On Wednesday 12 June 2023, the National Council approved a proposal for a new housing tax system to replace the rental value system. If this proposal is also approved by the Council of States, rental value will be abolished.
Table of contents
What is rental value?
Let's start at the beginning. Rental value is a concept in the Swiss tax system that represents the hypothetical income that a property owner could have obtained if his or her property had been let. Although this income is not actually received by the owner, it is added to their taxable income.
How is the rental value of a property calculated?
The amount of the rental value varies according to a number of criteria:
- the municipality in which the property is located
- type of property
- living space
- the number of rooms
- the age of the property (obsolescence)
- fitting out the property
- possible nuisances
- General situation
In the canton of Geneva, rental value is calculated by means of a questionnaire. This form must be completed when a property is purchased or when major works are carried out.
This value is indexed and may change over time. Each year, the cantonal tax authorities inform property owners of the rental value before 31 March.
Who is affected by rental values in the canton of Geneva?
All owners in the canton of Geneva who live in their property or who do not rent it out are affected by the rental value.
Recent discussions concerning the abolition of rental value
With 158 votes in favour and 31 against the plan to abolish rental values, a major decision has been taken.
Until now, property owners were taxed on a notional basis, equivalent to the potential income they could obtain by letting their property. In return, they could deduct interest on their mortgage debt as well as maintenance and renovation costs.
Since the early 2000s, several initiatives aimed at abolishing rental value have been rejected by voters and Parliament. However, the National Council's committee recently introduced a revised, more balanced proposal.
This new draft focuses on three major changes: the abolition of the rental value for primary and secondary residences, the reduction in the deductibility of interest liabilities and the elimination of the deduction for maintenance costs.
What would be the benefits of abolishing rental value?
Lower tax burden
By abolishing the rental value, taxpayers who own their own home will no longer be forced to pay tax on notional income. This is particularly true for taxpayers who have paid off a large proportion of their mortgage debts and have no major expenses to deduct.
More on this subject : Tax allowances in Geneva
With a cap on the deductibility of passive interest, taxpayers will tend to be quick to pay off their mortgages in order to qualify for interest deductibility, which would be 40% of the return on their assets.
This argument is double-edged, because yes, it will encourage taxpayers to make an effort to repay their loans, but it will penalise those who do not have the means to repay their debts quickly.
If rental value is finally abolished, new owners will be freed from the sometimes complex questionnaire for determining rental value when buying a house.
What would be the disadvantages of abolishing rental value?
The main disadvantages are that maintenance/renovation costs are not deductible (with the exception of historic buildings) and passive interest is capped at 40% of the return on assets.
The National Council recently approved a proposal to abolish rental value. If adopted, this would reduce the tax burden for many homeowners, provide an incentive to reduce debt and simplify administration. However, it would also limit deductions for maintenance and renovation and cap the deductibility of interest liabilities, potentially harming new owners.
The final decision, which will have major implications for homeowners in the canton of Geneva and potentially in other parts of Switzerland, remains in the hands of the Council of States.
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FAQ - Rental value
Rental values are calculated on the basis of a number of criteria, including the principle of comparable rent. In Geneva, rental values are calculated using a questionnaire. Regardless of the result, the government reserves the right to make individual estimates in cases where the result calculated by the questionnaire differs from reality.
There are several types of deduction, including passive interest, maintenance/renovation and property tax.
Interest liabilities refer to interest paid on debts linked to a property.
Property expenses can be subdivided into maintenance, operating and administration costs. Deductible maintenance costs include expenses incurred to maintain the value of the building, such as repairs, renovations and replacement of worn components.
Expenditure that permanently increases the value of the building (e.g. swimming pool, veranda), resulting in an increase in value, is not deductible. This includes new buildings, extensions, conversions and land development.
In some cases, the rental value may be negative. This happens in particular when the costs exceed the theoretical income calculated.