Rental value: A typical Swiss innovation and the ideal basis for a fair compromise in the upcoming tax reform.

Rental value 2.0

International foreword

The present taxation for homeowners in Switzerland is referred to as “Eigenmietwert-besteuerung”, in English rental value taxation. Because of the many disadvantages, this tax model is discussed repeatedly. However, one advantage is the solidarity between renters and homeowners. Under similar conditions a rented and an owned apartment generate similar tax revenues. The homeowners pay a higher income tax and the renters pay a higher rent. With this higher rent, the landlord pays the tax.

The Economic Commission of the Council of States (Ständerat) launched in February 2017 an initiative to repeal the rental value taxation. The more conservative leaning Parliament aims at a tax exemption for homeowners. Such a decision would result in a disparity as rental housing would then continue to generate taxes while residential property would be exempt. In addition to this tax privilege, the group of homeowners would profit from subsidies (Swiss Constitution, Art. 127-2, promotion of home ownership).

The 8% residential tax is a new approach. Instead of taxing the income side, the residential consumption would be taxed. The tax model aims for an equal treatment of renters and homeowners, as well as for an equal treatment of all kinds of landlords (natural persons or companies). 8% corresponds to one monthly rent per year. This tax rate can be considered as modest. When this tax is paid by everyone, cantons and municipalities can count on an important and steady revenue stream.

For me, several points are motivating for this political project: prevention of an increasing wealth divide, moderate tax rates, transparency against tax optimization, development of the municipalities and limiting private debt. Because of privileges for mortgages, Switzerland is world champion in private debt. And what about rental value 2.0? With this term I’d like to motivate the politicians in Switzerland to review the option of applying the unpopular rental value in an innovative way.