1. Introduction
The Swiss real estate sector is experiencing a major structural tax reform. On September 28, 2025, Swiss voters approved a significant change to residential property taxation, with 57.7 percent in favor and a majority in 16.5 cantons. The reform eliminates the taxation of the rental value for owner-occupied homes and permits cantons to introduce a specific property tax on second homes primarily used by their owners. It also abolishes or sharply limits deductions for maintenance, repairs, and interest expenses related to the ownership of private property. Although driven by political and fiscal fairness, the reform’s impact extends to home ownership economics, the property market, mortgage financing, and long-term tax planning for individuals and corporate entities. This article analyzes the reform’s content, rationale, and practical effects from a Swiss legal and pragmatic perspective.
2. Context: from political debate to system overhaul
For decades, Switzerland taxed property owners who live in their own homes based on the notional rental value — a theoretical income they would have earned by renting out their property. This system aimed to treat tenants and owners equally, as tenants pay rent from taxable income without tax relief, while owners benefit from living rent-free. Despite its conceptual logic, the system was unpopular. Authorities often determine notional rental values statistically, resulting in figures that may not reflect market realities, vary significantly between cantons, and are generally lower than market rents. Owners could also deduct mortgage interest and many property-related expenses, creating complex planning opportunities and often significant tax advantages.
Parliament and voters repeatedly rejected efforts to abolish the system until 2025, when a political compromise tied its removal to granting cantons new powers to offset lost revenue through a property tax on second homes. By combining these measures, Parliament maintained fiscal neutrality and federalism, offering voters a balanced proposal.
3. The legal framework for the reform
The reform rests on two complementary pillars: one constitutional and one legislative.
3.1. Constitutional amendment
A new paragraph (Art. 127 para. 2bis Cst.) has been added to the Federal Constitution, allowing cantons to levy a special property tax on second homes primarily occupied by their owners. Because this tax applies only to second homes and imposes a higher rate than on primary residences, it conflicts with the constitutional principles of universality, fiscal equality, and taxation according to economic capacity. To address this, the new provision expressly authorizes cantons to deviate from these principles. This exception acknowledges that second homes, often in tourist areas, create specific infrastructure costs and should contribute accordingly to cantonal funding.
3.2. Legislative amendments
At the legislative level, amendments to the Federal Direct Taxation Act (DBG in German, LIFD in French) and the Federal Act on the Harmonization of Direct Taxes of the Cantons and Communes (StHG in German, LIHD in French) are underway. Abolishing the rental value will eliminate related deductions, including those for maintenance, renovation, demolition, energy-saving and environmental protection measures, insurance premiums, most third-party administration costs, and the general deductibility of interest on private debts (such as mortgages, consumer credit, and personal loans).
For direct federal tax, all these deductions will be abolished except for costs related to the preservation of historic monuments, provided the work is legally required, agreed with the authorities, or mandated by them. At the cantonal and municipal levels, cantons must abolish the deduction for maintenance costs. However, they retain limited discretion to maintain certain other deductions, particularly for environmental or reconstruction costs. These choices will vary by canton, increasing Switzerland’s fiscal heterogeneity and competition between cantons.
4. Elimination of notional rental value
4.1. Conceptual impact
Eliminating notional rental value removes a long-standing element of fictitious income from Swiss tax returns and ends the tax system’s reliance on the concept of substitute income from privately owned real estate. Owners of primary or secondary residences will no longer declare notional rent and will lose related deductions.
The reform shifts the tax system from a net-income model, which allowed deductions against taxable income, to a consumption-based model that taxes only actual income. For many taxpayers, this change simplifies the system but reduces tax flexibility.
4.2. Transitional complexity
During the transition period prior to the planned entry into force in 2028 at the earliest, taxpayers will remain subject to the current system and will still be required to declare the notional rental value.
Although significant changes are necessary, the new system will be more straightforward and likely easier to apply. Eliminating the deductibility of maintenance costs will reduce the tax authorities’ control work.
