Reader question: Are second homes in Switzerland subject to higher taxes?
Will you need to pay more tax on a second home in Switzerland? Here’s what you need to know.
When purchasing property in Switzerland you must become acquainted with the so-called ‘unity of residence’ (ZGB 23 para. 2) principle, which dictates that anyone living in Switzerland may only have one main residence within the Confederation. Since second homes - including holiday homes - are considered a luxury in Switzerland, you will sadly not be able to save much on tax when securing a second abode in the country.
First things first, what is considered a second home in Switzerland?
Whether your home is a second home as per Swiss regulations will depend largely on what purposes it is used for.
There are two categories of second homes in Switzerland: second homes and second places of residence.
A second place of residence, as the name suggests, is a place where a person lives while working or studying but is not their primary residence.
READ MORE: Does owning a second home in Switzerland give me the right to live there?
Technically speaking, second places of residence are not second homes.
These are common, for instance, with cross-border workers whose primary residence may be in a neighbouring country but who have a place of residence near their work in Switzerland.
A second home for the purposes of the law is therefore a second residence which is not uses for work or study.
The official government definition is as follows:
“In Switzerland, a second home is a house or apartment that is neither used by a person who is resident in the commune concerned nor used for work or education purposes. Second homes are often used either as holiday homes or are rented to private tenants.”
READ MORE: How can I buy a second home in Switzerland?
Do I need to pay higher tax on my second property?
In Switzerland, second homes are taxed in much the same way as primary homes. Just as with a primary property, if you use your second home yourself, you will still have to pay tax on the imputed rental value as income (rental value tax). Under Swiss law, owner-occupiers effectively “rent” their home to themselves.
The rent that would be earned if the property were to be rented out on a permanent basis is extrapolated. This is also the case if you’re unable to use your property all year round due to unfavourable weather conditions, such as risk of avalanches or heavy snowfall.
As there is no actual rent, this is charged on a rate of roughly 60 to 70 percent of what the notional rental value of the home would be if it was leased on the open market.
READ ALSO: How prices of Swiss mountain homes are expected to drop
You can deduct this amount - and maintenance costs on the property - in your annual tax return.
If you do rent out your second home, income tax will be due on the rental income. In that case, taxation of the imputed rental value is suspended.
Among Switzerland's 26 cantons, Bern is the only canton to have implemented a different rule when it comes to taxing second homes. Since January 1st 2011, only the slightly higher rental value for direct federal tax is applied to second homes, and thus also at cantonal level.
Moreover, owners of second homes should also note that if the property is partially let to guests, the imputed rental value will only be taxable proportionately and the rental income must also be taxed.
What other tax will I have to pay on my second home?
Additionally, just like with a primary property, with a second home too, you will be liable to pay cantonal property tax.
This usually amounts to less than one percent of the property’s value per year. The ‘value’ is the total market value of the property, regardless of mortgages or other debts.
Around half of Switzerland’s cantons charge this tax, with Zurich, Zug and Basel Country being some notable exceptions.
This tax is most common in areas where second home ownership is common, i.e. tourist areas and winter sports locations.
Although you will include both homes in the one tax return, the effective tax rate is based on the location of each home, rather than where you reside.
Additionally, you may also be liable for the annual capital tax, which is part of a broader wealth tax on all assets held in Switzerland or abroad.
As with the cantonal property tax, this is generally less than one percent of the value of the property (more commonly less than half a percent).
A home in Matt, Glarus Süd, Switzerland. Photo by Steffen Lemmerzahl on Unsplash
Unlike the cantonal property tax, the ‘value’ of the property also includes debts such as mortgages, meaning that the amount you pay is likely to be lower than the market value of the property.
Does capital gains tax also apply to holiday homes?
In Switzerland, with (almost) every property sale, the seller is obliged to pay tax on net profit made in the sale: the capital gains tax. In general, the longer you own your property, the lower your tax burden will be. This also means that if you buy a property and choose to sell up following short ownership, you will be liable to pay a much higher tax.
This also applies to second homes, but there’s more. If you are looking to sell your second property after only owning for less than five years, you may even be obliged to pay a tax surcharge in some Swiss cantons to counter real estate speculation.
Additionally, in the canton of Bern only full years are counted towards the ownership duration, hence why it makes sense to plan a potential sale in advance. Whether you own a primary or second property, however, it is crucial you keep track (receipts) of all maintenance work you have had done to the property that could lead to an increase in its value.
READ ALSO: Why you can be taxed four times over for owning a home in Switzerland
Can I reduce the capital gains tax on my second home?
When looking to sell your second home, you may be able to reduce the profit if you can prove increased acquisition costs. These would also include any maintenance or construction work you have had done to your property that may have led to an increase in value.
In Switzerland, you can also spread out larger maintenance work over several years, however, this would only make sense in the financial sense if the effective maintenance costs fall above the flat rate in all tax years concerned. If that is not the case, it would be smarter to benefit from the flat rate in one year and then deduct the full costs in different year.
