Go Back   English Forum Switzerland > Help & tips > Finance/banking/taxation  
Reply
 
Thread Tools Display Modes
  #1  
Old 14.03.2021, 12:50
Senior Member
 
Join Date: Oct 2020
Location: Vaud
Posts: 385
Groaned at 26 Times in 16 Posts
Thanked 191 Times in 122 Posts
Gravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputation
what if scenario, is it really beneficial to have a mortgage?

Hello, I can hear every now and again that having a mortgage (and keep the money) is tax beneficial as opposed to buying a property. Can anyone explain me why?

Out of curiosity I have played with VaudTax software.
Scenario 1: 400k on a bank account
Scenario 2: 0 on bak accunt but 400k worth property
Scenario 3: 300k on a bank account, 400k worth property, 300k debt

Guess what, the final tax is basically the same! I really don't see any great benefit of not using your money to buy a property, unless you are a financial shark and can use the money for lucrative investment. However there seems to be no tax benefit.

Further question:
I have heard many times about the 'hypothetical renting income'. In the Vaud tax I selected this would be my primary residence. Then the software calculated ~6k income in the property summary, but the final tax calculation added just ~3k to my overall income so the final tax almost didn't change. Normally one would pay ~1.2k * 12 to rent such property so it feels like the 'hypothetical renting income' is a nonexistent problem as we are talking about few hundreds max vs ~15k
Reply With Quote
This user groans at Gravity for this post:
  #2  
Old 14.03.2021, 13:01
st2lemans's Avatar
Forum Legend
 
Join Date: Dec 2010
Location: Lugano
Posts: 32,495
Groaned at 2,577 Times in 1,840 Posts
Thanked 39,632 Times in 18,679 Posts
st2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond repute
Re: what if scenario, is it really beneficial to have a mortgage?

400k worth of property has a taxable value of only 150k or so, so 150k-300k = -150k or so of taxable property.

Tom
Reply With Quote
  #3  
Old 14.03.2021, 15:19
NotAllThere's Avatar
Modulo 2
 
Join Date: Oct 2008
Location: Baselland
Posts: 15,019
Groaned at 308 Times in 263 Posts
Thanked 23,152 Times in 9,400 Posts
NotAllThere has a reputation beyond reputeNotAllThere has a reputation beyond reputeNotAllThere has a reputation beyond reputeNotAllThere has a reputation beyond reputeNotAllThere has a reputation beyond reputeNotAllThere has a reputation beyond repute
Re: what if scenario, is it really beneficial to have a mortgage?

The idea is that the return on the money you use to pay off the mortgage compared to paying interest on the loan and investing it elsewhere.
Reply With Quote
  #4  
Old 14.03.2021, 15:23
Member
 
Join Date: Aug 2010
Location: Zug
Posts: 125
Groaned at 12 Times in 5 Posts
Thanked 82 Times in 37 Posts
MazingaZ has become a little unpopularMazingaZ has become a little unpopular
Re: what if scenario, is it really beneficial to have a mortgage?

A perspective

https://www.youtube.com/watch?v=AKc01jo1qLw
Reply With Quote
  #5  
Old 14.03.2021, 16:02
Guest
 
Posts: n/a
Re: what if scenario, is it really beneficial to have a mortgage?

Do us a favour and write a short precis rather than just a youtube link, eh? Just a sentence would do, to highlight whatever point the video is making and help readers know if they want to waste their time viewing it or not.

As it was I closed it almost immediately seeing that it was from someone in Ottowa. What relevance Canadian economics might have on Swiss mortgages I do not know, but very little, is what I suspect.
Reply With Quote
The following 3 users would like to thank for this useful post:
  #6  
Old 14.03.2021, 16:08
Guest
 
Posts: n/a
Re: what if scenario, is it really beneficial to have a mortgage?

