Engel & Völkers Licence Partner Malta Regional Market Center > Blog > When is a holiday home deemed a second residence?

When is a holiday home deemed a second residence?

A holiday home on the Baltic Sea or a weekend retreat in the countryside for own use are generally to be regarded as second residences. If, on the other hand, the holiday home is used exclusively for rental purposes, it is definitely not a second residence. In fact, an investment in holiday property can become a commercial property when certain income limits are reached. In both cases, the question of whether this constitutes a second residence is easy to answer. The situation is different if the property owners use their holiday home for themselves on weekends or during holidays and rent it out during the rest of the year.

 Birkirkara
- When is a holiday home deemed a second residence?

Is a holiday home as a second residence subject to registration?

A holiday home for any private use must be registered as a second residence, regardless of whether it is rented or purchased. Registration must be made with the residents' registration office at the location of the holiday home within 14 days of moving in at the latest. The island of Sylt, for example, requires registration within one week of the purchase or rental of the holiday property. This also applies if the holiday home is located in the same city as the primary residence. Furthermore, as far as the obligation to register is concerned, it is irrelevant whether the owner uses the holiday home exclusively for personal purposes or in addition to renting it out. Holiday homes as second residences abroad, on the other hand, are not subject to registration in Germany. If the holiday home is rented out exclusively and the owner does not use the property personally, it is not classified as a second residence.

What happens if I have a primary residence abroad and a second residence in Germany?

The obligation to register applies equally to owners of holiday homes who have their primary residence abroad. However, some registration offices do not require you to register a second residence in Germany if you have an address abroad. In this case, the owners do not register their holiday home as a second residence, but as their primary residence in Germany. This is regardless of how often they are actually in Germany. This means that there is no second residence tax, but a tax liability may arise if there is no double taxation agreement with the foreign country. In all other cases, the respective municipality may charge a second residence tax if provided for in its bylaws. Until 2013, this was regulated by the certificate of freedom of movement. Since it was abolished, the local authorities can decide for themselves in this regard.

Which holiday properties are suitable as second residences?

In principle, all types of real estate can serve as a second residences. Whether it is a holiday apartment, holiday home or student apartment, it is not the type of property but its use that is decisive for classification as a second residence. Only in the case of renting out individual rooms does the classification differ depending on the municipality. While some already classify a room as a second residence, other municipalities require a self-contained residential unit or at least an integrated bathroom. If in doubt, consult your local municipality for more information.

What costs apply for a second residence?

Similar to a primary residence, a holiday apartment as a second residence also incurs at least the usual utility costs and the levies. The levies cover the running costs and maintenance of the apartment building in which the second residence is located. In addition, there may be costs for the gardener who takes care of the garden in a holiday apartment with shared garden. The cleaning staff, who carry out the final cleaning after the rental or a monthly cleaning, also costs money. If the second residence is a rented holiday apartment, there is of course also the rent to pay. Long-term contracts such as internet, telephone or pay TV continue to run, even when the holiday apartment is standing empty.

Do you pay second residence taxes everywhere?

Whether taxes are payable for a second residence depends first of all on the respective municipality. This is because cities and municipalities are allowed to charge a second residence tax for the use of infrastructure, but they are not required to do so. The basis for calculating the second residence tax is in any case the annual net base rent, which in the case of real estate property is assessed according to the standard local rent. Each municipality can individually determine the amount of the second residence tax. Munich, for example, has been charging 18 per cent of the annual net base rent since this year, thus doubling the tax compared to the previous year. In Hamburg it remains at eight percent. 

Berlin even tripled the tax from five percent to 15 percent in 2019. However, the tax level has remained stable since then. The island of Sylt applies a tax rate of six percent for a second residence. Due to the high owner-occupancy rate, the Sylt municipal authorities take into account the degree of owner-occupancy, size, year of construction, location and type of building as an alternative to the net base rent when determining the tax rate. In Jena, on the other hand, the municipality does not charge any second residence tax at all. These examples show that the tax for second residence is regulated very differently across Germany.

Who is exempt from the second residence tax?