5. Restriction on deductions
5.1. Maintenance and repair costs
The new regime ends the ability of owner-occupiers to deduct expenses for maintenance or repairs that preserve property value (such as roof repairs, façade work, or heating system replacement), as well as insurance premiums. These deductions are no longer available for owner-occupied properties. The regime establishes that costs for personal use are private and not deductible.
For investment properties (i.e., rented properties), all such deductions remain available as general operating costs. This change clarifies the distinction between private and investment properties and encourages owners to formalize rentals where possible.
5.2. Energy efficiency and heritage preservation work
The abolition of federal tax deductions for energy efficiency or environmental preservation work conflicts with public policies on sustainability and building renovation. Previously, complete renovations—such as façade insulation and heat pump installation—were amortizable over the investment’s lifetime through tax deductions and subsidies. Under the new system, without tax deductions, these projects become less attractive.
Federal legislation prioritizes fiscal consistency over ecological incentives and does not allow any deductions in this area. However, cantons may still offer optional deductions for energy-saving measures, which could create significant disparities between regions, especially between urban and alpine cantons, and lead to inconsistent treatment of sustainable renovation projects. An exception remains for buildings classified as historical monuments: conservation work required or approved by authorities is still deductible.
5.3. Administrative costs
Third-party property management and administration fees are no longer deductible for owner-occupied dwellings. Legally, these fees now form part of the cost of exercising property rights, not an income-generating activity. This change mainly affects co-owners’ associations using professional administrators, but its financial impact is modest compared to the loss of maintenance deductions.
6. Interest expense deductions: from generosity to restriction
6.1. Previous regime
Before the reform, individuals could deduct interest on private debt—up to CHF 50,000 plus taxable investment income—which provided significant flexibility for tax planning. This allowed taxpayers to maintain high debt levels and reduce taxable income, creating an economic incentive for mortgage debt. As a result, the system favored indebted households over those who had repaid their loans, undermining economic neutrality.
6.2. New restrictions
The reform ends the previous approach by eliminating interest expense deductions for most taxpayers, except for those with properties generating taxable rental income. The ‘proportional’ mechanism now limits deductions to the ratio of the value of Swiss rental real estate to the taxpayer’s total assets. This change restores a direct link between income and deductible expenses, enhancing tax law consistency.
Example: a taxpayer owns CHF 10 million in assets—CHF 5 million in Swiss rental property and CHF 5 million in other assets. With CHF 5 million in private debt and CHF 100,000 in annual interest, only 50% (CHF 50,000) will be deductible. This regulation affects not only homeowners with mortgages but also individuals with other private debts, such as consumer, Lombard, or private loans.
6.3. Exception for first-time buyers
The temporary deduction for first-time buyers—capped at CHF 10,000 for couples and CHF 5,000 for singles, and reduced by 10% annually—reflects the legislator’s intent to support the social and economic aspects of home ownership. However, given the high mortgages typically required to buy property in Switzerland, this deduction will likely have minimal impact compared to actual mortgage payments.
The concession also applies retroactively to those who bought their homes within ten years before the reform, allowing recent buyers to benefit from the remaining tax periods.
6.4. Loans to businesses and companies
Interest on commercial debts remains fully deductible for both individuals engaged in commercial activities and legal entities.
This distinction highlights the separation between private ownership for personal use and economic ownership for investment, with the status of real estate now depending equally on its use and the legal form of ownership (individual, company, or hybrid structure).
Practitioners must now exercise greater care in asset structuring, as property transfers to separate legal entities must balance direct taxation, property taxes, and transfer duties.
7. Cantonal property tax on second homes occupied by their owners
7.1. Objective and legal basis
The new constitutional power allows cantons to introduce a property tax on second homes, helping them offset revenue losses from the notional rental value, especially in Alpine and tourist regions where second homes are prevalent.
This tax will likely be based solely on the property’s value, regardless of the owner’s income or ability to pay. It applies only to second homes mainly occupied by their owners and excludes properties owned by companies or used for commercial rentals, reinforcing the distinction between private and professional assets.