Quote:
View Post
400k worth of property has a taxable value of only 150k or so, so 150k-300k = -150k or so of taxable property.
??? Would you care to expound, using words of one syllable for the hard of thinking (e.g. me) if necessary.
Reply With Quote
  #7  
Old 14.03.2021, 16:32
Senior Member
 
Join Date: Oct 2020
Location: Vaud
Posts: 385
Groaned at 26 Times in 16 Posts
Thanked 191 Times in 122 Posts
Gravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputation
Re: what if scenario, is it really beneficial to have a mortgage?

I read it as having a 400k cash means 400k to wealth tax, but having a 400k property (which tax value would be 150k) means 250k in wealth tax savings, but now if we take the scenario "100k down payment, 300k debt" assuming 150k tax value the debt exceeds the wealth by 150k... but again if we put all 400k in the property than the wealth tax would be from 150k giving you 300k margin... yeah, I also don't get it

Edit:
I'm slow thinking sometimes, but I think the advantage is then on the opposite side, when you put all 400k in a property than you're taxed on 150k... so, well, exactly the opposite of the tribal knowledge passed by mouth to mouth by all expats

Edit2:
OK, got it, there is no tax advantage in the situation I was viewing, i.e. if you want the property. However let's assume you have 2 milions, what can you do to lower your tax? buy a 2 milions worth property on mortgage, rent it even without any benefit, than sell in the future, but in between your wealth tax is zero.

Quote:
View Post
400k worth of property has a taxable value of only 150k or so, so 150k-300k = -150k or so of taxable property.

Tom
Quote:
??? Would you care to expound, using words of one syllable for the hard of thinking (e.g. me) if necessary.

Last edited by Gravity; 14.03.2021 at 16:53.
Reply With Quote
  #8  
Old 14.03.2021, 16:35
Senior Member
 
Join Date: Oct 2020
Location: Vaud
Posts: 385
Groaned at 26 Times in 16 Posts
Thanked 191 Times in 122 Posts
Gravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputation
Re: what if scenario, is it really beneficial to have a mortgage?

Yeah, that doesn't really confirm any tax advantages Of course if you are a financial shark, go on take as much "cheap" loans as you can, invest the money to repay the loans and gain on top of it.

Reply With Quote
  #9  
Old 14.03.2021, 16:43
Senior Member
 
Join Date: Aug 2007
Location: zh
Posts: 450
Groaned at 18 Times in 12 Posts
Thanked 134 Times in 78 Posts
giff is considered knowledgeablegiff is considered knowledgeablegiff is considered knowledgeable
Re: what if scenario, is it really beneficial to have a mortgage?

Quote:
View Post
Hello, I can hear every now and again that having a mortgage (and keep the money) is tax beneficial as opposed to buying a property. Can anyone explain me why?
It's really funny how ingrained in society this belief is. The majority of people will tell you that you can save taxes by deducting your mortgage interest payments but many will forget the fact that you are paying those very interests to the bank.

That said, property costs a lot these days around here and mortgage rates are really low, so it makes indeed sense to invest the money somewhere else to get returns higher than the mortgage interests. Of course this comes at a somewhat higher risk.
Reply With Quote
The following 2 users would like to thank giff for this useful post:
  #10  
Old 14.03.2021, 17:33
Guest
 
Posts: n/a
Re: what if scenario, is it really beneficial to have a mortgage?

Quote:
View Post
It's really funny how ingrained in society this belief is. The majority of people will tell you that you can save taxes by deducting your mortgage interest payments but many will forget the fact that you are paying those very interests to the bank.
The point, as I always understood it, is that you're taxed on the theoretical rental income anyway, whether you have a mortgage or not, whether you rent it out or not. If you don't have a mortgage then you simply pay the tax; if you do then that's roughly offset by the amount of the interest payments, i.e. you pay tax only on the difference between the rental income and the interest payments you've made.

