Abolition of tax on imputed rental value: the referendum on 28 September 2025
At present, anyone who lives in a property that they own has to declare a notional rent as income – the so-called imputed rental value. With the new “property tax” on real estate planned by Parliament and the Federal Council, this controversial system is to be abolished – including tax deductions.
Author: Bernhard Bircher-Suits, FundCom AG
Introduction and original idea of the imputed rental value
In 1934, as part of emergency law during the Great Depression, the Federal Council introduced taxation of the imputed rental value as a “Federal Crisis Levy”, which was incorporated into ordinary law in 1958. The aim was to ensure equal tax treatment: tenants pay rent from post-tax income, while homeowners receive a “housing advantage” or “notional income”.
Currently, under the imputed rental value system a person who lives in their own four walls is treated for tax purposes as if they were renting out their property to a third party. However, if you own an apartment or a house, you do not have to declare the highest possible market rent as notional income. In many cantons, the imputed rental value is set at between 60 and 70% of the usual market rent for that location. In determining the imputed rental value, the tax authorities take into account the usual rental prices for the area, and the location, age, size, condition and features of the property.
Imputed rental value as a burden for people with little debt
The taxable imputed rental value is a particular financial burden on debt-free retirees. The reason? Once you lose income from employment and have largely paid off your mortgage, you will hardly be able to claim any deductions for mortgage interest. However, the tax on imputed rental value still has to be paid from an often modest pension, which is why older people in this situation are particularly heavily taxed.
It’s also clear that, under the current tax system, people who save and pay off their mortgage are penalised, while getting into debt is “rewarded” with interest deductions.
A bone of contention for decades
The imputed rental value system is unique to Switzerland. Some countries do have a form of imputed rental value taxation, but not to the same extent as Switzerland. Abolishing the imputed rental value has been a recurring topic of discussion in Switzerland for decades now. Politicians have tried a few times to abolish this controversial fiscal construct. The last attempt to do so by referendum failed in 2012. At that time, 53% of voters said no.
Parliament and Federal Council want to abolish tax on imputed rental value
On 20 December 2024, the Swiss Parliament passed two bills concerning the taxation of residential property: the Federal act on a change of system for the taxation of residential property and the Federal decree on cantonal property taxes on second homes.
The Federal act on the change of system provides for the abolition of the imputed rental value and permitted deductions. The Federal decree on cantonal property taxes on second homes introduces a new constitutional provision.
Parliament intended the new property tax to make the abolition of the tax on imputed rental value palatable to mountain cantons, for which imputed rental value is lucrative. Homeowners will have to pay a new property tax once the tax on imputed rental value on second homes has been abolished. This change requires an amendment of the Constitution. This property tax has yet to be accepted by the people and the cantons.
It’s important to understand that taxation of imputed rental value will only be abolished if this constitutional amendment for a property tax is accepted.
The change primarily affects homeowners
The reform decided on by Parliament has many different effects, which are difficult to assess. People who live in a home that they own are particularly affected by the reform. The mortgage interest rate is a critical factor: if interest rates are low, taxes fall for most homeowners, but if interest rates are high, they rise because there are almost no deductions for interest on debt.
The impact on the public sector depends on the level of interest rates
The financial impact of the reform on the public sector will also depend on the level of mortgage interest rates. The Federal Tax Administration estimates the effects of the change of system as follows: With interest rates of up to just under 3%, the Confederation and the cantons would suffer losses.
Above an interest rate level of 3% or more, the Government would benefit from the change of system. At current interest rate levels, the Federal Council anticipates tax losses of around CHF 1.8 billion per year. But official estimates are uncertain. This is because the future revenue from the new property tax on homes is difficult to estimate due to a lack of data.
The content of the referendum proposal at a glance
- The tax on the imputed rental value for primary and second homes is to be abolished.
- Instead, a new “property tax” is to be introduced for second homes, as compensation for the tax losses. The cantons will be empowered to levy such a tax.
- Deductions for building maintenance will cease to apply. For property that is rented out, the deduction (maintenance, repairs, insurance premiums, administrative costs) will remain in effect. The cantons are free to continue allowing a tax deduction for property expenses for energy-saving, demolition and environmental protection.
- The federal and cantonal deduction for monument preservation will still be allowed.
- Deductions for interest on debt will be significantly reduced. The amount of interest on debt that homeowners can deduct from their taxes will now depend on the proportion of properties rented out to total assets.
- If you are a first-time buyer of a property you live in yourself, you can claim a limited deduction of interest on debt for 10 years. Married couples: CHF 10,000, all other CHF 5,000 in the first year after purchase, and 10% less annually thereafter.
Arguments for and against a change in the system for the taxation of residential property
Arguments for:
- No more tax on notional income: The imputed rental value is considered “notional rental income”. The abolition is judged to be fairer and more logical.
- Fewer debt incentives: At present, deductions for interest on debt favour high mortgages. The reform will severely restrict interest deductions – which may help to reduce debt.
- Administrative simplification: Elimination of individual imputed rental value estimates and related points of contention; clearer tax base for primary residences.
- Relief for households with low debt levels: Owners without a mortgage or with a low mortgage benefit to the extent that tax on imputed rental value no longer applies.
- Fiscal cushioning: Because maintenance deductions and, for the most part, interest deductions, are abolished or restricted, proponents argue that the loss of income remains limited; with high interest rates, they say that additional income could even be possible.
- A clear distinction between primary and second home: Primary homes with no imputed rental value; second homes can be co-financed through cantonal property tax – federal flexibility.
Arguments against:
- Stress for heavily indebted first-time buyers: The elimination of maintenance deductions and heavily capped interest deductions may hit households with high mortgages more severely – especially younger families.
- Distributive effect/reggressivity: Opponents see benefits primarily for wealthy, low-debt owners; they warn of tax losses.
- Potential tax losses compensated for: Critics see a risk of subsequent tax increases in cantons and municipalities if the tax on imputed rental value disappears.
- Energy/renovation incentives: Fear that less renovation will take place without general maintenance deductions (climate targets). Although cantons may continue to allow deductions for energy saving and environmental protection to 2050 at the latest, the implementation remains inconsistent.
- Complex transition & federal inconsistency: Differing cantonal implementation (property tax, energy savings deductions) could create a patchwork.
- Lack of justice: Tenant associations see increased inequality between rented and owner-occupied households.
In summary
The referendum at the end of September will decide whether residential property should be taxed differently. Whether this is good or bad depends on the homeowner’s financial situation and how high interest rates are. Currently, the centre-right parties (FDP, SVP, GLP and the Centre) support an abolition of the tax on imputed rental value, while the SP and Greens are against it.
Timing of implementation
If the bill passes on 28 September 2025, the reform will not enter into force automatically. In that case the Federal Council will set the timetable for implementation; the previous provisions will remain in force until then.
