Abolition of the imputed rental value

The abolition of the controversial imputed rental value is an issue that has been occupying politicians and society for decades. It was introduced in 1934 as an emergency measure to boost the state coffers, which were empty at the time. Ninety years later, the imputed rental value remains in place, demonstrating once again that once a tax has been introduced, it is almost impossible to abolish it. However, there are now new movements toward abolishing the imputed rental value. We are therefore taking this opportunity to take another look at this perennial issue.

What is the imputed rental value

In order to even discuss the abolition of the imputed rental value, we first need to know what the imputed rental value actually is.

In essence, the imputed rental value is a fictitious value. It is income that does not actually exist and is not received by homeowners. In principle, the imputed rental value should amount to around 60% to 70% of the amount that tenants would have to pay for the property in question. The owner-occupied property value is justified by the fact that a person who has purchased their property does not have to pay rent. This saving on rental costs reduces the cost of living, which in turn results in an indirect increase in wealth. The resulting income is added to the income in kind and ultimately also to the taxable income. However, homeowners are not completely disadvantaged. Mortgage interest and maintenance costs (or costs related to environmental or energy-saving measures) can be deducted in the tax return.

Here is a sample calculation:

Tax value of property: $800,000

Imputed rental value 3.5% of the tax value in the canton of Zurich: $28,000

Less maintenance costs, flat rate of 20% of the imputed rental value: -$5,600

Less mortgage interest 1.5% (mortgage amount 600,000): -9,000

Additional taxable income: CHF 13,400

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Why would anyone want to abolish the imputed rental value?

As mentioned in the previous section, homeowners have to pay tax on income they do not actually receive. Many consider this unfair, as homeowners often fall victim to progressive taxation, especially since they are often better off financially. If this were compared to a tenant, it would mean that a wealthy tenant would have to pay more tax than a relatively poor tenant, even if both lived in exactly the same property.

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Abolition would be bad for Swiss tourism

The abolition of the owner-occupied property value is causing concern, especially in tourist cantons. This is because the owner-occupied property value is also levied on second homes and vacation homes. This provides cantons such as Ticino, Valais, and Graubünden with revenue that would otherwise be lost. Of course, there are solutions to this, such as a property tax. However, this would have to be regulated at the cantonal level, which in turn could put certain cantons at a disadvantage in terms of their attractiveness for the purchase of second homes.

Furthermore, the possibility of deducting maintenance costs would also be lost, which could lead to a deterioration in the visual standard of real estate in Switzerland. In a country like Switzerland, which attracts many tourists with its charm and atmosphere, this could have negative consequences.

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Conclusion

The owner-occupied value and its abolition is a complex issue. On the one hand, it is a fictitious value that homeowners do not want to pay, but on the other hand, there are no sensible and fair alternatives. The issue is also politically sensitive. When a tax is abolished, the state loses revenue, which may lead to tax increases in other areas. Whether and when the imputed rental value will actually be abolished is therefore still unclear.

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