The sale of a house results in real estate gains tax
Real estate gains tax is a special tax, which is levied based on the profitable sale of real estate or a plot of land from private property. The amount of tax actually owed on the sale of the house depends largely on the cantonal tax law as well as the duration of ownership.
What is real estate gains tax?
Real estate gains tax is incurred on a transfer of ownership, which is a legal transaction in which the legal or actual power of disposal of a property is transferred. Examples of this are sales, purchases, gifts, and inheritance.
A real estate gains tax must always be paid when a plot of land or real estate from private property is sold at a profit. This is when the sale price is higher than the investment costs, meaning that the value of the home has increased. The investment costs essentially consist of the original purchase price and the self-borne value-enhancing investments during the period of ownership. Taxes are collected based on the difference when the property is sold.
What can be deducted from real estate gains tax?
Costs directly related to the earlier purchase and current sale of the property can be claimed to reduce gain. These may include notarial and land registry fees, and typical brokerage fees to third parties up to a certain amount, costs for advertisements, attorneys' fees, or real estate transfer tax paid. This also includes early repayment penalties for the early termination of a mortgage on the property. It is important that all expenses can be documented.
Factors affecting amount of real estate gains tax
The amount of tax owed varies based on certain situational considerations, namely, the taxation of real estate gain in Switzerland is influenced by two factors:
- The location of the property and the tax rate applicable there.
- The period of ownership of the property.
1. Location: Real estate gains tax is regulated by each canton
Real estate gains tax is collected by the municipality and/or the canton. The amount differs by location because each canton can stipulate how high the applicable tax rate should be. Many places have a progressive scheme for real estate gains tax similar to income tax. This means that the higher the gain, the higher the tax rate that is applied.
2. Period of ownership: Long-term ownership reduces real estate gains tax
At the same time, many cantons provide relief to long-term real estate owners when selling a house. If you own a site or house for many years, you will usually pay significantly less tax when selling compared to owners who resell real estate just a few years after purchase. For example, in the Canton of Zurich, the real estate gains tax is cut in half if a property changes ownership after 20 years or more. Other cantons reduce the tax rates even more significantly after reaching a long period of ownership (e.g. Aargau, Bern, Schwyz, Glarus, Basel-Stadt, Schaffhausen, Ticino, and Thurgau), or exempt the sale of property entirely from real estate gains tax after an extended ownership period (Geneva).
Conversely, the cantons charge additional tax on real estate gains after a short period of ownership. This means that speculators, in particular, are being asked to pay more.
Real estate gains tax – what was the market value 20 years ago?
If you've owned your house for a long time, you may struggle to find all of your documents. This makes determining the investment costs of your property all the more difficult. If this is the case, we recommend a real estate valuation is conducted by a specialist.
There is another option in the Canton of Zurich, for example, whereby the taxpayer can decide whether the tax office's estimated value of the property 20 years prior should be used to calculate the real estate gains tax. This can bring advantages, i.e. in certain circumstances you can claim higher investment costs, which results in a reduction in the real estate gains tax, but becomes a disadvantage if the tax office estimates the investment costs to be very low. However, this estimate is not set in stone, and can be queried by the homeowner, but they must be able to provide sound justification for the difference from the estimate when filing the tax return.
How much real estate gains tax do I have to pay?
The amount of real estate gains tax varies depending on the region and duration of ownership:
In the following example, a house was bought for CHF 700,000 and sold for CHF 1 million. The value-enhancing measures amount to CHF 40,000. The deductible transaction costs in connection with the sale amount to CHF 10,000. The result is a net gain of CHF 250,000. The amount of real estate gains tax in selected cities would be as follows:
|Real estate gains tax per region||After 5 years||After 20 years|
|Aargau||CHF 75,000||CHF 25,000|
|Bern||CHF 72,630||CHF 45,685|
|Geneva||CHF 75,000||CHF 25,000|
|Lausanne||CHF 45,000||CHF 22,500|
|Lugano||CHF 65,000||CHF 12,500|
|Lucerne||CHF 52,565||CHF 46,257|
||CHF 75,476||CHF 69,815|
|Zurich||CHF 84,930||CHF 44,700|
When is real estate gains tax not required?
Real estate gains tax must always be paid. However, it can be deferred under certain circumstances, such as due to a change of ownership within the family, as a result of a separation, or in the case of an inheritance, a donation, or an advancement. This is also the case in the event of a replacement purchase, which is when a new, owner-occupied property is purchased within a reasonable period of time after the sale of the old property. In many cantons, this period is two years. A condition for a complete tax deferral is that all gains are reinvested, in addition to the original investment costs of the property sold. For example, if a single-family dwelling is sold and a cheaper condominium is purchased instead, the real estate gains tax must still be paid.
As well as releasing liquidity, a further advantage of a replacement purchase is that the period of ownership of the old property can be assumed for tax purposes and any transfer taxes can be reduced. However, deferring the real estate gains reduces the investment costs of the new property. If the property is later sold to a third party and there is no further replacement purchase, the real estate gains tax must be paid on the entire real estate gain, in other words on the gain relating to the current property as well as on the deferred gains of previous properties.
What happens if the real estate gains tax is not paid?
If the seller does not pay the real estate gains tax, it will be the new owner who is left in the lurch. The tax authorities may enter a lien in the land register and demand the new owner pays the tax. For this reason, buyers may request that the money for the real estate gains tax is paid into a blocked account when the property is purchased, or that this amount is transferred directly to the tax office. If the real estate gains tax turns out to be lower, the difference would later be repaid to the seller.