7.2. Discretionary power of the cantons
The cantons may decide whether to introduce such a tax, define ‘second home’ and ‘mainly occupied by its owner,’ choose the tax base (market value, tax value, or another measure), and set the rate structure (flat or progressive).
Cantons may delegate this authority to municipalities, allowing them to set their own rates or integrate the tax into existing structures. If a canton lists all taxes in its constitution, it may need to amend the constitution before adopting the tax.
7.3. Expected diversity of application
Given Switzerland’s fiscal federalism, the introduction of the property tax will likely vary significantly. Tourist cantons like Valais, Graubünden, and Ticino will probably act quickly to offset lost revenue, while urban cantons may not, since second homes are less common there. Mountain resort municipalities may seek autonomy to tailor the tax to local needs. However, this could pose a problem with the existing tourist taxes that some alpine municipalities already collect. Some people may also decide to change their residence in order to avoid paying this new tax.
This regulatory fragmentation reflects Swiss federalism but raises concerns about national consistency in property taxation, especially regarding investment and asset mobility.
8. Special regimes and specific situations
8.1. Lump-sum taxpayers
Individuals taxed under the lump-sum taxation regime, known as lump-sum taxpayers, currently pay tax based on a multiple of their annual living expenses—at least seven times the notional rental value of their residence or three times the cost of accommodation. Following the reform, the reference will change from “notional rental value” to “rental value determined according to local conditions”.
It remains unclear how authorities will determine this local rental value or whether it will match the current notional rental value. Since notional rental values are generally lower than market rents, the change could increase the tax base for expenditure-based taxation.
8.2. Mixed-use properties
The new legal provisions do not address mixed-use properties. However, properties that are partly rented and partly owner-occupied will likely require proportional allocation of expenses and interest based on the extent of professional or rental use. Although the principle is straightforward, administrative practice must clarify how to implement it—whether by rental days, income share, market rental value, or floor space.
For practitioners, these mixed-use cases create grey areas at the intersection of tax and property law. Harmonized administrative practice is necessary to prevent differing interpretations among cantons and to ensure legal clarity.
8.3. Tenants and non-owners
Although the reform primarily targets property owners, its indirect effects impact all taxpayers. Eliminating the deduction for private interest also affects tenants, as interest on consumer loans will no longer reduce taxable income. As a result, the reform subtly broadens the effective tax base beyond real estate ownership.
9. Effects on the market and the economy
9.1. Short-term effects
In anticipation of the reform, a temporary surge in renovations is expected as homeowners rush to complete maintenance work and benefit from current deductions. This will likely increase pressure on the construction sector, resulting in longer wait times and higher service costs.
Property transactions may also rise in the short term as buyers and sellers adjust their financing strategies before the deductibility rules change.
9.2. Mid-term effects
Analyses forecast a moderate rise in residential property prices of 2 to 3% in the initial years after the reform, with new buildings likely to see higher increases. Older buildings should experience smaller value gains, as maintenance costs will no longer be deductible.
Eliminating notional income boosts net disposable income for owners with low debt, supporting demand, while removing interest deductibility discourages excessive borrowing and helps stabilize the mortgage market. For second homes, cantonal property taxes could offset price increases, especially in tourist areas where such properties are prevalent.
9.3. Long-term effects
Ultimately, the reform should help reduce household debt. Without tax incentives for large mortgages, homeowners may choose faster amortization, strengthening financial stability but tying up private capital and potentially limiting speculation.
Federal, cantonal, and municipal revenues could fall by 1 to 1.5%. Cantons could respond with moderate tax rate adjustments or spending cuts. Gradually introducing cantonal property taxes and establishing a more stable, less volatile tax base could partially offset these effects in the long term.
10. Practical considerations for tax planning
10.1. Review of financing structures
The elimination of interest expense deductibility prompts taxpayers to reassess their assets and liabilities. Tax-motivated debt strategies have lost relevance, as high leverage no longer provides tax benefits and increases exposure to interest rate risk.
The focus now returns to wealth management: maintaining a controlled loan-to-value ratio is both economically prudent and tax-neutral. Mortgage agreements, now without direct tax implications, resume their primary role as real estate financing tools.
