Rental Value: Definition
In the canton of Vaud, if you own a property that you live in, you will be affected by the rental value. Rental value in Switzerland is seen as income car elle correspond au loyer que vous toucheriez si vous mettiez le bien en location.
But why is rental value considered as an income? The Swiss government assumes that being an owner is more advantageous compared to being a renter who must pay rent each month.
Indeed, owners are allowed to deduct different spendings relating to their property from their taxes, such as:
- Renovation costs
- Interest on mortgage loans
- Possible maintenance costs
Rental value was introduced to balance out the fiscal situation of renters and homeowners. It is also important to determine tax on property income.
How to Calculate the Rental Value in the Vaud Canton?
Let's take for example a house in Lausanne, in the canton de Vaud, the value of which is estimated to be 1’500’000 CHFand for which a mortgage of 1'200'000 was made, with an interest rate of 2,5%.
The rental value for a similar property is around CHF 50,000. Let's also assume that taxable income is CHF 200,000.
Calcul de la valeur locative
Since the rental value is usually 65% of the rental value of similar properties, so we can do the following calculations:
50′000 × 0,65 = 32′500 CHF
Calculate deductions
To go further, you can also calculate deductions such as mortgage interest and maintenance costs to see how much the rental value can be reduced:
Mortgage interests (2,5 % de l’hypothèque de 1’200’000 CHF) : 1′200′000 × 0,025 = 30′000 CHF
Maintenance costs (20% of the rental value) : 32′500 × 0,20 = 6′500 CHF
Calculation of taxable income with rental value
The calculations are as follows:
Initial taxable income : 200’000 CHF
Taxable income with rental value : 200′000 + 32′500 − 30′000 − 6′500 − 4′000 = 192′000 CHF200’000 + 32’500 – 30’000 – 6’500 – 4’000 = 192’000 CHF
Increase or decrease in annual expenses: This depends on the initial calculation of the net charge. For this example, let's take a hypothetical decrease of : –1’200 CHF.
In short:
- Rental value: 32'500 CHF
- Taxable income with rental value: 192'000 CHF
- Annual decrease in expenses : -1'200 CHF
Discussions around the Removal of the Rental Value
In the Vaud canton like in the rest of Switzerland, the concept of rental value has often been criticised.
Although removing rental value altogether would have its advantages for owners, it could also have negative side effects.
One of the negative aspects could be a reduction in fiscal deductions for homeowners.
How to Reduce the Rental Value?
Although the reduction in rental value in the canton of Vaud has its limits, it is generally possible to reduce this amount.
Renovations
If you do house renovations in your home and that it is consequently uninhabitable, you can generally reduce the rental value of the property.
Property revaluation
You can also regularly have the value of the property reassessed to see if it can be revised downwards. What's more, if you're not using all the rooms in your property, you can also potentially ask for a reduction..
In the canton of Vaud, rental values are adjusted periodically (for example, if market prices rise). If you feel that the authorities have not correctly assessed the rental value, you can lodge an appeal free of charge.
Frequently Asked Questions
What is rental value and why is it taxable in Switzerland?
Rental value is a notional income calculated by the Swiss tax authorities for property owners. It represents the amount they could theoretically earn if they rented out their property. This income is taxable, as it is considered a financial benefit linked to home ownership.
How do you calculate the reduction in rental value for underutilization?
To calculate the reduction, multiply the basic rental value by the number of rooms actually used (including ancillary rooms) and divide the result by the total number of rooms in the dwelling. This calculation is accepted for direct federal tax, but not always for cantonal taxes, depending on the region.
What are the criteria for obtaining a reduction in rental value in the canton of Vaud?
In the canton of Vaud, under-utilization must be long-term to be recognized for direct federal tax purposes. For example, if a family member moves house and a room becomes unused over the long term, a request for review may be considered.
Why is it advantageous to reduce rental value?
Reducing rental value means lower taxable income, which can lighten the tax burden. This is particularly beneficial for families or owners on fixed incomes, such as retirees, who no longer occupy all the rooms in their home.
Can rental value be reduced without renovations?
Yes, the rental value can be reduced without renovation work if certain rooms are no longer used on a long-term basis. In the canton of Vaud, it is possible to request a revision for under-utilization, but only for direct federal tax purposes.