Whether it works out in practice, particularly wrt wealth tax as in the scenarios mentioned here, I don't know, and confess that it all get a bit beyond me, but I do know that when we've been taking out mortgages the 'engrained belief' is stated as such by banks and estate agents, and when we've asked our accountant(s) in very broad terms they also support the idea that a mortgage up to a particular proportion is indeed most tax efficient.

It's usually suggested that 65% of the value is the break-even point (the maximum gain), but I've heard it said that this will vary significantly depending in individual circumstances; again, it all goes a but over my head.

I really would like if one of the financial whizzes here could explain it in terms we could all understand.
Reply With Quote
This user would like to thank for this useful post:
  #11  
Old 14.03.2021, 17:54
fatmanfilms's Avatar
Forum Legend
 
Join Date: Apr 2010
Location: Verbier
Posts: 21,376
Groaned at 461 Times in 352 Posts
Thanked 23,091 Times in 11,824 Posts
fatmanfilms has a reputation beyond reputefatmanfilms has a reputation beyond reputefatmanfilms has a reputation beyond reputefatmanfilms has a reputation beyond reputefatmanfilms has a reputation beyond reputefatmanfilms has a reputation beyond repute
Re: what if scenario, is it really beneficial to have a mortgage?

Quote:
The point, as I always understood it, is that you're taxed on the theoretical rental income anyway, whether you have a mortgage or not, whether you rent it out or not. If you don't have a mortgage then you simply pay the tax; if you do then that's roughly offset by the amount of the interest payments, i.e. you pay tax only on the difference between the rental income and the interest payments you've made.

Whether it works out in practice, particularly wrt wealth tax as in the scenarios mentioned here, I don't know, and confess that it all get a bit beyond me, but I do know that when we've been taking out mortgages the 'engrained belief' is stated as such by banks and estate agents, and when we've asked our accountant(s) in very broad terms they also support the idea that a mortgage up to a particular proportion is indeed most tax efficient.

It's usually suggested that 65% of the value is the break-even point (the maximum gain), but I've heard it said that this will vary significantly depending in individual circumstances; again, it all goes a but over my head.

I really would like if one of the financial whizzes here could explain it in terms we could all understand.
Inputed income 12,000 tax @30% 3,600.
Bank interest 12,000 tax saving 3,600

If you think spending 12,000 to save 3,600 is a good deal have a mortgage,
Reply With Quote
The following 6 users would like to thank fatmanfilms for this useful post:
  #12  
Old 14.03.2021, 19:49
newtoswitz's Avatar
Forum Legend
 
Join Date: Jan 2010
Location: Rapperswil
Posts: 3,754
Groaned at 75 Times in 70 Posts
Thanked 4,537 Times in 2,076 Posts
newtoswitz has a reputation beyond reputenewtoswitz has a reputation beyond reputenewtoswitz has a reputation beyond reputenewtoswitz has a reputation beyond reputenewtoswitz has a reputation beyond reputenewtoswitz has a reputation beyond repute
Re: what if scenario, is it really beneficial to have a mortgage?

It makes absolutely no difference to wealth tax, your net wealth is the same.

You have a pot A with money and a pot B with (negative) mortgage and a taxable value of the property C. Your wealth A + B + C does not change just by moving balance between A and B; C is (almost) fixed.

It makes a small difference to income tax, since you are paying interest which you can deduct. BUT as already stated you never save more tax than the interest you pay, so this is also not a net gain.

The question for a mortgage is:

- can you afford not to have one
- can you do something better with the money vs the interest rate on the mortgage

The answer to the first is typically no. The answer to the second is typically yes as mortgages have a low interest rate.

Last edited by newtoswitz; 14.03.2021 at 19:56. Reason: added value of property in example
Reply With Quote
The following 2 users would like to thank newtoswitz for this useful post:
  #13  
Old 14.03.2021, 19:52
st2lemans's Avatar
Forum Legend
 
Join Date: Dec 2010
Location: Lugano
Posts: 32,495
Groaned at 2,577 Times in 1,840 Posts
Thanked 39,632 Times in 18,679 Posts
st2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond repute
Re: what if scenario, is it really beneficial to have a mortgage?