Some groups of persons are exempt from paying a second residence tax. This applies to married workers who need a second residence at the workplace during the week and whose family lives at the primary residence. Accommodation in a nursing home, old age home or in a hotel as well as other communal accommodation is also not subject to the second residence tax. Young people under the age of 16 are also exempt. The federal state of Bavaria goes one step further and only taxes the users of a second residence if they have an annual income of more than 25,000 euros. Moreover, owners of a holiday home are exempt from second residence tax if there is no owner-occupancy whatsoever. If, for example, the owner spends three weeks a year holidaying in his apartment, this constitutes owner-occupation and is thus subject to tax.

Do I have to pay taxes for several second residences?

According to section 21 of the Federal Registration Act, every dwelling in addition to the primary residence is deemed a second residence. This means that regardless of whether there are one or ten second residences, each holiday home is assessed individually. If all properties are located in places where a second residence tax is levied, the respective amount must be paid in each place. In this case, too, this only applies if the holiday homes are purely second residences and not investment properties for rental. If you sell a holiday home you used personally, you should inform the residents' registration office immediately so that you no longer have to pay tax on it.

Is the second residence tax payable for the whole year if it is only used occasionally?

Some cities charge the second residence tax by the day, others by the month. For example, if you register your apartment on the 15th of a month, you are charged for half the month in the first case and for the full month in the second case. On the other hand, the municipalities do not care whether you only use it only during the holiday season or every weekend. This does not affect the amount of tax to be paid. Nevertheless, some municipalities take into account the extent to which the second residence is available to the owner. This is calculated on the basis of the duration of the rental or the days on which the holiday property is vacant. For example, anyone who lets their holiday home in Westerland on Sylt for less than 180 days a year pays the full tax. With more than 270 days of rental, the availability rate is still 30 percent.

When must the second residence tax be paid?

The payment dates and other modalities vary as much as the tax rates. Some municipalities collect the second residence tax in advance for a whole year, others set payment dates for July. The Hanseatic City of Hamburg allows for quarterly payment, while Cologne has set a half-yearly payment. Property owners or tenants of a second residence must in any case submit a second residence tax declaration to the relevant tax office once a year for tax assessment purposes. The deadline for the tax return is also set by the municipality.

What are the disadvantages of a second residence?

Buying a holiday home in a prime location on the Baltic Sea or on the island of Sylt requires a corresponding amount of capital. Of course, there are cheap second residences to buy elsewhere, but they bring in correspondingly lower rents if the intention is to rent them out. But the return on investment can be similar in both regions. A holiday home for own use must be registered in Germany in any case. Depending on the municipality, the second residence tax can amount to a few hundred euros based on the standard local rent, and considerably more for large properties. Moreover, a holiday home costs money all year round. Even if there is no electricity consumption, the energy suppliers charge a basic fee. And the refuse collectors come whether there is rubbish to be collected on your doorstep or not. If you also rent out your second residence, you will have to pay cleaning costs, fees for receiving guests and agency fees. If you get bored with going to your own holiday home year after year, you still have to pay the utilities for your holiday home when you go on a long-distance trip, for example.

What are the advantages of a holiday home?

Many people dream of having their own holiday home in Germany or in other countries in Europe. With a holiday property for own use, the holiday is usually more comfortable and easier to enjoy. The holiday home is furnished according to your own preferences, and it is also situated in a location of your own choice. The second residence is usually equipped with basic necessities, be it clothing, bed linen, towels or crockery. Owners of a holiday home can equip their kitchen with everything they need. Travelling is then done with minimal luggage and in a much more relaxed way than when staying in a hotel. A self-contained holiday home also offers plenty of privacy. Families can enjoy their holiday carefree, as the holiday property is child-friendly and equipped with the right toys. 

The coronavirus has made many travellers aware again of how important the safety of their own home can be on holiday. The popularity of holiday properties as second residences has risen sharply accordingly. Moreover, a holiday property is a capital investment that pays off doubly in times of low interest rates. In many holiday regions, property prices for second residences have been rising steadily for years. Thus, a holiday home can not only be used for holidays or weekends, but also as an old-age provision or even a retirement home. Because while financing is currently available at extremely favourable rates, the increases in the value of a property are sometimes enormous. If owners rent out their holiday home during the time they are not using it, the rental income helps to build up capital. In the best-case scenario, a holiday home also generates an attractive return on investment, adding to the appeal of the property in addition to the free holiday.

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