The tax types

To start with, a brief overview of which types of tax are levied by whom:

1. the real estate gains tax is usually levied by the cantons, in some cases also by the municipalities and in the cantons of Zurich and Zug only by the municipalities.

2. These two taxes are handled very differently and there are even cantons like Zurich where they are not applied at all.

The income tax

Taxes are levied by the Confederation, cantons and municipalities on income from privately owned real estate. Income is deemed to be rental income and, in the case of owner-occupied properties, the imputed rental value as fictitious income, since the owner, in contrast to a tenant, does not receive taxable income. In return, maintenance and financing costs can be deducted, but not value-enhancing expenses.

The wealth tax

The tax levied at cantonal and communal level covers properties in private ownership less debts.

The real estate profit tax

A realised profit is taxed at the time of the sale. This tax is levied at the cantonal level, but mostly the municipalities assess this cantonal tax, which they can also keep. Accordingly, this tax income is not taken into account for the intercantonal tax equalisation. This tax is subject to various deferral situations, such as replacement acquisition, inheritance or property law disputes.

The property transfer tax

If a property changes hands, this transaction-oriented tax may apply. This sometimes varies greatly between the individual cantons. The highest known transfer taxes are levied in Basel-Stadt, Geneva or in the canton of Neuchâtel at three per cent. Zurich, Uri, Zug, Glarus, Schaffhausen or Schwyz do not levy this tax. Every canton that levies this tax has exempt or privileged changes of ownership, such as a replacement acquisition, an inheritance or a property settlement. The handling of these exemption provisions also varies greatly in some cases.

The real estate tax

This tax, which is due for holding a property, is levied annually in very few cantons, but in all municipalities on the basis of the full market value without deduction of debts. Many cantons such as Zurich, Zug or Schwyz do not levy this tax.

Last but not least: VAT

As a general rule, privately used real estate is not subject to VAT, neither when sold nor when rented out. Accordingly, no input tax deduction can be made on investment, operating and management costs. But there are no rules without exceptions ...

The first is: If a property sale of a new building takes place before the start of construction, there is a taxable real estate supply and VAT applies.

The second states that if a property is used commercially by a buyer or tenant who is liable to VAT, the sale or rental can be voluntarily subject to VAT. Anyone who would like to find out more about this possibility, which in some cases offers significant cost optimisation, is recommended to seek competent advice from a tax specialist.

Where do the taxes fall?

Anyone who does not live in a property themselves and is registered in another canton or owns a vacation property in Graubünden or Ticino, for example, is well advised to look into the situation before making a purchase in order to avoid any double taxation.

This is because, as a general rule, real estate is taxed at the place where it is located. In contrast, however, one bases one's unlimited tax liability on the place of residence. The result is a tax differentiation between the two cantons, which can quickly become a confusing matter in detail.

Ideally, consult a professional; when selling or buying through Ginesta Real Estate, your personal real estate advisor is available to help you.

The most important tax offences

This chapter covers the most common questions about when to expect which taxes.

Ownership and usage

The market value of the property is subject to property taxation. Income as well as the imputed rental value as fictitious income are subject to income taxation after the corresponding deductions and accrue where the property is located. Value-enhancing investments are not deductible, but maintenance work is. Please be sure to read the section on "Building and Conversion".

Imputed rental value

This is somewhat lower than the value that can be achieved through effective rental at market prices and is calculated or estimated by the cantonal tax administrations. The imputed rental value also applies to domestic holiday properties.

Sale

Profits as well as losses are tax-exempt at the federal level, while real estate gains tax is payable at the cantonal level.

Purchase

The purchase in and of itself does not lead to any direct tax consequences apart from the transfer tax. The same applies if the property is obtained by exchange, gift, inheritance or change of ownership between spouses.

Inheritance and gifting

If you come into possession of a property in this way, the property gains tax due is deferred. A latent debt that has to be paid in the event of a later sale.

Building and rebuilding

During the construction period, i.e. the construction of a new building, the imputed rental value is not taxable and the investment costs can only be claimed when the property is sold. Anyone who makes substantial personal contributions during construction should definitely discuss tax and social security issues with a specialist.

Anyone who converts or renovates must divide their expenses into those of a maintenance nature and value-enhancing investments. Maintenance expenses can be deducted in the corresponding tax year in the form of actual and verifiable costs or optionally as a lump sum. Value-enhancing investments, on the other hand, are only taken into account as investment costs in the event of a sale, provided that the increase in value is relevant for property gains tax.

Expenses of a mixed character, such as the installation of a luxurious eat-in kitchen with all conceivable appliances in the now open-plan living and dining area, where previously there was a ramshackle and no longer functional mini kitchen in the better réduit, are to be divided into value-enhancing and value-maintaining expenses.

If larger investments are to be made, it is advisable for tax reasons to first consider staggering the work over several years or dividing it over two years.

Maintenance costs

As mentioned, value-preserving maintenance costs as well as insurance premiums, administration and maintenance costs can be deducted. In the case of owner-occupied properties, electricity, water, caretaker costs and the like are of course not included in these maintenance costs and are accordingly not deductible.

Debts and interest on debts

Debts and mortgages can be deducted from the taxable assets without any upper limit.

Debt and mortgage interest are deductible up to a limit of fifty thousand francs plus the property income.

Interest on building loans cannot be deducted for federal tax purposes, as these represent investment costs. This is handled differently at cantonal level, partly as income-reducing expenses, partly as investment costs.

Tax value

The value of a property is part of the total net assets and is taxable at the cantonal level, although here too the principles are not uniform in all cantons.