Will the imputed rental value be increased? Or abolished? What property owners need to know

Unlike many other countries, Switzerland makes use of the so-called imputed rental value. This is the fictitious rent that an owner would receive if he or she rented out the property, which they live in themselves. The imputed rental value is then added to the taxable income. It’s perceived as unreasonable by many of those affected and can lead to hardship cases, especially for retirees.

Two cantons want to increase the imputed rental value

For the 2026 tax year, the canton of Zurich is planning a tax revaluation of properties. This could lead to a higher imputed rental value as well as a higher tax value for many property owners, especially for those who have lived in the same property for a long time. The reason for the adjustment: the last increase took place in 2009, and since then property prices have risen sharply.

Expressly stated, the net asset value is to be increased to 70 percent of the market value and the imputed rental value is to be increased to 60 percent of the market rent. According to calculations by the real estate consultant Wüest and Partner, the net asset values are likely to increase by around 50 percent on average and the imputed rental values by around 10 percent through this. The cantonal tax office expects additional revenues of around CHF 170 million annually. A similar bill is on the table in the canton of Aargau (Argovia), which is expected to take effect in the 2025 tax year. Here, too, the measure aims to adjust the tax values to market developments.

The federal government could soon abolish the imputed rental value.

The municipalities and cantons largely determine the tax rates in the cantons themselves (so-called tariff autonomy).

It’s thus possible for two cantons to want to raise a tax, even though the federal government is discussing abolishing it altogether. This is precisely the current situation with the imputed rental value.

After a long back and forth, the two chambers have finally reached an agreement in the final vote. The imputed rental value will also be abolished for owner-occupied second homes. Property maintenance costs will no longer be deductible at all, and debt interest will only be deductible to a very limited extent.

What happens next?

Parliament has agreed on a joint bill. The imputed rental value is to be abolished. Whether this will actually happen is likely to be decided by the people, as it is expected that the 50,000 signatures required for a referendum can be collected in the next 100 days. The bill could therefore be put to a vote as early as 2025.

If it passes, it may take a few more years for the cantons to change their laws. If the imputed rental value is indeed abolished, the revaluation of the imputed rental value in the cantons of Zurich and Aargau (Argovia) would become obsolete. For this reason, the Zurich Homeowners' Association requested that the cantonal revaluation be postponed until the federal decision is made.

The advantages of the current low interest rate environment

Abolishing the imputed rental value would also mean that owners would have to forgo the associated tax deductions, such as the deduction for maintenance costs or for interest on debt. However, due to the current low interest rate environment, an abolition of the mortgage interest deduction would hardly affect many homeowners. This is because mortgage debtors are currently paying lower interest rates, so they can claim fewer deductions.

Overall, many homeowners would be better off today without a tax on the imputed rental value and without deductions for mortgage interest and property maintenance. If the general interest rate environment were to rise again, however, the situation would look quite different.

What about landlords?

If you rent out a property that you do not live in yourself, the abolition of the interest deduction would be disadvantageous, as you would no longer be able to deduct the financing costs from your taxes. Currently, private interest is deductible up to the amount of taxable investment income plus CHF 50,000.

In the case of rented properties, the deduction of debt interest would continue to be possible up to a certain amount. In the interest of promoting home ownership, a temporary special deduction is to be granted for the first-time purchase of a property for own use.

Additional increase in the capitalized earnings value of apartment buildings

Back to the Canton of Zurich and another planned change: an increase in the capitalized earnings value for owners of apartment buildings is also under discussion. This is calculated using the following formula:

capitalized earnings value = net rental income / capitalization rate in percent * 100.

Now the capitalization rate is to be reduced from 7.05 percent to 5 percent. This increases the capitalized earnings value which leads to higher property taxes.

Anyone who owns their apartment building through a corporation, such as a GmbH or AG, is also likely to be affected by the revaluation, at least if the company is domiciled in the canton of Zurich. In the blog article, we explain when and why a corporation may make sense for investment properties for tax reasons.

Conclusion

If the federal government abolishes the imputed rental value - in 2027 at the earliest - the planned increase in the canton of Zurich would be put to rest. However, the planned increase in the tax value is not affected by this and will probably continue to lead to higher property taxes. The same applies to the capitalized earnings value for private owners of apartment buildings.

The abolition of the imputed rental value at federal level would eliminate this form of taxation, but owners would also have to forgo the associated tax deductions. However, due to the current low interest rate environment, this is likely to have little impact for most homeowners.

Do you have questions about the taxation of Swiss real estate? We would be happy to provide you with individual and personal support. Arrange a non-binding initial consultation with our experts.

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