Completing your tax return is a chore that comes around every year – and the submission date is creeping ever closer. Do you own your own home? Great! Then use our tips to help your property optimise your taxes, slashing your tax bill in the process.
Nobody enjoys filling out their tax return, but the same question tends to crop up every year: how can I trim my tax bill? If you a homeowner, you’ve got a real ace up your sleeve. Why? Because properties can be used to optimised your tax return, even when mortgage rates are low.
Tax savings 1: Mortgages and debt interest
Let’s start with the good news: any debt interest charged on your mortgage can be fully offset against your taxes. In other words, the more interest you pay your bank, the less income is subject to tax. However, since mortgage interest rates are very low at the moment, the tax relief will be pretty small too.
That said, you can cut back on wealth tax when you build or buy a property – because the taxable value of the property is generally about 70% of its actual market value. Put another way, if you buy an apartment for CHF 1,000,000, you have to declare an actual taxable asset of only CHF 700,000 on your tax return.
Plus, most homeowners take out a mortgage with their bank and this debt reduces the value of the asset by the sum owed. Looking at the above example again, if just 20% were financed with cash and 80% with a mortgage, you would owe a mortgage value of CHF 800,000. At a taxable value of 70%, no wealth tax would be due whatsoever, provided you do not have any other assets.
Tax savings 2: Imputed rental value and maintenance deductions
As homeowners do not need to pay rent if they live in their own property, the full imputed rental value of their property has be taxed as income. This amounts to 60% to 70% of the figure a tenant would pay for the property each year. Despite this fictitious income, you can reduce the amount of tax you pay by making deductions for maintenance or renovation. Any work or investments that provide long-term value are tax-deductible: repainting your walls, putting up a new roof or even replacing your old heating system or kitchen appliances. However, each canton has individual rules for this.
If you own a new build and none of these costs is incurred in the first few years, you can still make the most of flat-rate deductions. Generally, properties less than 10 years old can benefit from a deduction of 10% of the imputed rental value. From 10 years, you can make a flat-rate deduction of 20%. If you’re planning major renovations or a modifications, it’s worth splitting your actual deductions over two years so you can make the most of these tax breaks.
Tax savings 3: Other deductions and canton-by-canton differences
As in many other areas, every canton has differing rules in terms of what may be offset against taxes. In many cantons, premiums for building insurance and other insurance policies count as maintenance, so it’s worth taking a close look at whether flat-rate or actual deductions will leave you better off. In the case of apartment buildings, some cantons class payments into the renovation fund and management charges as maintenance, enabling them also to be offset against the imputed rental value.
Want to get a deeper insight into the tax consequences of being a homeowner? Or are you planning to sell your property? Our Engel & Völkers tax guide offers a brief overview of Swiss tax law.
But if you don’t own a property yet, tax isn’t the only reason to check out what we offer. Your dream home might be just a click away!