Making use of the scope for structuring property gains tax – the BETTERHOMES experts explain what’s important
If you sell a property, there are a number of tax aspects to consider. This applies above all to the real estate gains tax, the amount of which depends on the sales price, the length of ownership and the tariff models of the respective canton. In this article by the real estate specialists at BETTERHOMES, owners can find out how to calculate the tax correctly, how it can be reduced and what to look out for.
Determining property gains tax – BETTERHOMES clarifies
Taxation refers to the difference between the purchase and sales price. In addition to the property itself, the purchase price also includes value-enhancing investments, costs for advertisements, broker commissions, notary fees, costs for early mortgage terminations and for changes of ownership.
The amount of taxation depends on the length of ownership, whereby there is a progressive scale in most cantons. The shorter the period between purchase and sale of the property and the higher the profit, the higher the tax in relation to the profit.
To determine the tax, one first determines the taxable profit. This is calculated from the sales proceeds, from which the investment costs are deducted. Thus:
|Taxable profit = sales proceeds – investment costs|
In order to determine the profit tax in the next step, the amount of profit, the period of ownership, allowances and the tariff model applicable in the respective canton are also taken into account.
Ownership period:
In most cantons, a higher tax must be paid on profits realised in the short term. In Zurich, for example, the tax burden increases by 50 % if the property was held for less than one year before the sale. On the other hand, there are reductions for long periods of ownership. In Bern, for example, if you hold a property for five years, the real estate gains tax is reduced by 10 %.
Tariff:
A distinction is made between proportional and progressive tariffs. The proportional variant is characterised by the fact that the tax rate remains the same regardless of the amount of profit. The length of ownership is taken into account with a degressive tax rate. The degressive tax rate is applied in the cantons of Aargau, Appenzell Ausserrhoden, Basel-Stadt, Fribourg, Geneva, Nidwalden, Obwalden, Ticino, Thurgau, Uri and Vaud. In the other cantons, only the progressive rate is applied, which depends on the amount of profit.
Tax allowances:
In most cantons, the real estate gains tax does not apply to very small gains. Depending on the location, the tax allowance ranges from CHF 500 (Basel-Stadt) to CHF 13,000 (Lucerne). There are special regulations in Thurgau, Ticino, Valais and Neuchâtel. Here, all profits are exempt from tax if the tax does not exceed a defined amount between CHF 30 and 100.
In two cantons there is a general tax deduction, but sellers are only entitled to it once per calendar year. It amounts to CHF 10,000 in Uri and CHF 2,000 in Schwyz.
Let us illustrate the calculation of the real estate gains tax using the example of Zurich.
- Purchase price: CHF 1’000’000.-
- Investment in appreciation: CHF 30’000.-
- Sales price: CHF 1’150’000.-
- Costs for estate agents, advertisements etc.: CHF 20’000.-
- Gain on property: CHF 100’000.-
- Deduction for six-year ownership period (38 %): CHF – 38’000.-
- Taxable property gain: CHF 62’000.-
- Tax rate: 29.4
- Total real estate gains tax: CHF 18’228.-
How can you reduce the property gains tax?
The longer you own a property, the lower the tax burden. If a high profit is expected, it may therefore be advisable to postpone the sale for a few years. The maximum tax rebate is reached after a predefined period of ownership, which differs from canton to canton. In Zurich, for example, this is currently 20 years, in Lucerne 33 years and in Bern 35 years.
If the purchase price includes not only the property but also, for example, furniture, garden tools and similar equipment, it is advisable to list them separately in the purchase contract. This ensures that they are not included in the real estate gains tax. In addition, costs such as those for the notary’s office, estate agent and advertisements should be claimed, as they reduce the amount of the taxable real estate gains.
Possibilities for reducing the real estate gains tax should be conscientiously examined together with a specialist, especially in times of a highly dynamic real estate market, in order to avoid financial disadvantages.
Can the real estate gains tax be waived?
