Rental value of owner-occupied property in Switzerland

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The rental value of owner-occupied property is a Swiss tax mechanism intended to compensate for the disadvantages for tenants when compared to property owners. However, this rental value is a controversial issue. Since 1999 alone, there have been three national popular votes on its abolition and talks are currently well under way once again. This page explains what the rental value of owner-occupied property is, how it is calculated and why it is criticised.
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What is the rental value of owner-occupied property?

The rental value of owner-occupied property is a notional rent that a property owner would receive if they rented out their property. In Switzerland, property owners have to pay tax on this rental value as taxable income in order to counteract the tax advantages they have over tenants. Currently, owners can actually deduct the interest owed on their mortgage as well as property maintenance and ancillary costs and energy-related renovations from their taxes. These options are not available to tenants, which is why they have to pay higher housing costs.

How is the rental value of owner-occupied property calculated?

The level of the rental value of a property is set by the tax authorities and sometimes varies considerably from canton to canton. The living space of the property is used as a benchmark when calculating the rental value of owner-occupied property. Based on this benchmark, the tax authorities calculate the relevant net living space which then determines the rental value. A value is calculated and then adjusted on the basis of factors such as age, location and the standard of the property, while taking into account the individual housing situation and local rent levels. In this way, an annual rental value is then finally set. It is broken down into the individual months and taxed according to the local rates. Actual rents achieved are, in fact, used as a reference when determining the local rent level.

In contrast with the above procedure, another practice where the rental value of owner-occupied property is based on the market value of the property has become increasingly established in recent years. Property owners could take legal action against this practice, but this option is rarely used. One method of reducing the rental value of owner-occupied property is regularly used; this involves applying to the tax authorities for a reduction due to reduced housing requirements. This would be the case if the owner’s children moved out of the home, for example.

What are the arguments in favour of abolishing the rental value of owner-occupied property?

Critics of this rental value rightly complain that it creates an incentive not to voluntarily pay off the mortgage debt. This is because the higher the mortgage debt, the greater the amount of debt interest that can be deducted from taxable income. This disadvantages older homeowners in particular as they have usually already paid off a large part of their mortgage. They therefore have to continue being taxed on the rental value of their property with their lower income after retirement and cannot fully benefit from the deductions.

In spite of these criticisms, all initiatives to do away with the rental value of owner-occupied property have so far failed – either at the parliamentary stage or at the ballot box. However, the chances of abolishing it are currently better than ever, even if its opponents and supporters still have a lot to discuss.

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