The adoption of the bill on the cantonal property tax for second homes marks the end of the imputed rental value. However, the change will take effect in two to three years at the earliest and will fundamentally change the everyday lives of many of those affected. Not only owners of owner-occupied and rented properties will feel the effects, but also households with debts without property ownership.
Simplifications and exemptions
With the abolition of the imputed rental value, maintenance costs and debt interest will also no longer be tax-deductible. However, to make it easier to purchase residential property, special rules apply for the first ten years after purchase. Debt interest of up to CHF 10,000 for married couples and CHF 5,000 for single persons is still deductible, but the remaining maximum amount is reduced by ten percent per year.
Tax declarations will be simpler and the tax burden for many homeowners will fall in the current interest rate environment. Value-preserving and value-enhancing costs should be properly documented, as in future they can only be claimed when property gains tax is paid, i.e. when the property is sold.
More restrictions on the deduction of debt interest
Owners of investment properties are particularly affected by the reform. Interest on debt can now only be deducted in proportion to the value of the property in relation to total assets. This increases the tax burden and significantly limits the previous advantages.
Taxpayers without real estate
Households without real estate are also affected. Private debt interest, for example for loans or small loans, may no longer be offset against tax in future. This turns previous practice on its head and may lead to higher tax payments.
Uncertainties and cantonal competence
The cantons will have the option of levying a special property tax on second homes. This is a particularly sensitive issue for regions with a high level of tourism, as new taxes can affect the attractiveness of the market. It remains to be seen what the specific assessment bases will look like and which cantons will make use of the new options.
The cantons can continue to allow temporary deductions for energy-efficient renovations and environmental protection measures until 2050. It is not yet known which cantons will offer this.
Strategies for mortgages and investments
The reform not only affects the tax rate, but also personal financial strategies. The question of how high mortgages should be set in future and whether amortization makes sense is becoming increasingly important. Anyone who uses capital for amortization ties it up in the property and loses liquidity for other purposes such as retirement provision or new investments. The decision on the optimal financing therefore requires individual consideration.
Effects on the real estate market
Whether the reform affects prices depends above all on the situation of new buyers, the majority of whom are highly mortgaged. According to SNB statistics, 40 percent of newly purchased homes are financed at over 74 percent of their value. Older properties in particular continue to lose tax advantages due to the limited deduction options. New condominiums in the canton of Zurich are on average 20 years old, single-family homes even around 50 years old. The fundamental challenges of high prices and scarce funds for acquisition remain unresolved by the reform.
The abolition of the imputed rental value promotes the price difference between new buildings and older properties. Second homes are likely to become less attractive as a result of the new property tax, but experts do not expect prices for vacation homes to fall, as the supply shortage is too great.
Prices for Swiss homes could rise by 4% this year and 4% next year, and by as much as 4.5% in the canton of Zurich. Renovating and maintaining the value of old buildings is becoming more important than ever, but not every investment pays off. Homeowners need to keep a keen eye on their long-term strategy: Is refurbishment worthwhile or is a new replacement building imminent?
Reform as a joint project
The changes are based on a close link between legislative and constitutional amendments. The abolition of the imputed rental value will only come into force if the referendum on the new property tax on second homes is successful. Parliament discussed the scope and form of the tax intensively for months. In tourist cantons in particular, there is a great deal of skepticism as to whether reduced revenue can be offset by new taxes. The laws come into force together, a reform with many facets.
Tax and financial effects at a glance
The mortgage interest rate determines whether owners benefit. If interest rates are low, the tax burden falls for the majority. If interest rates are high, taxes increase because interest on debt can hardly be deducted any more. For the public sector, the reform could result in a loss of revenue of CHF 1.8 billion. From 3 percent mortgage interest, however, additional revenue is possible for the state as a whole. The actual effects remain unclear for the time being due to various uncertainties.
