Favouring or opting for rental

In Switzerland, housing is more than just a lifestyle choice. Buying or renting a property has major tax implications. This choice not only affects your monthly budget, but also your income tax, wealth, tax-deductible expenses and sometimes your retirement strategy.

In this dossier, we help you to understand the tax advantages and disadvantages of each situation, so that you can optimise your tax, taking into account your profile, your canton and your financial goals.

Buying property: what are the tax implications?

Buying a property makes you an owner, and as such you are subject to specific tax rules.

Tax on rental value

One of the tax principles in Switzerland is the taxation of rental value. In practical terms, the tax authorities consider that you derive an economic benefit from occupying your own home, and add this "notional income" to your taxable income.

This value is set by the cantonal tax authorities and corresponds to the theoretical rent you would pay for an equivalent property. It generally varies between 60% and 70% of the actual market rental value.

Example: An owner of a flat worth CHF 900,000 in Lausanne is assigned a rental value of CHF 18,000/year (CHF 1,500/month). This amount is added to his taxable income, which can significantly increase his tax liability.

Authorised deductions

Fortunately, tax on rental value can be offset by a number of deductions:

  • Mortgage interest: deductible in full (within certain federal and cantonal limits)

  • Property maintenance costs: you can choose between a lump sum (generally between 10 and 20% of the rental value) or actual costs.

  • Insurance, property tax and co-ownership charges: sometimes deductible depending on the canton

  • Energy renovations: tax-incentivised, often fully deductible

These deductions reduce taxable income and, in some cases, taxable assets.

A concrete example: A married couple with two children buy a house in the canton of Vaud. They pay CHF 12,000 a year in mortgage interest and CHF 8,000 in energy renovation costs. Their rental value is CHF 20,000. They can deduct up to CHF 20,000 in total, thereby cancelling out the tax effect of the rental value.

Wealth tax

The property is included in taxable assets, but the mortgage is deducted. This can be an interesting lever.

Example: For a house worth CHF 1,000,000 with a mortgage of CHF 700,000, the net taxable value is CHF 300,000. This will result in around CHF 1,200 to CHF 3,000 in wealth tax, depending on the canton, but this sum is often moderate compared with the tax savings made possible by income deductions.

Renting out your home: what are the tax benefits?

Renting a flat or house means that you are not taxed on the rental value. On the other hand, you cannot benefit from the deductions associated with ownership.

No rental value = no notional income

This is the main advantage: if you rent, you are only taxed on your actual income. This can be interesting for high-income earners who want to avoid any artificial increase in their taxable income.

Example: An executive in Geneva with a gross annual income of CHF 180,000 who rents a flat for CHF 2,800 per month will not have any rental value added to his income. This allows him to remain in a lower marginal tax bracket.

Few tax deductions available

The downside is that your rental income is not tax-deductible. Even if housing represents a significant proportion of your budget (often between 25% and 35% of income), it will not count towards your tax return.

The only deductions you can make are

  • Moving expenses for professional reasons

  • Dual residence expenses (e.g. in the event of separation)

  • Certain expenses relating to working from home (subject to strict conditions).

Comparing figures: buying or renting, what's the best tax strategy?

Let's take a concrete example to compare the two situations:

Profile:

  • Single, aged 35, no children

  • Gross annual income: CHF 130,000

  • Location: canton of Vaud

Option A: Purchase

  • Property purchased: CHF 800,000 flat

  • Mortgage: CHF 640,000 (80%)

  • Mortgage interest: CHF 12,800

  • Estimated rental value: CHF 16,000

  • Maintenance deduction: CHF 5,000

Option B: Rental

  • Rented flat: CHF 2,500/month → CHF 30,000/year

  • No housing-related deductions

Tax consequences :

  • Owner: taxable income increased by CHF 16,000, but deductions of CHF 17,800 → positive net impact

  • Tenant: no increase in rental value, but no tax leverage

Numerical conclusion: the owner will pay around CHF 2,500 less tax per year, in addition to building up capital on his property.

Long-term prospects

Building up assets

Buying a property allows you to build up capital that can be used for resale or passed on to your heirs. In the long term, it's a form of forced savings, which is particularly attractive when you reach retirement age.

Taxation at retirement

When you retire, your income falls, but the rental value is still taxed. For some retirees, this can lead to a significant tax burden. One strategy is to pay off the mortgage or reduce charges to offset the loss of income.

Resale and property gains tax

When a property is resold, tax is payable on the gain. This gain is calculated as the difference between the sale price and the purchase price, less justified expenses (notary, renovations, etc.). Rates vary according to canton and length of ownership: the longer you hold the property, the lower the tax.

Example in the canton of Vaud :

  • Resale after 5 years: tax rate of up to 30

  • Resale after 20 years: rate reduced to around 7%.

The choice depends on your profile

Are you young and mobile? Renting is often more flexible and tax-neutral, and means you don't have to tie up capital.

Are you a couple with children? Buying can offer significant tax benefits and long-term stability. You can optimise deductions and build up assets that can be passed on.

Are you close to retirement? Beware of the rental value, which can weigh heavily once your income drops. Anticipate your post-retirement tax situation.

Buying on credit: underestimated tax leverage

In Switzerland, many homeowners choose not to repay their mortgage in full. Why do they do this? Because the interest is tax-deductible. As long as interest rates remain low, keeping a debt means that you can maintain your tax-deductible charges while investing your capital elsewhere (3rd pillar, shares, etc.).

Conclusion

Buying or renting your home is not just a choice of comfort or lifestyle. It's also a strategic decision with major tax implications. Buyers can optimise their tax position by deducting significant expenses (interest, maintenance, renovations), despite the rental value. The tenant benefits from simpler tax rules and better budget visibility, but no levers for optimisation.

In all cases, the best choice depends on your income, your canton, your life plan, your investment horizon and your ability to manage a mortgage.

A personalised analysis is still the best way to make an informed decision. After all, it's not just a question of tax, but also of consistency with your personal and professional plans.

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