Abolition of the taxation on imputed rental value tax

1. Context

The September 28, 2025 vote concerned a constitutional amendment to introduce a special property tax on secondary residences for personal use. It also led to a legislative amendment abolishing taxation on imputed rental value and several related deductions. Since Parliament tied these two aspects together, approval of the constitutional reform by the people and cantons automatically validated the legislative changes.

Under the current system, any owner occupying a primary or secondary residence is taxed on a notional income ("the imputed rental value"), corresponding to the rent they could receive if they rented out their property; for a primary residence, however, this is often (and sometimes significantly) lower than market rents.

In return, owners may claim various deductions, notably for maintenance expenses and debt interest. The latter are not limited to mortgages: they also include private debts, such as consumer loans or personal loans. These deductions enable tax planning for many taxpayers, as owners can benefit from the system if their deductions exceed the taxable imputed rental value.

In addition, some cantons already levy a real estate tax (or "property tax") at the cantonal or municipal level. In Geneva, for example, the canton levies an additional property tax. Generally, no distinction is made between rented and personally used properties or between primary and secondary residences.

2. Key changes of the reform

1. Abolition of imputed rental value taxation

The reform abolishes imputed rental value taxation entirely. Owners occupying their primary or secondary residence will therefore no longer have to declare this notional rental income once this legislative change takes effect.

In return, the possibility to deduct passive interest will be greatly restricted: in the future, such deductions will only be allowed if the property is rented or leased and the corresponding income is taxed. Moreover, the deduction will be limited to the share that this investment property represents in the owner’s total wealth, thereby creating by definition a tax leakage related to the proportional calculation method applied.

An exception is provided for taxpayers purchasing a home in Switzerland for the first time as their principal residence. They will be able to deduct passive interest for ten years, up to an annual ceiling of CHF 10,000 for married couples and CHF 5,000 for single taxpayers; this ceiling will decrease by 10% each year. As a transitional measure, taxpayers who acquired such a property within the ten years preceding the entry into force of the reform will continue to benefit from this deduction, but only for the remaining tax periods.

At the same time, the reform will also limit deductibility for various costs related to properties occupied by the taxpayer. While maintenance expenses will no longer be deductible in the future, deductibility (at the cantonal and municipal level only) of other costs linked to energy-saving and environmental protection measures, as well as demolition costs for the purpose of replacement construction, will remain at the discretion of the cantons. Concerning historic monuments, the deduction of restoration costs remains possible for federal direct tax, provided they are stipulated by law, carried out in agreement with the authorities, or required by them. For cantonal and municipal taxes, each canton will decide whether or not to maintain this possibility.

Finally, it should be noted that the deductibility of commercial passive interest is not affected by the reform: it remains fully tax-deductible as business expenses, provided it is commercially justified. Similarly, deductions for maintenance expenses, renovation work on newly acquired properties, insurance premiums, and third-party administration costs for investment properties, whether held personally or through a company, will remain deductible.

2. Cantonal property tax

The second part of the reform allows cantons to introduce a special tax on secondary residences for personal use. This measure mainly aims to offset revenue losses in tourist cantons, while giving cantons and municipalities wide discretion in defining the details.

As this new tax applies only to secondary residences, they would be taxed more heavily than primary residences. Such a distinction conflicts with the constitutional principles of tax universality and equality, as well as the principle of taxation according to economic capacity. For this reason, the new constitutional provision, adopted by the recent vote, expressly grants the cantons the right to derogate from these principles in order to introduce this new property tax.

In the cantons where a property tax already exists, it may be combined with the new tax on secondary residences. However, the modalities of implementation by the cantons in this respect remain, for the time being, undetermined.

3. Entry into force

The date of entry into force of the federal law concerning the change in the system of real estate property taxation has not yet been determined by the Federal Council. However, it has been orally confirmed that it will come into effect no earlier than 2028, in order to give the cantons the necessary time to adapt their legislation to the new provisions.

If a canton chooses to introduce a property tax on secondary residences for personal use, this may, depending on its organization, require an amendment to the cantonal constitution or the adoption of a law granting this power to municipalities. In some cases, the canton will define the essential rules and leave municipalities to set the rate; in others, each municipality may decide independently. The schedule and concrete modalities will thus depend on each canton’s legal framework, making the date of introduction of this new tax still uncertain.

4. Main practical implications for property owners and tenants

The reform of real estate property taxation introduces major changes for properties used for personal purposes, whether primary or secondary residences.

Owners occupying their home for personal use will be the most affected by the reform. While the imputed rental value will no longer be taxed in their hands, mortgage interest and property-related expenses (maintenance, insurance premiums, third-party administration fees, etc.) will no longer be deductible. The fiscal impact for these owners will therefore vary depending on several factors: place of residence, level of imputed rental value, available deductions, and evolution of mortgage rates.

Although not the main focus of this reform, tenants, and more generally all taxpayers, will also be affected by the legislative changes, as these generally limit the deductibility of all types of passive interest.

Below is our FAQ addressing the most common questions we receive.

• I am taxed under the expenditure-based regime (lump-sum taxation) and occupy a property I own. Does the reform have consequences for me?

If your lump-sum taxation amount is based on a multiple of your imputed rental value, its abolition may result in a change to your lump sum. In the future, the imputed rental value will be replaced for this calculation by a "rental value determined according to local conditions". The calculation method of this new value remains to be defined, but if it proves to be higher than the current imputed rental value — generally below market rents — this could increase your taxable base accordingly. Furthermore, changes are also expected in relation to your control calculation.

• I am a property owner and rent out my property: what impact will the reform have on my situation?

If you rent out your property, you will still be able to deduct passive interest on a proportional basis, corresponding to the share that this investment property represents within your total wealth. You will also be entitled to deduct maintenance expenses, costs related to the refurbishment of a newly acquired building, insurance premiums, as well as administration fees paid to third parties. However, rental income will remain taxable.

• I am a property owner and occupy my home personally: what changes should I expect?

In the future, you will no longer have to declare imputed rental value, but you will in principle no longer be able to deduct your mortgage interest (except for recent first-time acquisitions) and other passive interest. Property expenses will also no longer be deductible at the federal level, with some costs remaining deductible at the cantonal and municipal levels for those cantons that will provide for it.

• I am a property owner planning major maintenance work in the coming years: can I still optimize my tax situation?

Yes, it may be wise to carefully plan your maintenance work before the entry into force of the reform, in order to benefit from tax deductions for such expenses before their abolition.

• I am a tenant: how does the reform affect me?

Although the reform mainly affects property owners, every Swiss resident is affected by the parallel measures provided. Thus, even as a tenant, you will no longer be able to deduct passive interest in the future, such as interest due on consumer loans.

• My company owns real estate: what impact will the reform have?

Companies are not affected by the abolition of the imputed rental value, and passive interest as well as other property-related expenses linked to commercial activity remain fully deductible under the current legal framework.

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We are aware that this reform may raise questions about your tax situation and how to prepare for it. We remain at your disposal for any clarification or to arrange a meeting to discuss your specific tax situation.

Legal Note: The information contained in this L&S Insight newsletter is of general nature and does not constitute legal advice.