Abolition of the imputed rental value – change of system in view!
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After the economic commission of the Swiss Council of States (WAK) als the commission for economic affairs and taxes of the National Councel (WAK-N) has decided on august 15, 2017 to push ahead the system change.
The imputed rental value is a fictional rental income on the property in which the property owner lives. In return debt interests paid and maintenance cost can be deduction in the tax declaration.
Approximately 1.5 Million house owners in Switzerland have to pay taxes on income which they never receive. It is not surprising that they have difficulty to understand the respective reasons. Already in the past this has provoked parliamentary requests on a regular Basis. Their idea an goal was usually to abolish this tax practice which was seen as unfair by the home owners.
Although the imputed rental value is a political nuisance it has to be admitted that its idea – in combination with the mentioned deduction of interest and maintenance – leads somehow to an equal treatment of home owners and tenants. Therefore, it is in line with the constitutional commandment of the principle of taxation according to economic performance.
The taxation of the imputed rental income is considered unfair in wide sections of the population. Especially people that have amortized their mortgages feel disadvantaged as the fictional income is more significant because they cannot offset any interest against it. Therefore, in Switzerland the imputed rental income sets an economic incentive not to amortized mortgage debts. This leads to a record indebtedness of private households (whereof 90% mortgages) which makes the Swiss economy vulnerable to crisis.
Since the imputed rental value is considered unfair and has several side effects which are economically not welcome the Swiss parliament rightfully has taken a new attempt to change this inconvenient part of the tax system.
In the past, several attempts for a system change fail due to different particular interests. This time the signs are much better. Due to the very low interest rates also the Swiss association of home owner (HEV) pushes a system change and is ready to make concessions. As it looks like a “clear” system change (abolition of imputed rental income as well as interest and maintenance deduction on self-inhabited property) the change has a realistic political chance.
In principle, all involved parties agree that the imputed rental income shall be abolished. However, there is a certain uncertainty about whether such change is capable of achieving a majority. Your question will gladly be answered by our tax expert Christian Lingg.
