Imputed rental value: This is what you should know.

I couldn't help but wonder: does the dream of rent-free home ownership only exist in fairy tales...?

Imagine Cinderella finally moving into her picturesque Swiss castle. And then she suddenly has to pay taxes instead of rent for her new home. This is exactly what the imputed rental value means in Switzerland: a tax that is not exactly fairytale-like, especially for new homeowners. We explain what the imputed rental value is and how likely it will soon be abolished.

We also consider whether the dream of owning your own fairytale castle is worthwhile - or whether we would be better off moving back into a rented flat, glass shoes and all.

What is the imputed rental value? Where the shoe pinches.

If you buy a property in Switzerland for your own use, you cannot ignore the imputed rental value. This is a fictional rental income that owners who live in their own property must pay tax on alongside their other income. In principle, it's like buying a pair of shoes - and then paying to wear them.

Originally, the imputed rental value was intended to equalise the advantage that owners have over tenants: The former can save money each month, while the latter have to cope with higher fixed costs. Such an arrangement is not common outside the Swiss tax system,but there is a very similar system in the Netherlands, for example.

At first glance, the imputed rental value may sound fair - at least to tenants - but over the years a great inequality has developed among owners. This is mainly due to the way the imputed rental value is calculated. Somehow it is reminiscent of Girl Math (for example, the pumps that were virtually free because you paid for them in cash).

Calculating the imputed rental value

When you purchase a property to live in yourself, you will be notified of the so-called ‘property tax value’ or ‘cadastral value’ and, based on this, the imputed rental value by the municipal tax office. As is so often the case, each canton has its own method of determining these values. They are often calculated at the time of purchase and then not changed or hardly changed at all.

Anyone who has owned a house for decades often only has to pay tax on a very low imputed rental value. If the same property was bought today, the amount would be significantly higher. While the market value increases, the imputed rental value (often) remains the same. Over the last few decades, this has created a major inequality between old and new homeowners.

So it's difficult to calculate the imputed rental value yourself - and you still don't have to buy a property at random. Let's find out together what the tax implications of your fairytale castle would be. That way, you can make an informed decision as to whether you would rather invest in your next pair of shoes than in a home.

Deductions from imputed rental value - so it doesn't take our shoes off

From pumps to your own home, sometimes all you need are good arguments to justify a purchase. And there are some: you can claim various deductions from the imputed rental value in your tax return. This applies to mortgage interest, for example. The higher the interest, the higher the deduction. It is therefore not particularly high at the moment.

In addition, ongoing maintenance costs, energy renovations such as PV units and value-preserving investments can be deducted in order to reduce the imputed rental value. Under certain circumstances - if there are enough expenses - this can even have a positive effect on income tax. Incidentally, the impact on wealth tax is also positive for most taxpayers, but that's a different story.

These are value-preserving investments

It is particularly important to differentiate between value-preserving investments and value-enhancing investments. If you renovate an existing swimming pool, this is value-preserving, but if you build a new pool where there was none before, this is value-enhancing. You can deduct value-enhancing investments from your property gains tax when you sell the property.

Value-preserving investments are maintenance work and renovations that - as the name suggests - preserve the value of the property. It can be particularly worthwhile to buy a property in need of renovation for two reasons:

1. Firstly, you will hopefully have the chance of a lower purchase price for the property.

2. Secondly, large value-preserving investments can possibly lead to massive tax savings.

Depending on the construction volume and taxable income, a property in need of renovation can lead to tax savings of several hundred thousand francs. However, this does not happen by chance. As tax experts, we are happy to help youmake the fairy tale come true.

Big steps towards the abolition of imputed rental value

Perhaps in future it will also be called: "Once upon a time there was the imputed rental value." This is because many people feel it is so unfair that it is likely to be abolished soon. Parliament has already passed a bill to abolish it at the end of 2024. No referendum was held against it.

Now the abolition of the imputed rental value will be put to a popular vote on 28 September 2025. We do not yet know how the story will end. However, we should prepare ourselves for a happy ending, as craftspeople will quickly be fully booked afterwards, since many will probably still want to benefit from the possible deductions. So there is much to be said in favour of tackling the renovation of your home now, before the investment is no longer deductible.

Back to the cosy house shoes in your own home

A day in high heels is pretty exhausting. Especially when you have to deal with tax issues as well. However, as always when it comes to your tax return, you should not close your eyes to reality: Think about the imputed rental value when buying a property and keep all receipts when renovating. By the way, you don't need a prince for this if you have good tax advisors. We are happy to help so that your home doesn't turn into a tax nightmare.

And just like that, the dream of a (renovated) family home may no longer be a fairy tale after all...