Home purchase and renovation: CGT on sale

I noticed recently that doing value maintaining renovations to an owned home might lead to a nasty surprise in terms of Capital Gains Tax when you come to sell it.


Couple purchases a home in Zurich in Dec 2015: CHF1m
The property is old and requires renovation, with replacements of very old decor and infrastructure (so value maintaining rather than value enhancing for tax purposes), e.g. new electricity, flooring, like for like kitchen etc etc: Cost spent on renovation: CHF400k

Assume for the moment that no value enhancing stuff was done, like adding a conservatory that wasn’t previously there.

Couple owns the property for ten years, decides to sell and then rent rather than buying another place (which can offset CGT) and has a buyer for CHF 1.5M. Estate agent costs at 2.5% are CHF 37,500

According to results from the CGT calculator on Houzy:

Real estate gains as calculated are: CHF 462,500 (i.e. renovation costs are disregarded)
CGT: CHF 139,520

So even though sold at a technical profit, this leads to a loss of
(1.5m sale - 1.4m cost) - 37,500 estate agent - 139,520 CGT = 77K

In conclusion, only value ENHANCING renovations can be subtracted at time of sale for CGT purposes, not value maintaining. Of course, those value maintaining can be deducted from income in the tax year they are carried out to reduce income tax.

By no means, in such a short time it’s always a loss.

When you buy (and later sale) you’ve got some negative x costs on your balance. Then the maintenance costs (don’t forget often omitted cost of your time to coordinate them). Then tax on theoretical income. And of course you’re making a bet that property prices will go up.

Well, maybe not an actual loss, but the real net gain would be far far below your expectations. I have no idea if I’m going to stay here more than 10 years so I prefer hassle free renting.


Spreading renovation/maintenance costs over 2 or 3 tax returns is more advantageous.

CGT (or GrundstĂĽckgewinnsteuer) decreases each year you live in the property and is totally offset if you buy another property in Switzerland for the same price or more. There is a time limit between selling and buying.

If you are confident of the property value, then an estate agent is not necessary. Otherwise a valuation will cost approx CHF2-3000…

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It’s typically preferred to have costs as revenue deductions to set them off against income and reduce your tax for the year.

Increasing the capital base will only give you advantage long in the future when you sell, and even then only if you have a gain (which is not guaranteed). Furthermore, those gains, might anyway be deferred if you roll them over into a new house purchase.

When discounting for the time value of money, the reduction in tax on gains might not be worth very much.


Under the assumptions your calculations are correct, but I find them a bit unrealistic.

  • You will carry out 400k worth of repairs (“replacing old decor”), ie 40% of the price paid (so a larger percent of the building, since part of the price paid is for the land), and you claim that none of that will be value increasing ? I find this hard to believe. Whilst a conservatory is obviously value increasing, adding an extra appliance to the kitchen that was not there before, extending the kitchen by a few cm or simply replacing a synthetic kitchen counter with a wood or marble is also considered value-increasing.
    In my experience, a typical kitchen repair will be both, and a local builder will do the split on the bill for you, CHF x for maintenance and y for added value.

  • If you claim that none of the repairs are value-adding, then how do you justify the 50% price increase from 1m to 1.5m when you sell ? Simply by the housing market supply and demand? This is enormous, even for counties with much more profitable housing markets. If you think that the renovation had no contrubution, and it’s purely the market, then by no means you should spend 400k for maintenance, just keep the building as is or do the bare min, and sell later for 500k profit.

  • Both maintenance and value-adding repairs reduce tax, the first in the tax return of the year you carry them out, the second at the end when you sell. (BTW, the notary fees are also deductible for capital gains, something you forgot in your calculation).

  • Most people stagger maintenance over many years, reducing significantly their tax year after year (in some cantons marginal income tax rates can be 40%), and worry much less for the long-term Capital Gains Tax. After all, there is no guarantee of any future price increase, the price will be what is will be when you decide to sell, you may gain you may lose.

