Calculating the property gains tax
The sales profit from selling land, properties, real estate and buildings is taxed. Gains from co-ownership shares in property and rights and easements (independent and permanent) entered in the land register, such as source rights, usufruct rights, building rights, rights of way, granting of water rights, are also subject to tax. Gains are defined as the difference between the price paid at the time of purchase and the proceeds received from the sale.
For example, if an owner paid CHF 1 million for a property and is now selling it for CHF 1.25 million, the CHF 250,000 gained will be subject to property gains tax. The tax therefore applies to profit arising when the selling price is higher than the original purchase price.
However, it should be noted that the tax is calculated on net profit. The tax burden could therefore reduce in proportion to the value-adding investments made. It is therefore important for the property owner to keep an exact account of all expenses that have led to an increase in the value of a property. Costs incurred in connection with the sale of the property may also be deducted, in particular advertising costs and fees/commission for a real estate agent or dealer. However, the deductions for the latter often have an upper limit. The values vary depending on canton and municipality here too.
A calculation might be made as follows:
- Sale price CHF 1,250,000
- Purchase price CHF 1,000,000
- Profit (subtotal) CHF 250,000
- investments CHF 100,000
- costs CHF 4,000
- Net profit CHF 146,000
The amount of property gains tax arising from this net profit depends on the tax rate of the competent municipality or canton. If a seller wants to know how much property gains tax has to be paid, they can submit a request to the relevant tax office for the calculation of the estimated property gains tax. The request must contain the following information:
- Name and address of the seller and, if this is not identical, the requesting person (incl. power of attorney)
- Information about the property being transferred (land register page, cadastral number, street, town/city, etc.), ideally an excerpt from the land register
- Name and address of the buyer
- Transaction price
- Date of the transfer of title
The list may be supplemented with, for example:
- Sales documents
- Draft contract
The documents required may deviate slightly from canton to canton.
The cantons of Basel-Landschaft, Schwyz, Bern, Grisons and Jura add together all property gains made in a particular period. In other cantons, each property gain is taxed individually.
Reduction based on duration of ownership
The longer someone has owned the property, the lower the tax burden. The highest amounts are paid by owners who buy a property and sell it on again shortly afterwards (for a profit). A scale of the reductions to the calculated property gains tax by duration of ownership may be as follows:
For an allowable ownership duration of
- 5 whole years – 5%
- 10 whole years – 20%
- 15 whole years – 35%
- 20 whole years – 50%
In line with the above calculation example and with the presumption that the seller has owned the property for ten years, the calculated tax burden would therefore be reduced by 20%. Conversely, the tax increases in most cantons if the property has been owned for less than one year. This is intended to put a stop to property market speculation.
The property gains tax can be deferred if the property changes hands as a result of inheritance, advance inheritance or donation. The property gains tax can even be deferred on property transfers between spouses. Replacement purchases are another common reason for the deferment of property gains tax. The Direct Taxation Harmonisation Act (DTHA) of 1990 provides for the following:
The tax is deferred when “selling a permanently and exclusively owner-occupied residential property (single-family house or own apartment), provided that the proceeds received from the sale are used to buy or build replacement property in Switzerland to be used for the same purpose within a reasonable period.”
The “reasonable period” is normally between two and three years, but this also differs from canton to canton. The words “permanently” and “exclusively” are important words in the above legislation. If a house with a separate annexe is purchased as a replacement property and this annexe is then rented out, the tax office will request property gains tax in proportion to the rented section.
Specifics regarding lien
The approach to lien varies from canton to canton. The tax jurisdiction lies with the municipalities in the canton of Zurich. These are entitled to a legal lien which prevails over all other liens and applies in the case of a taxable transfer of ownership. Or, in other words, if property gains are made. The property tax lien arises without entry in the land register at the time the property is transferred, i.e. at the time the property gains tax is payable. However, the lien also expires again if it is not registered within three years of the transfer of ownership. Only the municipality tax office is authorised to register (which must be effected in writing) the property tax lien with the land registry.
Distinction from income tax
The seller does not need to wait until they submit their next tax declaration for the billing and payment of the property gains tax. They receive a letter from the tax office as soon as the property changes hands. The net profit from the property sale is therefore excluded from cantonal income and profit tax.
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