Abolition of the Imputed Rental Value

Introduction – The Starting Point

The recently approved abolition of the imputed rental value promised a lot: young families, low-income households, and even tenants were supposed to benefit. A closer look at reality, however, tells a different story. The hurdles to acquiring residential property have risen sharply in recent years – mainly due to high real estate prices, stricter affordability tests, and rising interest rates. The imputed rental value hardly plays a role in the question of whether someone can actually buy a house or an apartment.

So who really benefits from this reform?

The Winners

The real beneficiaries are primarily wealthy owners with largely paid-off properties.

• Retirees and the 50–65 age group: Studies show that a large share of these owners have already heavily amortized or completely repaid their mortgages. Their housing costs are low today, and with the abolition of the imputed rental value, their tax burden will decrease even further.

• Wealthy households with large or recently renovated properties: In such cases, the imputed rental value often amounts to several thousand francs per year. This relief therefore flows to those who already belong to the financially strongest groups.

• Owners of new or modernized properties: They benefit twice – on the one hand from low maintenance costs, and on the other hand from the elimination of a tax that previously reflected their high living standards.

In short: the greatest effect occurs where wealth and security already exist.

The Losers

The majority of homeowners end up worse off:

• Young families and first-time buyers: They typically finance their properties with high mortgages. Not because they want to, but because real estate in Switzerland is so expensive that it is practically impossible without a mortgage. With this reform, interest deductions disappear – precisely the relief that has so far eased their budgets. The older generation, who already own partly or fully paid-off homes, hardly notice this. Their interest burden is comparatively low. For first-time buyers or young families with children, however, it is almost impossible to purchase a property without taking on a large mortgage. And under the new law, annual mortgage interest can no longer be deducted for tax purposes. A heavy blow for the very group for whom homeownership is often most necessary: young families with children. Many landlords are reluctant to rent apartments to families with children – because of noise, greater wear and tear, and higher potential for conflicts among tenants. Families with more than two children also struggle to find affordable housing, as large apartments with five or more rooms are rare and expensive. That is why the dream of owning a child-friendly home remains strong for many.

• Buyers of older properties: Since new builds are often unaffordable, many young families turn to older houses. But these purchases are soon followed by costly renovations – from replacing heating systems to façade renovations and kitchen updates. Previously, such costs could be deducted from taxes, but in the future, this will no longer be possible.

• The middle class: Until now, they benefited from the ability to deduct mortgage interest and maintenance costs. The loss of these deductions will significantly increase the tax burden – especially for households already under financial strain. In the long run, every property requires renovation. But now the financial incentive to maintain one’s property disappears.

• Tenants: Despite contrary claims by many in the business world (including the homeowners’ association HEV), this reform brings them nothing. For rented properties, the current system remains: rental income is taxable, and maintenance costs are deductible.

Thus, the very group that was presented as winners during the campaign is, in reality, disadvantaged.

What Can We Expect in the Future?

Since banks’ requirements for acquiring property remain unchanged, demand for homeownership will not increase overall. Banks continue to calculate affordability using a notional interest rate of 5%. This means: even if someone can bring the required 20% equity, affordability is still calculated at 5% – despite the actual interest rate being much lower. As a result, families without high incomes cannot obtain mortgages from banks, even if they have substantial savings.

In practice, this means: either provide more equity or drastically increase one’s income through a job change or further training. For many families, this is not realistic – especially with small children.

Currently, many older properties are inhabited by a single person – often widows or widowers. They can afford the property only because it is fully or partially paid off and housing costs are low. However, older people often neglect necessary maintenance. As a result, more and more run-down properties will come onto the market in the future. But due to the abolition of the imputed rental value, they will be less attractive, since renovation costs can no longer be deducted from taxes. The outcome: such properties will sit on the market for a long time or be sold at a much lower price.

Another foreseeable consequence is a downturn for the construction and trades sector. Renovation costs can no longer be deducted, so many Swiss homeowners will opt to carry out repairs and maintenance themselves. Where in the past one would have hired a painter, after the abolition of the imputed rental value, it will often seem more attractive to paint the walls oneself – even if it costs more time and energy. Bad news for tradespeople.

Conclusion – A Social Imbalance

The analysis is clear: The abolition of the imputed rental value primarily benefits wealthy owners with paid-off properties. Young families, the middle class, and first-time buyers, on the other hand, lose out.

The reform was sold as a step towards more homeownership and lower taxes. In reality, the following happens:

• Property acquisition is not made easier, since banks continue to impose high requirements for equity and affordability. This remains the main barrier to homeownership.

• Existing owners with large mortgages are penalized, as they lose valuable tax deductions. This is essentially a hidden tax increase for the middle class with properties in need of renovation.

• A wealthy minority – retirees and the rich – are granted tax relief, while the broad middle pays more.

Political Background

Why, then, this legislative change? A look at demographics provides the answer:

Switzerland is aging. A large portion of the politically active and electorally powerful population is over 50, well-educated, and financially successful – precisely the group that benefits most from this reform. That these interests are reflected in legislation is hardly surprising.

Window Dressing Instead of Fairness

The campaign promised benefits for the socially disadvantaged and for young families – a strong argument meant to generate broad support. But in practice, the opposite is happening. Tragically, after the introduction of individual taxation, this is already the second legal change within just a few months that hits young families with children particularly hard.

And yet: the media, foundations, and organizations that claim to stand for the interests of the middle class remain largely silent on this social imbalance.

Call for Discussion

📩 Share your thoughts on this topic via Instagram or YouTube @verumvox_org
Or write to me via the contact form on this website. Interesting comments and replies will be featured in a follow-up article.