  • As said, you should consider owning as mainly a lifestyle choice than a purely financial one (although this may be slowly changing), it is not guaranteed that you will make the amounts you think and, outside the big cities, markets are very unpredictable at least. Moreover, the existence of CGT makes housing unattractive, since CGT does not exist on any other forms of investment (ie financial instruments, or objects of value).



With regards to your second point, you need to understand that this means “Value maintaining” or “Value Enhancing” from a strict taxation point of view. Which is, that say a kitchen is 30 years old, you are allowed to treat a replacement as value maintaining rather than value enhancing, again to emphasise from a tax treatment standpoint. Of course, in real life, replacing a crappy old kitchen with a new one if done well will have an effect on the value too, right? You would only have to treat certain aspects as value enhancing, e.g. maybe if you only had one oven before and now you have two.

Otherwise you would have to say that two identical properties, one with the old kitchen, and one with the new kitchen, should logically be worth the same to all potential buyers. I hope that’s clear?

In fact, it is quite possible to do extensive renovations of an old property which has not been renovated in a long time, say for 400k, under the value maintaining aspect, but leading to an increase in the market value greater than the renovation cost, this quite irrespective of the general value of property also going up in the meantime, This is what happened in our case (and actually by significantly more than I am stating, believe it or not), at least for the moment!

For the other points and posters, please bear in mind that in my example, I am trying to keep the example as simple as possible for clarity.

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Well you’ve certainly managed to confuse me.

It seems, from what other people are saying, that whichever way you treat your renovations/improvements from a tax perspective you’re going to end up paying the same amount of tax on them in the long run. Is that not the case?

Hi Ace

Not sure what confuses you.

Renovations that are treated as value maintaining can be subtracted from income, so the reduced tax will be a percentage of the reduced income. This is transparent.

Renovations that are treated as value enhancing can be subtracted 100pc from any reported profit on sale, and then CGT is applied accordingly.

What’s confusing, still, is that you are talking about two situations, with different ways of taxation, without addressing the issue of whether one way is better than another. I did ask a very specific question, do you have an answer for it?

The terminology is maybe confusing. It’s probably better to think whether the expenditure is revenue in nature (and deductible for taxes) or capital in nature (adds to the base cost of the property).

For example, let’s say you have 2 identical houses, but one has a broken dishwasher and the other has no dishwasher at all.

If you install a dishwasher in the first house to replace the old one, it is a repair so revenue in nature.

If you install a new dishwasher in the 2nd house, then this is capital in nature.

The value added is the same in both cases (both are now identical - though technically the first would have had a higher value until the DW broke, and now the value is restored) but the tax treatment is different.

That’s not the bit that’s unclear. Is one way,assuming you had the choice to categorise your expenditure as preferred, more tax-efficient in the long run than the other?

The OP was suggesting that one way would end up losing money in CGT, but seemed to be ignoring the tax reduction they’d have got in the years before selling.

Yes, but this depends on circumstances and canton e.g. rate of tax on CGT, your marginal tax rate, amount of gains, timing of sale etc. In typical cases, I would expect revenue treatment to be preferred.

So in principle, as long as you’re earning enough for the expenditure to be offset against annual tax liability, you just declare it each year as renovation costs, then when you sell the CGT is payable in full (obvs unless you’re moving up the market).

Yup. Though you don’t really choose, you just declare it as appropriate.

Errr, no, not at all. My original post says quite clearly:

Re your later post:


It’s difficult to answer your specific question because it contains many variables… how much we earn, where we live, and if we could have efficiently spread out the renovations over years are three things that come to mind. But also, the idea of all the renovations being value enhancing is not realistic.

The figures in my example are for example only, they are not exact for our case. I can give a ballpark guess, that the way we did it, doing most of the renovation in one year, and if we were to sell our house after ten years for a similar figure to the above, the CGT we would have to pay would be approximately double the amount that we saved in income tax savings. Though as I said, not particularly realistic.

However, in reality if we were to sell our house now, our gain would be greater than stated and the CGT also commensurately greater.

Plus in many cantons you can deduct a percentage for maintenance (without need of any real expendicutre), so it makes no tax sense to do maintenance below this amount. Better to save up and do a bunch of maintenance that goes over the limit, or take the standard maintenance allowance.

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