26 November 2025
by Eilidh Norman
Client Relationship Manager & Financial Planner
For years, the idea of the taxing homeowners on a "theoretical rent" has baffled many in Switzerland. Why should you pay tax on income you never actually receive – the rent you'd pay yourself if you rented your own home?
The official reasoning is simple enough: owning a home provides an economic benefit, because you avoid paying rent. Tax authorities argue that this benefit should be treated like any other form of income. Whether or not that feels fair, it clashes with the common-sense idea that taxes should apply to real, earned, or received income. For some property owners, especially retirees or those who own their home outright, the result is a cash-flow headache.
Taxing real estate across the world is quite common, but many jurisdictions tax a percentage of the assessed or estimated value which is more commonly understood and accepted than turning the hypothetical rental income into an item on a tax return.
The imputed rental value tax exists because:
From the 1930s to 1950s, Switzerland wanted neutrality between renters and owners.
Renters pay rent using their taxed income, while homeowners live in their property "for free" which is considered a financial advantage. To prevent homeowners from having a tax advantage simply because they don't pay rent, the system treats the benefit of living in one's own home as income and taxes it.Deductibility of mortgage interest made imputed rental income necessary to avoid tax arbitrage.
The system emerged during a period when homeowners were wealthy and renters were the majority.
Political coalitions defending the system have historically out-muscled reform attempts.
This especially included bankers who profited from higher mortgages. Homeowners are encouraged to keep larger mortgages for longer under the system, given the deductibility of the interest, but this increased interest payments (therefore, providing greater deductions for the homeowner, and greater income for the banks, for longer periods).
It's a relic of mid-20th-century economic logic - and Switzerland has finally found a politically acceptable way to unwind it.
In September 2025, Switzerland voted in favor of a constitutional amendment allowing cantons to introduce a special property tax on second homes. Linked to this was a legal amendment that abolished the taxation of imputed rental value on primary residences and restricted certain deductions.
Because these two changes were legally tied together, the entire reform required both public and cantonal approval hence the referendum.
The passed, overcoming a long history of previous failed attempts. Historically, German-speaking cantons–where homeownership is higher–supported ending the tax, while French- and Italian-speaking cantons, with more renters and heavier reliance on municipal property taxes, opposed it. Even in 2025, that familiar "Rösti divide" was clear in the results of the vote, but the combined approach tipped the scales.
Homeowners have long wanted relief from the imputed rental value tax, but past proposals threatened cantonal budgets, making them politically unviable. The 2025 referendum took a more balanced approach than before:
It abolished the imputed rental value tax.
It eliminated certain deductions to protect public finances.
It gave cantons the option to levy a special tax on second homes.
This approach satisfied homeowners without breaking cantonal budgets–a compromise that past proposals lacked.
Currently, Swiss homeowners are taxed on notional rental income from their primary residence. They can typically deduct maintenance costs and mortgage interest. Wealth tax continues separately, calculated on net property value after mortgage deductions.
The referendum introduces several concrete changes:
Abolition of imputed rental value tax
Homeowners will no longer pay tax on the theoretical rental income on their primary residence, potentially reducing taxable income.
Elimination of certain deductions
Mortgage interest and maintenance cost deductions on primary residences will disappear. This benefits newer homes with lower upkeep costs more than older, high-maintenance properties.
Transitional first-time homebuyer deduction
Married couples can deduct mortgage interest up to CHF 10,000 (CHF 5,000 for singles) in the first year, with gradual phase-out over the next nine years. This provides short-term relief but requires careful longer-term planning.
Cantonal property tax on second homes
Cantons may introduce a new tax on secondary residences that are not rented out. While homeowners may no longer pay a federal tax on imputed rental value tax, they may still face a cantonal property tax in some form. Implementation will vary widely, so the impact depends heavily on location.
The bottom line is that the abolition of imputed rental value only applies to homes that are lived in. Unrented investment properties or second homes may still be subject to taxes either as rental income (if rented) or via cantonal property taxes (if second homes).
These reforms are expected to take effect no earlier than 2028, giving cantons time to adjust legislation. Until then, homeowners will continue following current rules, including reporting imputed rental value and claiming existing deductions.
Stay informed about developments in your canton regarding second-home taxation, if applicable.
Consider consulting a tax advisor to understand potential impacts on your tax liabilities and plan accordingly.
In the short-term, we may see a rush to do home renovation projects before 2028 which could result in some surge in pricing and a shortage of available labor. It is also likely that homeowners will consider paying off more of their mortgages, which can only be a good thing for the stability of the housing market that, despite the known risks, allows homeowners to borrow seemingly astronomical sums compared to their incomes.
The abolition of imputed rent will indeed make many homeowners happy, at least for a short while, but as communes and cantons suffer from the loss in revenue, you can count on new taxes on income, real estate, or both being introduced to make up for the holes in the state coffers.
References:
Article written in collaboration with Chat GPT.
At White Lighthouse Investment Management, we are both investment management and financial planning professionals. While we do not file tax returns on behalf of our clients, we maintain a close working relationship with many of our clients’ tax advisors and help our clients invest more efficiently. We strongly encourage our clients to maintain tax compliance in all jurisdictions they are required to, however we also encourage them not to pay any more tax than they legally have to. If you are a client of White Lighthouse reading this and would like to discuss the implications for your situation, please reach out to us. If you would like to inquire about working with White Lighthouse, please visit the Contact US page on our websites www.white-lighthouse.com (For US taxpayers resident anywhere in the world) or www.white-lighthouse.ch (for non-Americans in Switzerland).