The imputed rental scheme was incorporated into the Swiss Constitution in 1958 when interest rates, while stable, were much higher than today. Rates stayed around 4% through the 60s before rising into the low teens in the mid 70s.
Compared to today the mortgage deduction was much higher and it made more sense to offset that write-off. This was the origin of the system we just got rid of today.
Good news.
People that have no mortgage dont have income tax liability.
Demand will cool down with the elimination of repair/improvements being tax deductible.
Bank interest or dividends are real hard cash that you receive not a benefit in kind - if you receive no interest on your cash there is no tax. Switzerland was the only country (western anyway) with this hypothetical income system (as mentioned in the Tagi a few days back).
You still pay tax on the property value through the wealth tax plus any number of small local taxes for local services.
Soooo..what will this impact be on property prices?
Probably price of the 50+ years old properties will decline. Until now the cost of maintenance and modernization was almost ignored.
also I guess more people will postpone the decision to buy, with no debt interest deduction renting seems more appealing
This is positive.
Deduction means the people that pay others to do the work can minimize tax liability.
No deduction means people who can’t afford to pay others to do the work and DIY instead can improve houses to live in them.
It depends, for example for holiday homes, noone knows as they will be hit with new taxes in the coming years, as per referendum result.
To be honest, if one cannot afford the repairs they should not be purchasing such an expensive home.
DIY seems to be popular in UK, France and Poland, and pretty much unheard of elsewhere, eg in southern Europe. Just a cultural thing.
I have never heard someone in Switzerland say: “I am busy this weekend, I have to re-wire my house”. In a country where working at MacDonald’s comes with training and a certification at the end, it is no surprise that repairs are left to professionals.
I personally wouldn’t want to live in a house where the repairs are done amateurishly by the owner.
Have also witnessed enough bad work from professionals. Especially in this day and age where time is money and quality takes a back seat. Even here in CH!
I don’t know about other countries, but in Greece DIY is highly popular, especially in the suburban areas. I know countless people that built places from scratch “themselves”, meaning fully involved in the actual work, from pouring concrete, to wiring etc. Not saying it was always a good result, but cash strapped people had land and wanted to build something for their families to live in, and they still do decades later.
On the main topic, I’m guessing newer properties will go up in value now?
Same here. Simply being qualified is not a guarantee of quality work or even safe work.
My worry is that in the future, once the cantons/Gemeinden can’t fill the budget coffers to offset the loss of Eigenmietwert, instituting some form of property tax, à la what we have in the US, might become too tempting.
I lived in a state notorious for high property taxes. On top of mortgage, paying property tax of 20, 30, even 40K plus per year - regardless of one’s income - makes what appear to be reasonably priced homes actually unaffordable.
Because Eigenmietewert was tied to one’s income, I saw it as a fairer form of tax.
Not paying Eigenmietwert will pretty much be wash for us, but I have a nagging worry that down the road this might become a ‘Be Careful What You Wish For’ situation.
Was that the Live Free or Die state?
In the US the Federal government does not tax assets. However, local governments like towns and cities tax property.
This applies to everyone. Both DIYs and people expecting to deduct improvements otherwise their financial plan collapses.
I wouldn’t touch electricity and plumbing because safety. But woodwork, cement, gypsum and paint are not scary monsters. A question arises, if I don’t work for myself…who do I work for?
Land o’ Lincoln.
No it wasn’t. It is/was a fixed amount. The only variable is the rate of tax you might pay on it which depends on your other income, given that the rate of progression of Swiss taxes to the highest rates is pretty steep that won’t make much difference to the absolute amount..
Zurich said they will still go forward with the planned increase in property vermogenwert (value,) this year but will stay the eigenmietwert (imputed rental) increase
Which in effect made the amount paid tied to one’s income. At least in CH home owners with lower incomes end up paying less, all told.
It is not uncommon back home that one might have to sell becaue the flat rate property tax exceeds retirement income.
I suspect the biggest effect of the vote in the medium term will be a reduction in the very high levels of personal debt here as people pay off their mortgages.
The Swiss always had a weird relationship here. Most seemed perfectly willing to pay CHF 1,000 in debt interest to save themselves perhaps CHF 300 in tax. Fair enough if you could do something better with the cash that performed better than the interest you were paying as mortgages are the cheapest regular source of finance. But most people didn’t do this.
I suspect there will be a boom in repairs over the next couple of years until abolition as people get larger works done in time to claim the deduction (I certainly will!) and after that a bit of a slump for a while to compensate. But long term I doubt it will make much difference.
Correct but as I tried to explain the difference isn’t that much. As a pensioner, the extra on my house is perhaps CHF 4K, in my earning days with twice or more the income it would have been maybe CHF 6K.