Introduction to Eigenmietwert
Eigenmietwert, also known as “imputed rental value” or “notional rental value,” is a unique concept in the Swiss tax system. It refers to the theoretical rental income that a homeowner could receive if they were to rent out their own residential property. This value is determined based on various factors such as the size, location, and quality of the property.
The rationale behind Eigenmietwert is to ensure fairness in taxation by treating homeowners similarly to renters in terms of taxation. In Switzerland, homeowners are required to pay taxes on the imputed rental value of their property, even if they do not actually rent it out. This is because the government considers the property to provide a certain economic benefit to the homeowner, similar to if they were renting it out and receiving rental income.
Pros of Eigenmietwert
- Tax fairness: Eigenmietwert ensures that homeowners who live in their own properties are not exempt from taxation on the benefits they receive from owning a property, similar to renters who pay rent.
- Revenue generation: It provides a source of tax revenue for the government, which can be used for public services and infrastructure.
- Non-distortion: By treating homeowners similarly to renters for tax purposes, Eigenmietwert does not provide a tax advantage for owning versus renting, which could potentially distort the property market.
Cons of Eigenmietwert
- Financial burden: Homeowners may perceive Eigenmietwert as an additional financial burden, especially if they do not have rental income to offset the tax liability.
Comparison with other countries
Eigenmietwert is not a common concept in other countries’ tax systems. In many countries, homeowners are not taxed on the imputed rental value of their properties unless they actually rent them out and receive rental income.
Instead, property taxes are typically based on the assessed value of the property or the actual rental income received. The absence of Eigenmietwert in other countries means that homeowners may enjoy tax advantages compared to renters, potentially influencing housing market dynamics differently.
However, each country’s tax system is unique and designed to meet specific policy objectives, so direct comparisons may not always be straightforward.
Abolition
Efforts to abolish the imputed rental value tax, known as Eigenmietwert, in Switzerland have been ongoing since the 2000s.
Critics argue that the tax exacerbates the housing crisis by making it more difficult for individuals to afford property and encouraging mortgage debt. Currently, only 36 percent of people in Switzerland own their own homes.
Efforts to eliminate the imputed rental value tax began in the 2000s but lacked sufficient support in parliament or at referendums. However, a plan to abolish the tax gained momentum in August 2022, leading to the recent approval by the National Council in June 2024.
Under the approved plan, the imputed rental value tax will be entirely eliminated on first and second homes. However, significant changes will be made to housing taxes. Maintenance costs will no longer be tax-deductible, and only a portion of mortgage interest payments will be deductible, estimated to range from 40 to 70 percent (now likely to be 40%). These changes aim to ease the tax burden on homeowners while still ensuring some level of tax revenue.
While the approved law marks significant progress towards eliminating the tax entirely, it must undergo further scrutiny in the Council of States. Further votes and a possible referendum may also occur if opposition arises. Overall, the approval of the plan represents the closest Switzerland has come to abolishing the imputed rental value tax, marking a significant development in the country’s housing tax reform efforts.
