The National Council Economic Commission has voted to abolish the imputed rental value tax in Switzerland. Seen by many as one of the main hurdles to overcome in order to buy a house in Switzerland, the announcement has been met with mixed reactions among political parties, with some now calling for a referendum.

Imputed rental value the main hurdle to buying a house in Switzerland

In brief, imputed rental value tax is a charge levied on people who own their own home. The housing tax is determined by calculating how much the owner could charge for the property if they were to offer it for rent. A percentage of this theoretical annual rent, determined by where you live, is then added to your salaried income for the year and then taxed as such.

If passed, the announcement means that homeowners would not have to pay the additional income tax in future. What’s more, the commission agreed that payments on mortgages and maintenance costs - typically used as income tax deductions - will remain deductible in Swiss tax returns - essentially eliminating the downsides of imputed rental value, while keeping the tax breaks associated with it.

According to Watson, the National Council Economic Commission voted to abolish the tax by 12 votes to 10. In the process, they also struck down a plan that would have reduced imputed rental value tax by 40 percent, instead choosing to abolish it entirely.

Getting ride of imputed rental value would cost Swiss government billions

The decision was immediately condemned by many members of parliament, with National Councillor for the Middle Party, Markus Ritter, noting, “In view of the questionable financial situation of the state budget, a complete abolition of the imputed rental value is completely inconvenient." Current estimates from the Federal Tax Administration predict that the abolition of imputed rental value would cost the government 3,8 billion Swiss francs a year.

The idea is also not popular with the Social Democratic Party (SP), with National Councillor Prisca Birrer-Heimo labelling it a "financial policy disaster in favour of privileged owners." She argued that those who rent a house or apartment in Switzerland, who make up the majority of residents, will not benefit from the policy at all and may see their taxes rise to help cover the cost.

The proposal is set to be discussed by both houses of parliament during the third week of the autumn session. However, Watson noted that even if both houses voted for it, the SP would vehemently oppose the bill, making the idea the subject of a referendum.