SWITZERLAND – RENTAL VALUE: ACTUAL TAX ON FICTITIOUS INCOME

In Switzerland, tax burdens are heavier for those who own their own homes. The taxation of what is known in tax jargon as the ‘rental value’ is a uniquely Swiss feature. Several attempts to abolish this system have already failed. But the issue has resurfaced and is set to spark a lively debate.

In Switzerland, the tax on imputed rental value is a predatory tax that primarily penalises the very few middle-class homeowners who, upon reaching retirement age, find themselves forced to sell their house or flat to avoid being completely ruined.

In fact, this tax is a form of legal extortion in a country where the vast majority of the population cannot afford to buy their own home.

The very few who manage to do so go into debt for life and know that they will never be able to pay off the mortgage precisely because of this tax on notional rental value.

A tax on a notional rental value in the world’s most expensive country, where rents are among the highest in the world... what a brilliant scheme... for the taxman!!

Let’s not forget that Switzerland also has a wealth tax… something even France has abolished…

So is Switzerland a tax haven? Certainly, but a ‘tax haven’!!!

And what about heirs? A word of advice: make gifts during your lifetime, or sell at the best price and invest elsewhere, where you’ll get much better returns and far greater protection for your property assets!

Alain Farrugia

When filling in their tax returns, Swiss residents living in their own flat or house must complete a section entitled ‘rental value’. This is a notional income corresponding to the income the owners would receive if they were to let their property.

Memories of the First World War

This notional income is added to the taxpayer’s actual income. As a result, their tax base increases and they have to pay more tax.

This rental value was introduced during the First World War. It was intended to compensate for the Confederation’s customs duties, which had collapsed as a result of the conflict.

Intended to be temporary, this rental value was regularly extended until it became permanent in 1958.

Rental value: Abolition would make some people happy and others unhappy

The idea of abolishing the rental value is not new. But so far, all attempts have failed, as such a proposal is highly divisive.

Equal treatment

The rental value also aims to establish a degree of equal treatment among all taxpayers, whether they are homeowners or tenants, given that the latter cannot deduct their rent from their income on their tax returns.

In return for the taxation of the rental value, homeowners are entitled to deduct mortgage interest from their income, as well as the costs of maintaining or renovating their property.

So, does the rental value represent an additional tax burden for homeowners? Well, it all depends on the situation.

For an older homeowner, for example, who no longer has a significant mortgage burden and is no longer carrying out renovation work, the rental value clearly constitutes an additional tax burden that may be perceived as unfair.

On the other hand, for a homeowner with a substantial mortgage or who owns a property requiring major renovations, the system can be advantageous and may even lead to a reduction in the tax burden, if the amount of interest or renovation costs exceeds the rental value.

A sensitive issue

Calls for the abolition of the rental value are regularly heard. Among the most frequently cited complaints are that it artificially and unfairly increases the tax burden on homeowners, and that it encourages them to take on debt. This is a problem given that the Swiss are among the most indebted people in the world, mainly due to mortgage debt.

But so far, all attempts have failed, both in Parliament and at the ballot box. The last referendum took place in 2012. At that time, voters rejected a proposal to abolish the rental value for retired homeowners.

The Economic Affairs and Taxation Committee (CER) of the Council of States has returned with a new proposal to abolish it. The proposal applies only to main residences and would not affect second homes. The proposal, which aims to be balanced, sets out several options.

Balance is in fact the key to success in this highly sensitive matter. In particular, care must be taken not to give the impression of giving a ‘gift’ to homeowners in a country where around two-thirds of the population live in rented accommodation. Carlo Sommaruga, a Socialist MP and president of the Swiss Tenants’ Association (ASLOCA), has, for example, already warned that his organisation will veto any proposal that is unfavourable to tenants.

However, it will be impossible to please everyone. With the abolition of the rental value allowance, there will inevitably be winners and losers.

The proposal is now entering the consultation process. It will then be debated in Parliament and possibly put to a public vote. There is no doubt that the issue of imputed rental value will occupy Swiss politics for several months to come.

Source: Swissinfo.ch