Abolition of the imputed rental value is delayed

In May of this year, the Economic Committee of the Council of States launched a reform initiative to abolish the imputed rental value. The proposal was controversially discussed in the Federal Council last Wednesday, without reaching an agreement.

For decades, politicians have been demanding the abolition of the imputed rental value. However, every attempt at reform has failed so far. The reason for this is numerous opposing interests.

Briefly explained imputed rental value

Swiss people who live in a property they own must tax the so-called imputed rental value as income. Simply put, the imputed rental value is a theoretical income derived from the hypothetical rental value of a property. According to federal court jurisprudence, the imputed rental value must be at least 60 percent of the rental value of a property on the open market. In the specific configuration of the taxation of imputed rental value, the cantons are free. To reduce the taxation, homeowners can deduct interest on debt and expenses for property management.

Council of States takes new initiative

The purpose of the imputed rental value is to comply with the principle of taxation according to economic performance, by treating tenants and homeowners equally for tax purposes. However, the latter find the taxation distasteful, which is why attempts to abolish the imputed rental value are repeatedly launched in politics. The latest reform attempt was started by the Economic Committee of the Council of States in May of this year. The Committee essentially called for the abolition of the imputed rental value and with it also the abolition of the deduction for interest on debt and property maintenance. However, deviating from this goal, the reform draft provides for a limited special deduction of interest on debt for first-time buyers of properties amounting to CHF 10,000 for married couples and CHF 5,000 for singles.

Critical voices are raised

The new initiative of the Economic Committee is not welcomed from all sides. Especially the abolition of the deduction for interest on debt meets with resistance. After all, landlords would still have to tax their rental income but would no longer have the opportunity to deduct corresponding interest on debt. Owners of self-occupied second homes would also feel the effects of the reform, because the imputed rental values of these properties would remain taxable, but the deduction of interest on debt would no longer be possible. In the latter case, the abolition of the imputed rental value could also bring relief for holiday flats, but this option is rejected by the tourism cantons that benefit from the revenues of the imputed rental value taxation.

Reduction of debt incentives

The abolition of the imputed rental value taxation is akin to a balancing act. The Economic Committee is also aware of this, which has expressed itself in favor of reducing debt incentives and strengthening the Swiss financial center, in view of the negative effects of the abolition of the interest deduction. However, critical voices point out the logical contradiction in the presented argument of the Economic Committee. For while it claims to want to protect young and financially weak homeowners from over-indebtedness, the reform proposal provides precisely for this group exceptions in the abolition of the interest deduction. Furthermore, incentives for household debt could also be reduced by other means, such as reducing the maximum deduction.

Federal Council is undecided

The initiative of the Economic Committee of the Council of States was discussed in the Federal Council last Wednesday. However, no agreement has been reached. The government's position is expected to be clarified in a further debate in two weeks.

Source: Neue Zürcher Zeitung: Article "Controversy about imputed rental value: Ueli Maurer spoke out in the Federal Council against a proposal for abolition, but he must go over the books again" from August 19, 2021.

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