From acquisition through residency until an eventual sale: taxes will be owed time and again.
by Jürg Zulliger
21 Jan 2019
In most cantons, the very fact that a property changes owners is itself already subject to a property transfer tax. As a rule of thumb, you should budget from 1 to 3 percent of the purchase price. The buyer must come up with a portion of the costs, and the buyer and seller share a portion – and this varies from canton to canton. The federal government and cantons such as Zurich or Schwyz do not charge a property transfer tax.
Notarial and land registry fees also differ widely. Though they are not taxes as ordinarily understood, these costs can also have an impact. By way of example, let’s look at the notarization of a deed of sale for a home valued at 700,000 Swiss francs. In many cantons, for example Zurich, Schwyz or Thurgau, this will involve a charge of a few hundred francs. In Bern, Ticino or in some cantons of Western Switzerland, the same transaction can cost from 2,500 to 3,500 francs; in an extreme case, notarization can cost up to six times more.
Taxes on the purchase of property
The same applies to drafting a Schuldbrief (Swiss mortgage certificate), which you will need to secure a mortgage. Issuing a Schuldbrief worth more than 500,000 francs costs 750 francs in the canton of Schwyz, including VAT. In the canton of Bern, on the other hand, a notary will charge roughly 1,300 francs, in line with the cantonal schedule of fees, not including VAT. Not to be forgotten are any taxes on lump-sum payments, which would apply if you use pension assets in the purchase (pension fund or pillar 3a). For example, taxes of roughly 4 to 10 percent apply when you withdraw 250,000 francs. In an extreme case when you make a purchase, after adding up all positions, you could incur tens of thousands of francs in taxes and ancillary costs.
Taxes on the sale of property
Depending on the circumstances, proceeds from the sale of a property could be higher than the purchase price. All cantons levy a capital gains tax on the difference arising from such a sale. Also the capital gains tax on the sale varies a great deal by canton. How much tax is charged depends on how long the property was owned – the greater the profits and shorter the time of ownership, the higher the taxes. You can deduct all value-enhancing investments throughout the entire length of ownership, as well as property transfer costs, brokerage and notarial fees. For this reason, you should safely store all records of incidental expenses and investments over at least the past 20 years.
We recommend that you clarify all fees, tax implications and any potential tax breaks in advance. Capital gains taxes can be deferred in all cantons if the seller becomes a homeowner again within a reasonable period of time. Summary: To keep taxation reasonably moderate, seek out advice and look more deeply into the tax consequences of owning a home yourself.
Taxes on ownership
According to current regulations, homeowners in Switzerland must pay tax on the imputed rental value as income. The Federal Court has stipulated that this must come to at least 60 percent of the market value. Property taxes are also owed on the real estate. Some cantons also charge a separate property tax. This usually falls between 0.1 and 3 per mil of the taxable value of the property.
In contrast, homeowners can take some tax deductions when completing their tax return.
You can fully deduct mortgage interest from taxable income, though this is limited to at most 50,000 francs more than a taxpayer's gross investment income.
In most cases, it pays to take advantage of indirect amortization. The second mortgage will not be amortized directly. Rather, your repayments go into a pillar 3a account held by the bank and they are pledged. The deduction of interest on debt is held to the same amount.
All expenditures that contribute to maintaining and preserving the value of the property (repairs, paintwork, maintenance activities in and around the house, etc.).
All recurring incidental costs and insurance premiums associated with the property.
Value-enhancing expenditures are not deductible – with one important exception: Investments related to energy savings, such as energy-saving windows, retrofitting to a heat pump with geothermal probe etc. are generally fully deductible from taxable income. For more detail, consult your canton's guidelines and factsheets.