to be added to the allowable depreciation. The standard rate for depreciation of rental properties is 2% for 50 years, or 3% over the first 8 years in case it is a house that was built new. The rental interest is subject to the following standard progressive income tax rates:

Taxable income, (€) Tax Rate
Up to €8,652 0%
€8,652 - €52,881 14% - 42%
€52,881 - €250,730 42%
Over €250,730 45%

After calculating the rental income tax, a solidarity surcharge of 5.5% is added.

Foreign property owners that sell their property within 10 years are subject to capital gains tax. These capital gains are included in the annual income of the property owner in the same year the property was sold. So as an example, if a property owner sells his property after nine years for a profit of € 200,000, this amount will be subject to a tax rate of 42%. If the same owner held his property for at least 10 years, then this profit would not be subject to any tax.

In regards to rental property, any profits over € 801 are subject to a tax rate of roughly 28% plus a solidarity surcharge. Once again, any profits from a sale of the property are only taxed if it is sold within 10 years of purchase.  

What are some tips and tricks for buy-to-let investors?


In order to turn a buy to let mortgage into a profitable investment, it should be rented out appropriately. As the property owner, the design of the rental agreement is your responsibility. Inform yourself comprehensively about your rights and obligations as landlord.

In Germany, the minimum tenancies can be very long. Thus, it’s not unusual that a landlord requests a lease period of at least two years for new tenants. When creating the lease agreement, ensure that it contains all the relevant details. Likewise, make sure you’re aware of the conditions that must be in place for the agreement to end prior to the end of the contract period.

In most cases, tenancies don’t have a specified duration. That means that as soon as the tenancy starts, the landlord can only end it through eviction of the tenant. This has to be done through a court ruling or by giving the tenant a notice of at least 3 months. The tenant then has the right to contest this notice. In case the landlord’s reason for giving notice is justified, there is a high chance the tenant will not accept it. An exception would be a special clause in the tenancy agreement.

If the landlord has a good reason for wanting to end the tenancy after a certain period of time, e.g. because he needs to use it himself or plans to sell it, then a limited contract exists.

In either of these cases, the tenant can give notice based on what’s specified in the contract. The usual notice period is 3 months. All this information is crucial for making a buy to let mortgage a good investment.

Right of inspection

The tenant holds domestic authority. The landlord may not enter the property without the tenant’s consent. While an explicit regulation in the rental law is missing, the tenant has to accept an inspection in case of justified interest by the landlord. If he fails to do so, the landlord can enforce this in a court of law.  

Rent amount

The rent amount is specified in the rental contract. In case of new contract, it can be negotiated freely (except for rent-controlled apartments) and can be above the customary comparative rent. However, according to §5 of the German criminal law, the rent shouldn’t be more than 20 percent above the average rent.

Later increases in case of existing tenancies are tied to strict legal regulations (§ 557 ff BGB) and the customary comparative rent as an upper limit.

Important: In 2015, updates on the possible rent amounts were realized in some German cities through the so-called rent break. It is planned that additional cities will follow. If you’re planning on buying a buy-to-let property or if you calculate rent income for financing the property, you will have to recalculate in the concerned cities. In case of re-letting in tense housing markets, a maximum of 10% above the customary comparative rent will be permitted in the future. The new provision came into effect in June 2015.

Rental contract

Rights and obligations, caution and rent amount – the written rental contract contains all major points. At a minimum, it has to contain the following information: the names of the contract parties, the description of the house or apartment (address, floor, location), the amount of the rent and the start of the tenancy. The rental contract has to be signed by both parties.

In most cases, preformulated contracts are used for the letting of apartments (usually by associations). The advantage is that they factor in current legal changes. Depending on duration and the amount of rent, there are different forms of rental contracts. 

Our LoanLink mortgage advisors are happy to answer any questions. Our goal is to help you find the best loan.

You may email us at [email protected] or by phone +49 (0) 30 5683 7535. You can also start with the LoanLink mortgage illustrator here:

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