Homeowners currently pay income tax on the imputed rental value of the home that they live in. Several attempts have already been made to abolish the imputed rental value. Whether initiated by the Federal Council, parliament or popular initiatives, all attempts have so far failed. We have summarised the key facts here – to help you live a self-determined life in your own home.
Abolition of the imputed rental value has been under discussion for more than 20 years. There is broad support for a revision of the income tax payable on the imputed rental value of property. However, the form this change should take still remains unclear and depends on the individual details of the draft bill, as abolition of the imputed rental value would eliminate certain deductions for homeowners. Loan interest and second homes are also issues under discussion in the current draft bill. There is disagreement about how the system change should be carried out.
What is the imputed rental value?
The imputed rental value is a rental price for self-occupied properties. It is based on the assumed revenue that would be generated if the property were not occupied by the owner but rented or leased to another party. This notional revenue is subject to income tax and must be declared in the owner’s tax return. Homeowners therefore pay additional income tax on the imputed rental value. On the other hand, mortgage interest and maintenance costs can be deducted from taxable income, thus reducing income tax.
How is the imputed rental value calculated?
The imputed rental value is 60–70% of the amount that a tenant would have to pay to rent the property. The imputed rental value is calculated on the basis of the tax value of the property and the imputed rental value rate in the respective canton, less mortgage interest and any maintenance costs (a flat rate of 20% of the imputed rental value).
The following illustration shows how the imputed tax value is calculated:
The illustration shows that the imputed rental value and its deductions are influenced by various factors. The imputed rental value depends on the property’s tax value and the imputed rental value rate in the respective canton. The costs for maintenance may be higher or lower depending on the property, which means that more or less can be deducted. If interest rates rise, the mortgage interest payable increases, which can also reduce income tax as more can be deducted from taxable income.
The extent to which owners would or would not benefit from abolition of the imputed rental value therefore depends on their individual situation.
What are the advantages/disadvantages of abolishing the imputed rental value?
The following advantages and disadvantages are based on the current reform in which abolition of the imputed rental value is also intended largely to eliminate existing income tax deductions. The only remaining deduction would be the cost of historical preservation work.
Advantages
The abolition of the imputed rental value will primarily benefit homeowners who have almost entirely paid off their mortgage and do not have to invest much in maintaining their home. These people are generally paying higher taxes at present as they can hardly deduct anything from their taxable income in their tax return.
Disadvantages
The abolition of the imputed rental value will be a disadvantage for those homeowners who are currently paying high mortgage interest and investing in the renovation and maintenance of their property. If the imputed rental value is abolished, these costs would no longer be deductible, which would in most cases lead to higher income tax.
What would abolition of the imputed rental value entail?
The imputed rental value system currently favours property owners with mortgage debt who are not repaying it over a prolonged period of time. People paying off a mortgage at a high rate of interest can deduct more from their income tax. In some situations, there is therefore little incentive to repay the mortgage, leading to a relatively high debt ratio. Abolition of the imputed rental value under the current reform proposal could encourage owner-occupiers to reduce their debt further and pay off their mortgages in the future, as the loan interest would no longer provide the same tax advantages.
Will the imputed rental value be abolished or not?
The imputed rental value has long been a topic of discussion. Originally introduced in 1934 by emergency law as a so-called “Swiss crisis levy” to stabilise the federal budget, it was incorporated into regular law in 1958. Switzerland is one of very few countries to impose tax on the imputed rental value.
So far, the National Council and the Council of States have failed to agree on a solution. In November/December 2023, parliament made a fresh attempt to abolish the imputed rental value. If it is to be abolished, the National Council proposes that loan interest be deductible up to a maximum of 40% of taxable investment income, while the Council of States favours a rate of 70%.
However, there are still uncertainties regarding the taxation of second homes and the calculation of interest on debt. So the discussion as to whether the imputed rental value will be abolished is not yet over. The decision is being discussed again. However, it is still unclear when the next round will take place.
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