In general, there is no tax-privileged replacement purchase for any type of second home, be it a house or an apartment.
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When purchasing property in Switzerland you must become acquainted with the so-called ‘unity of residence’ (ZGB 23 para. 2) principle, which dictates that anyone living in Switzerland may only have one main residence within the Confederation. Since second homes - including holiday homes - are considered a luxury in Switzerland, you will sadly not be able to save much on tax when securing a second abode in the country.
First things first, what is considered a second home in Switzerland?
Whether your home is a second home as per Swiss regulations will depend largely on what purposes it is used for.
There are two categories of second homes in Switzerland: second homes and second places of residence.
A second place of residence, as the name suggests, is a place where a person lives while working or studying but is not their primary residence.
READ MORE: Does owning a second home in Switzerland give me the right to live there?
Technically speaking, second places of residence are not second homes.
These are common, for instance, with cross-border workers whose primary residence may be in a neighbouring country but who have a place of residence near their work in Switzerland.
A second home for the purposes of the law is therefore a second residence which is not uses for work or study.
The official government definition is as follows:
“In Switzerland, a second home is a house or apartment that is neither used by a person who is resident in the commune concerned nor used for work or education purposes. Second homes are often used either as holiday homes or are rented to private tenants.”
READ MORE: How can I buy a second home in Switzerland?
Do I need to pay higher tax on my second property?
In Switzerland, second homes are taxed in much the same way as primary homes. Just as with a primary property, if you use your second home yourself, you will still have to pay tax on the imputed rental value as income (rental value tax). Under Swiss law, owner-occupiers effectively “rent” their home to themselves.
The rent that would be earned if the property were to be rented out on a permanent basis is extrapolated. This is also the case if you’re unable to use your property all year round due to unfavourable weather conditions, such as risk of avalanches or heavy snowfall.
As there is no actual rent, this is charged on a rate of roughly 60 to 70 percent of what the notional rental value of the home would be if it was leased on the open market.
READ ALSO: How prices of Swiss mountain homes are expected to drop
You can deduct this amount - and maintenance costs on the property - in your annual tax return.
If you do rent out your second home, income tax will be due on the rental income. In that case, taxation of the imputed rental value is suspended.
Among Switzerland's 26 cantons, Bern is the only canton to have implemented a different rule when it comes to taxing second homes. Since January 1st 2011, only the slightly higher rental value for direct federal tax is applied to second homes, and thus also at cantonal level.
Moreover, owners of second homes should also note that if the property is partially let to guests, the imputed rental value will only be taxable proportionately and the rental income must also be taxed.
What other tax will I have to pay on my second home?
Additionally, just like with a primary property, with a second home too, you will be liable to pay cantonal property tax.
This usually amounts to less than one percent of the property’s value per year. The ‘value’ is the total market value of the property, regardless of mortgages or other debts.
Around half of Switzerland’s cantons charge this tax, with Zurich, Zug and Basel Country being some notable exceptions.
This tax is most common in areas where second home ownership is common, i.e. tourist areas and winter sports locations.
Although you will include both homes in the one tax return, the effective tax rate is based on the location of each home, rather than where you reside.
Additionally, you may also be liable for the annual capital tax, which is part of a broader wealth tax on all assets held in Switzerland or abroad.
As with the cantonal property tax, this is generally less than one percent of the value of the property (more commonly less than half a percent).
Unlike the cantonal property tax, the ‘value’ of the property also includes debts such as mortgages, meaning that the amount you pay is likely to be lower than the market value of the property.
Does capital gains tax also apply to holiday homes?
In Switzerland, with (almost) every property sale, the seller is obliged to pay tax on net profit made in the sale: the capital gains tax. In general, the longer you own your property, the lower your tax burden will be. This also means that if you buy a property and choose to sell up following short ownership, you will be liable to pay a much higher tax.
This also applies to second homes, but there’s more. If you are looking to sell your second property after only owning for less than five years, you may even be obliged to pay a tax surcharge in some Swiss cantons to counter real estate speculation.
Additionally, in the canton of Bern only full years are counted towards the ownership duration, hence why it makes sense to plan a potential sale in advance. Whether you own a primary or second property, however, it is crucial you keep track (receipts) of all maintenance work you have had done to the property that could lead to an increase in its value.
READ ALSO: Why you can be taxed four times over for owning a home in Switzerland
Can I reduce the capital gains tax on my second home?
When looking to sell your second home, you may be able to reduce the profit if you can prove increased acquisition costs. These would also include any maintenance or construction work you have had done to your property that may have led to an increase in value.
In Switzerland, you can also spread out larger maintenance work over several years, however, this would only make sense in the financial sense if the effective maintenance costs fall above the flat rate in all tax years concerned. If that is not the case, it would be smarter to benefit from the flat rate in one year and then deduct the full costs in different year.
In general, there is no tax-privileged replacement purchase for any type of second home, be it a house or an apartment.
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