Quote:
??? Would you care to expound, using words of one syllable for the hard of thinking (e.g. me) if necessary.
We have a property we bought for 465k, the tax value is 215k, the mortgage is 315k, so 215k-315k = -100k.

Simple enough?

Tom
Reply With Quote
This user would like to thank st2lemans for this useful post:
  #14  
Old 14.03.2021, 19:55
newtoswitz's Avatar
Forum Legend
 
Join Date: Jan 2010
Location: Rapperswil
Posts: 3,754
Groaned at 75 Times in 70 Posts
Thanked 4,537 Times in 2,076 Posts
newtoswitz has a reputation beyond reputenewtoswitz has a reputation beyond reputenewtoswitz has a reputation beyond reputenewtoswitz has a reputation beyond reputenewtoswitz has a reputation beyond reputenewtoswitz has a reputation beyond repute
Re: what if scenario, is it really beneficial to have a mortgage?

Quote:
View Post
We have a property we bought for 465k, the tax value is 215k, the mortgage is 315k, so 215k-315k = -100k.

Simple enough?

Tom
Same here, our mortgage is more than the tax value.

So our total wealth is less due to our house here. I assume there is a floor at zero for tax purposes.
Reply With Quote
The following 2 users would like to thank newtoswitz for this useful post:
  #15  
Old 14.03.2021, 20:02
Senior Member
 
Join Date: Oct 2020
Location: Vaud
Posts: 385
Groaned at 26 Times in 16 Posts
Thanked 191 Times in 122 Posts
Gravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputation
Re: what if scenario, is it really beneficial to have a mortgage?

Thank you all for your contribution! I appreciate it.

I the view of this, the tribal wisdom 'it is beneficial to get mortgage in Switzerland' should be passed on more precisely as:
- mortgage in Switzerland is of a less burden as in Elbonia because in Switzerland you can deduct interest paid from your income on your tax return, whilst in Elbonian states you can't do this
- if you have the money to buy without a mortgage there's no magic benefit, much as everywhere, as usual mortgage adds some cost*
Reply With Quote
  #16  
Old 14.03.2021, 20:45
st2lemans's Avatar
Forum Legend
 
Join Date: Dec 2010
Location: Lugano
Posts: 32,495
Groaned at 2,577 Times in 1,840 Posts
Thanked 39,632 Times in 18,679 Posts
st2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond repute
Re: what if scenario, is it really beneficial to have a mortgage?

Quote:
View Post
Same here, our mortgage is more than the tax value.

So our total wealth is less due to our house here. I assume there is a floor at zero for tax purposes.
Exereme case:

Rustico, cost CHF 90k

Taxable value: CHF 5k

Property tax: CHF 4.90 (I will be happy to scan the bill0)

Tom

P.S. We got a separate bill as it is NOT our primary residence and NOT in the village we live in (4.2 km from home)
Reply With Quote
This user would like to thank st2lemans for this useful post:
  #17  
Old 14.03.2021, 21:23
newtoswitz's Avatar
Forum Legend
 
Join Date: Jan 2010
Location: Rapperswil
Posts: 3,754
Groaned at 75 Times in 70 Posts
Thanked 4,537 Times in 2,076 Posts
newtoswitz has a reputation beyond reputenewtoswitz has a reputation beyond reputenewtoswitz has a reputation beyond reputenewtoswitz has a reputation beyond reputenewtoswitz has a reputation beyond reputenewtoswitz has a reputation beyond repute
Re: what if scenario, is it really beneficial to have a mortgage?

Quote:
View Post
Thank you all for your contribution! I appreciate it.

