Abolition of rental value in Switzerland
Abolition of rental value: parliament gives green light, but with possible cantonal tax on second homes
The rental value, officially called the ‘rental value for real estate for own use’, is a form of notional income subject to taxation in Switzerland. It corresponds to a percentage of the market rent for similar properties and must be declared as income in all cantons when the property is not rented out.
The tax authorities consider this value as taxable income even if the owner does not actually receive any rent.
The rental value is determined by the tax authorities and depends on factors such as the location and size of the property, often being lower than market rents but still influencing the taxes to be paid.
After more than seven years of debate in the 2024 winter session, the Swiss parliament decided to abolish the rental value for main and secondary residences, but the change will only be effective if a real tax on secondary residences is introduced at the cantonal level, necessitating a popular vote.
A bit of history
The rental value originated as an emergency measure to cope with economic crises and was first introduced in 1915, during the First World War.
In 1934, the Federal Council reintroduced the tax to restore the federal budget during the Great Depression. Originally, the measure was supposed to be temporary, but Parliament extended its application. With the outbreak of the Second World War, the tax was maintained to cover war expenses. In 1958, by popular referendum, the rental value became part of ordinary tax law.
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When is rental value subject to taxation?
Principal residence
Owners must declare the rental value if they live in their own house or flat: main residence is always subject to taxation.
Second or holiday home
Tax applies even if the property is not permanently inhabited. If the property is available for personal use, it is regarded as one’s own home and subject to rental value.
If the second home is rented out only for part of the year, the rental value is taxed in proportion to the periods when the property was not rented out. In this case, the rental income must still be declared as income.
Rented flats
The rental value only applies to non-rented real estate. If an owner rents a flat or house for the whole year, he is not subject to this tax, but must declare the rental income as taxable income.
How is the rental value calculated?
Cantonal tax authorities determine the calculation method, but the Federal Supreme Court has ruled that the rental value cannot be less than 60 per cent of the market rent.
Since tax management is cantonal, calculation methods vary. Some cantons rely on ‘comparable rents’, others on the real value of the property or the purchase price.
Most cantons set the rental value at 70 per cent of the market rent.
What the new reform provides for
- Abolition of the rental value for main and second homes
- Elimination of deductions for maintenance costs
- Reduction of mortgage interest deductions, with a new proportional-restrictive method
- Possible introduction of a cantonal second-home tax to compensate for the loss of tax revenue in mountain cantons
Next Steps and Popular Vote
The abolition of the rental value is conditional on the approval of the new tax on secondary residences, which requires a popular vote scheduled for autumn 2025 at the earliest: if the tax is not approved, the entire change could be cancelled.
Effects for Owners
The impact of the reform will depend on the individual situation
- Owners with high mortgages and significant maintenance expenses could suffer a tax worsening as they will lose important deductions.
- Those who have already amortised their mortgage will benefit from the elimination of the rental value by reducing their taxable income.
- The real estate market may suffer with a possible reduction in the value of older houses due to the loss of tax advantages on maintenance investments.
The transition will take at least two years and will depend on the outcome of the popular vote.
The abolition of the rental value represents a major shift in the Swiss tax system, but its real impact will vary depending on personal circumstances and future political decisions.