10.2. Amortization strategy
Accelerated amortization lowers interest costs but must be balanced with liquidity and diversification goals. Investing the released funds in diversified financial assets may yield higher long-term returns, though with increased volatility.
10.3. Renovation schedule
The period before the reform’s full implementation (scheduled for 2028 at the earliest, possibly 2029 or 2030) offers a temporary opportunity for optimization: owners can still deduct maintenance and renovation costs until these deductions are abolished.
To maximize tax savings, owners should plan such work in advance. Anticipate high demand for renovations before the deductions end, so schedule projects early to allow for potential delays.
10.4. Ownership through corporate structures
As commercial entities retain the deductibility of interest and expenses, some owners may consider transferring real estate assets to corporate structures. However, establishing or transferring a company involves significant consequences, including transfer duties, property gains tax, capital tax, administrative costs, and increased accounting obligations. Rental income and company dividends are also taxed. For owner-occupied dwellings, the disadvantages usually outweigh the benefits, but for mixed-use or investment properties, corporate ownership may become even more efficient than it is today.
10.5. Monitoring cantonal legislation
Given the varying cantonal property tax frameworks, taxpayers with second homes should monitor legislative developments in each relevant canton.
11. Environmental and social considerations
The reform indirectly affects Switzerland’s environmental and real estate policies. Removing federal tax deductions for energy-saving measures reduces incentives for large-scale renovations and may slow progress toward net-zero emissions targets.
However, high energy prices, cantonal tax deductions, and existing subsidy programs may still encourage renovations, especially in urban areas. Cantons with strong budgets can promote energy-efficient renovations, while others may only offer symbolic measures.
For low-income homeowners, the absence of tax deductions could hinder costly renovations. Policymakers could address this by expanding targeted subsidies or low-interest loan programs at the cantonal level.
12. Administrative implementation and timetable
The Federal Council will set the reform’s effective date, considering the time needed to implement ordinances and for cantonal rules to be adopted. The reform is unlikely to take effect before 2028 and may be delayed until 2029 or 2030.
Cantonal property taxes may be introduced gradually, depending on each canton’s legislative schedule.
13. Outlook and strategy
13.1. For individual taxpayers
Over the next few years, individuals should:
- renovate before 2028 to optimize taxable income ahead of the reform;
- maintain detailed records of renovation and financing costs for potential deductions;
- reassess ownership models (direct or indirect, private or commercial) based on cantonal rule changes;
- prepare for potential new annual property taxes on second homes in certain cantons.
13.2. For property investors
Investors who let property will generally not be affected by the abolition of the notional rental value. However, they should expect reduced rental demand in regions with already low demand and limited purchasing prices, as homeownership may become more attractive for buyers with low debt due to tax benefits.
The anticipated surge in renovation work for owner-occupied dwellings before the reform may overwhelm contractors, making renovations harder to schedule and temporarily more expensive. After the reform takes effect, demand and prices should be eased, so investors who can wait may benefit from postponing renovation work.
13.3. For policymakers and practitioners
The reform will test Switzerland’s coordination between federal and cantonal levels. Legal practitioners must guide clients through changing regimes and evolving local tax bases.
Precise definitions of second homes and accurate proportional deduction calculations will be essential to prevent litigation.
14. Conclusion
The 2025 Swiss reform of residential property taxation replaces a complex, deduction-based system with a simpler, more neutral approach to real estate ownership. Abolishing notional rental value streamlines taxation but shifts the tax burden: heavily indebted and owners of older properties will pay more taxes, while debt-free or low-debt owners will benefit.
From a planning perspective, taxpayers should advance renovation plans, adjust financing, and monitor cantonal developments before 2028.
The reform aligns with Switzerland’s pragmatic, federalist, and stability-focused tax philosophy, rewarding financial prudence, limiting speculative leverage, and simplifying compliance. However, its practical impact will depend on cantonal implementation and how taxpayers adapt.
Disclaimer
This publication is provided for general information purposes only and does not constitute legal advice. Professional advice should be sought for specific situations.