There are situations in which the real estate gains tax does not have to be paid immediately, but is deferred. This is the case, for example, with an inheritance, a gift or a preferential inheritance. Likewise, the tax can be deferred in the case of changes of ownership between spouses in connection with the law of property, separation and divorce.
However, if the property is later sold to a third party, the deferred real estate gains tax must be paid in arrears. The basis for calculation is the difference to the original purchase price and not the acquisition price. However, the period of ownership of the previous owner is taken into account.
In the case of owner-occupied property, the tax is also deferred if the proceeds from the sale are invested in a new home in Switzerland within a reasonable period of time. This is also referred to as a replacement purchase. Depending on the canton, this must be done within two to four years. If you have bought a new home, you usually have to sell the old one within one to two years in order to defer the tax.
It should be noted that the tax deferral only applies to the part of the profit that is invested in the replacement property. If the purchase price of the new property is lower than the investment costs of the old property, the entire profit is taxable immediately. This case often occurs in practice when one exchanges the house for a condominium, which is significantly cheaper.
In principle, no tax deferral is provided for second and holiday homes. If you have acquired rented apartment buildings, the deferral can only be claimed for the owner-occupied part of the property.
The most important tips on real estate gains tax
Since real estate transactions involve a large financial volume, you should deal with the topic early on. The following tips can provide support.
Check legal deductions:
Each canton has different regulations on notarisation costs, agent fees, land pledges and land registry fees. Before selling, you should find out exactly what these are, as they can have a considerable impact on the profit and thus the tax burden.
Distinguish value-enhancing from value-preserving measures:
Costs for repairs and maintenance cannot be deducted, which is why it should be differentiated exactly which measures were carried out.
Relief options:
Is it possible to defer, reduce or completely avoid the real estate gains tax?
Under-value sales:
Particular caution is required in the case of under-value sales that are subject to tax deferral. For example, if a property is sold within the family well below its market value, no property gains tax has to be paid for the time being because of the tax deferral. However, if the property is later sold to a third party, this can lead to high costs, as the difference between the purchase and sale price is significantly higher.
Keep receipts:
The amount of real estate gains tax results from the difference between the sales price and the investment costs. It is therefore important that owners keep all receipts, e.g. on renovations. In the event of a later sale, these investments reduce the property gain and thus the tax burden.
Have the property appraised correctly:
The real estate gain is largely dependent on how correctly the value of the property is appraised. Therefore, an experienced appraiser should always be commissioned.
Conclusion – Make use of the scope for manoeuvre
When selling a property, a property gains tax is incurred which, depending on the canton, the value of the property, the length of ownership and other factors, can have a considerable impact. For this reason, it is important for prospective buyers and owners to inform themselves in detail about the applicable regulations prior to real estate transactions. This opens up financial leeway, such as postponing sales or using allowances to reduce the tax burden.
About BETTERHOMES
BETTERHOMES stands for success in real estate brokerage at fair conditions and has been able to establish itself as the largest independent real estate broker in the Swiss home market with the idea of Immobilienfairmittlung® – an innovative combination of the latest technology and local expertise – and is just as successful in Germany as it is in Austria.
The company guarantees real estate sellers the best value for money in a brokerage service and offers real estate seekers the widest possible range of attractive properties.
Further information:
BETTERHOMES Switzerland https://www.BETTERHOMES.ch/de/
BETTERHOMES Germany https://www.BETTERHOMES.de/de/
BETTERHOMES Austria https://www.BETTERHOMES.at/de/
BETTERHOMES International https://www.BETTERHOMES-international.com/
BETTERHOMES on the new inheritance law in Switzerland – https://bawos.ch/der-betterhomes-faktencheck-neues-erbrecht-in-der-schweiz/
BETTERHOMES on developments on the Swiss mortgage market – https://unternehmerzeitung.ch/unternehmen/detail/hypothekenmarkt-preise-sinken-aber-es-gibt-ausnahmen/