I the view of this, the tribal wisdom 'it is beneficial to get mortgage in Switzerland' should be passed on more precisely as:
- mortgage in Switzerland is of a less burden as in Elbonia because in Switzerland you can deduct interest paid from your income on your tax return, whilst in Elbonian states you can't do this
- if you have the money to buy without a mortgage there's no magic benefit, much as everywhere, as usual mortgage adds some cost*
Your last statement is only true if you have no other debts, since a mortgage is almost certainly the cheapest way to borrow. That probably includes mortgages in any other country as well - Switzerland rates are low by global standards, particularly for long-term fixed rates.
Reply With Quote
This user would like to thank newtoswitz for this useful post:
  #18  
Old 14.03.2021, 22:47
Senior Member
 
Join Date: Aug 2007
Location: zh
Posts: 450
Groaned at 18 Times in 12 Posts
Thanked 134 Times in 78 Posts
giff is considered knowledgeablegiff is considered knowledgeablegiff is considered knowledgeable
Re: what if scenario, is it really beneficial to have a mortgage?

Quote:
The point, as I always understood it, is that you're taxed on the theoretical rental income anyway, whether you have a mortgage or not, whether you rent it out or not. If you don't have a mortgage then you simply pay the tax; if you do then that's roughly offset by the amount of the interest payments, i.e. you pay tax only on the difference between the rental income and the interest payments you've made.
See, you also did not mention the interests paid to the bank. I really can't understand this way of (not) thinking.
Reply With Quote
The following 2 users would like to thank giff for this useful post:
  #19  
Old 14.03.2021, 22:58
Phil_MCR's Avatar
Forum Legend
 
Join Date: Oct 2009
Location: Basel
Posts: 14,939
Groaned at 294 Times in 198 Posts
Thanked 18,988 Times in 7,986 Posts
Phil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond repute
Re: what if scenario, is it really beneficial to have a mortgage?

Quote:
View Post
Hello, I can hear every now and again that having a mortgage (and keep the money) is tax beneficial as opposed to buying a property. Can anyone explain me why?
Easy explanation with a slightly different example: making donations is tax beneficial. You donate 1'000chf you can deduct 1'000 from taxable income therefore reducing your tax charge. Assuming you have a 30% tax rate you can save 300chf on tax, and it only costs you 1'000 in donations to do so!
Reply With Quote
The following 5 users would like to thank Phil_MCR for this useful post:
  #20  
Old 15.03.2021, 07:52
AbFab's Avatar
Forum Legend
 
Join Date: Sep 2006
Location: Zürich
Posts: 8,654
Groaned at 383 Times in 263 Posts
Thanked 13,019 Times in 4,450 Posts
AbFab has a reputation beyond reputeAbFab has a reputation beyond reputeAbFab has a reputation beyond reputeAbFab has a reputation beyond reputeAbFab has a reputation beyond reputeAbFab has a reputation beyond repute
Re: what if scenario, is it really beneficial to have a mortgage?

Currently with mortgage interest below 1%, there is little claim back!

As Newtoswitz pointed out having property or not having property makes not difference to wealth tax, as the money you put into the property was always there taxed (if enough) as investments/cash under the mattress or in a house/flat.

It is beneficial to have as big a mortgage as possible because it's dirt cheap and allows you to keep some of your own cash to invest...
Reply With Quote
Reply




Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
A hypothetical scenario Phil_MCR International affairs/politics 30 18.08.2017 18:59
Tricky scenario cheesey Permits/visas/government 10 21.07.2015 18:33
WORK permit already beneficial in case of changing jobs? Christianinvest Permits/visas/government 4 16.03.2011 17:33
Is Russian language beneficial for job in Switzerland? Plus Employment 26 26.12.2010 14:47
non-eu married to eu...a new scenario perhaps bluesrules Permits/visas/government 6 06.03.2008 14:34


All times are GMT +2. The time now is 11:27.


Powered by vBulletin® Version 3.8.4
Copyright ©2000 - 2022, Jelsoft Enterprises Ltd.
LinkBacks Enabled by vBSEO 3.1.0