In Switzerland, individuals have two significant levers at their disposal to optimize their tax burden: the deduction of property expenses and payments to pension funds. However, the attractiveness of these two tools could be significantly reduced by two forthcoming legislative changes. On the one hand, the abolition of rental value, on which the Swiss people will vote in September 2025, will virtually eliminate the possibility of making property deductions on owner-occupied real estate. On the other hand, the drastically increased taxation of pension withdrawals (planned from 2028) will affect all those who have saved for their retirement.
Both reforms are part of a drive to simplify the tax system, to the detriment of taxpayers.
Abolition of rental value
A two-stage reform
Following the agreement of both chambers in the winter session of 2024, the abolition of rental value now follows a precise timetable. On September 28, 2025, the people and cantons will vote on the necessary constitutional amendment. This amendment will enable the cantons to levy a property tax on second homes, and at the same time abolish rental value.
If approved, these legislative changes would come into force on January 1, 2026.
New deduction rules
In return for the abolition of the rental value, deductions will be drastically limited. For direct federal tax, only the following will remain:
- Passive interest according to the restrictive proportional method (i.e. only allowed for leased or rented property)
- Restoration work on historic monuments
In particular, the following deductions will disappear:
- Maintenance costs for the property in which the owner resides
- Property insurance premiums
- Most mortgage interest
An accompanying measure for first-time buyers
The reform introduces a specific deduction for first-time buyers. For ten years after acquiring their first principal residence, married couples will be able to deduct up to CHF 10’000 in mortgage interest in the first year (decreasing by 10% a year), compared with CHF 5’000 for single people.
Although this has the goal to encourage home ownership, it is still very limited compared with the current system, which allows mortgage interest to be deducted up to the amount of the return on assets (including rental value) plus CHF 50’000 in direct federal tax.
In addition to this tax impact, owners will lose the incentive to make maintenance works on their property, which could ultimately have a negative impact on the state of the Swiss housing stock.
On the other hand, the reform will benefit people who pay little or no mortgage interest (e.g. retirees), and for whom rental value is currently a tax burden.
Increased taxation of capital withdrawals
An amendment as part of the 2027 budget relief package
The Federal Council has included in its budget relief package a substantial amendment to Article 38 LIFD concerning the taxation of pension capital benefits. This measure is intended to generate additional revenue for the Confederation.
A new, significantly more burdensome scale
The current federal system, under which a withdrawal of pension capital is only taxed at one-fifth of the ordinary tax scales, will be replaced by the following specific progressive scale:
| Up to 29’700 francs | 0,0% |
| From 29’700 to 53’400 francs | 0,2% |
| From 53’400 to 61’300 francs | 0,4% |
| From 61’300 to 79’100 francs | 0,6% |
| From 79’100 to 94’900 francs | 0,8% |
| From 94’900 to 100’000 francs | 1% |
| From 100’000 to 250’000 francs | 3% |
| From 250’000 to 1 million francs | 5% |
| From 1 million to 10 million francs | 7,5% |
| Over 10 million francs | 11,5% |
This increase represents a considerable burden, particularly for large amounts. A withdrawal of 700’000 francs, currently effectively taxed at 2.26% at federal level, would find itself taxed at 3.91%, an increase of almost 75% on the current rate.
At present, the change only concerns the federal level, as the cantons have not yet indicated whether they will follow the same trend.
Timetable and uncertainties
Consultation with the cantons and social partners ended on May 5, 2025. The draft still has to be discussed with a cantonal delegation before being forwarded to Parliament. As the entire package of measures is subject to an optional referendum, the date of entry into force remains uncertain.
The Federal Council envisages application as early as 2028, but warns that rejection of the budget relief plan could lead to tax increases in other ways.
