Abolishing imputed rental value. When and how that might happen.
Parliamentarians would like to abolish imputed rental value, but they are facing a lot of headwind. Find out when an abolition of imputed rental value can be expected at the earliest, how realistic a system change is, and what hurdles need to be overcome.
Parliamentary initiative to abolish imputed rental value
The abolition of imputed rental value is being actively debated. The Economic Affairs and Taxation Committee of the Council of States started a parliamentary initiative in 2017 and prepared a corresponding bill. In 2019, the consultation process took place. Following this, the Federal Council was asked to give a recommendation, but it tossed the ball back to the Committee. It is therefore still unclear if and when the fictitious income could be abolished at the earliest. The tug of war over the abolition of imputed rental value could go on for months, even years.
Abolition of imputed rental value only affects the main residence
The bill to abolish imputed rental value provides for the following adjustments in taxation:
- Imputed rental value is abolished for owner-occupied residential property at the main residence.
- The deduction for maintenance costs, insurance premiums, and management costs is eliminated.
- The deduction for energy saving and environmental protection measures, as well as for historic preservation work, is abolished at the federal level. Deductions remain possible at the cantonal level.
- First-time buyers benefit from debt interest tax relief limited in terms of amount and time.
No adjustments are planned for second homes and vacation homes. For those, the imputed rental value must still be taxed. Income from investment properties would also still need to be reported as part of taxation. At the same time, the deduction options for these properties remain the same as before in four of the five proposed variants.
Abolishing imputed rental value has consequences for debt interest tax relief
The bill leaves open what will happen in the new system with the current deduction of debt interest. To date, owners of residential property can deduct the debt interest of their mortgage from their taxable income. The Committee is proposing five different variants that range from maintaining to fully eliminating the debt interest tax relief.
An exception is provided for first-time buyers of owner-occupied residential property. They should still be able to deduct debt interest in any case. The current proposal is that first-time real estate owners can deduct a maximum of CHF 10,000 from their taxes in the first ten years, whereby the deduction gradually decreases over the years.
Not everyone wants to abolish imputed rental value
The abolition of imputed rental value is controversial. This was made evident by the consultation process for the preliminary draft of the bill. While the Hauseigentümerverband (HEV) [Swiss Homeowners' Association] fundamentally agrees to the system change, the Mieterinnen- und Mieterverband (MV) [Swiss Tenants' Association] clearly rejects it. Of particular weight is the attitude of the Finanzdirektorenkonferenz (FDK) [Finance Directors' Conference]. The assembly of the 26 cantonal finance directors rejects the bill. It considers the tax loss too high, especially given the low mortgage interest rates. The current practice is deemed fair, which is why the FDK does not see any need for reform.
The consultation process shows that in order to abolish imputed rental value, the Economic Affairs and Taxation Committee of the Council of States must still overcome many hurdles. Especially controversial are the form of the deduction options for debt interest, the first-time buyer deduction, and the other deductions at the cantonal level – points that are important to the HEV.
Abolishing imputed rental value will hardly be done without a referendum
Following the consultation process, the Committee of the Council of States has asked the Federal Council to make a statement on the preliminary draft. However, the latter tossed the ball back to the Committee. This is because, normally, the Federal Council only intervenes when a draft law is being debated in Parliament. What will happen next with the abolition of imputed rental value is currently unclear.
In any case, the chances for a system change strongly depend on what the final bill looks like. As a result of COVID-19 and the associated rise in government debt, it will likely be difficult to carry the tax losses incurred by the abolition of imputed rental value through Parliament. And even if Parliament does come to a consensus, abolition still won't be a done deal. It is very likely that the matter will be put to a referendum and that the people will get the last word. Therefore, it is important to convince both owners and tenants of the system change.