The end of the road for the controversial homeowner tax?

The systemic change will reduce tax revenue by up to 1.8 billion francs.

The imputed rental value in the Swiss taxation system is an international anomaly. It applies to anyone who has purchased a house or apartment for their own use. The government views the value of these properties, on which no rent is paid, as a type of income in kind and therefore taxable. This is justified on the grounds of fairness. Homeowners, however, consider it unfair to have to pay just for living in their own homes. The Swiss Homeowners’ Association (HEV) considers it a type of made-up tax with no real legitimacy.

At the same time, the official imputed rental value is usually well below the market price that could be charged when renting to third parties. The government also grants certain tax perks to homeowners. For example, the mortgage interest and costs incurred in maintaining the property are tax deductible.

The imputed rental value has been a political bone of contention for decades. However, all attempts to do away with it have failed, either in parliament or at the polls. In 2012, voters rejected the HEV initiative “Secure living in old age”. The idea was to exempt pensioners from paying for the imputed rental value, as the elderly often benefit from far fewer tax breaks and have to pay more tax as a result. However, a majority of the people and cantons did not support this privilege for pensioners.

A new attempt at systemic change

The parliament is now working towards a fundamental systemic change for everyone by doing away not only with the unpopular imputed rental value, but also with the tax-deductible expenses. This would lead to the state losing up to 1.8 billion Swiss francs in tax revenue in one fell swoop. This calculation is based on the current low mortgage rates averaging 1.5 per cent. If interest rates were higher, the foregone tax would be lower. The reform would balance out at an interest rate of 2.8 per cent.

The impact on the state coffers is the main reason why the left is against the proposed reform: if the state has to make do with less, the people have to pick up the tab, they argue.

The tourist regions are also against it: the imputed rental value is to be abolished for second homes, not just primary places of residence. The cantons of Grisons and Valais alone stand to lose from 120 to 140 million francs a year, as so many holiday homes are located there. To make up for the shortfall, the parliament intends to allow the cantons to introduce a property tax on second homes. That would require an amendment of the Federal Constitution, which goes to the vote on 28 September (see box).