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Old 31.05.2010, 14:49
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Taxes for renting out a flat....

I am currently considering buying a flat which is currently being built - ready 2012. The aim is for me to eventually rent it out once I leave Switzerland.

Does anyone know the tax implications? As I would no longer tax in Switzerland but the mortgage would be here and so would the rent.

To be specific:

- If I have a mortgage, no income here and the rent covers the morgage. Do I need to tax anything?

- If I one day pay off most of the mortgage and the rent becomes profit, how does the tax man look at that?

- What are there costs of selling a flat?

Thanks!
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Old 31.05.2010, 20:35
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Re: Taxes for renting out a flat....

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I am currently considering buying a flat which is currently being built - ready 2012. The aim is for me to eventually rent it out once I leave Switzerland.

Does anyone know the tax implications? As I would no longer tax in Switzerland but the mortgage would be here and so would the rent.

To be specific:

- If I have a mortgage, no income here and the rent covers the morgage. Do I need to tax anything?

- If I one day pay off most of the mortgage and the rent becomes profit, how does the tax man look at that?

- What are there costs of selling a flat?

Thanks!
You will pay tax based on the net value (i.e. after mortgage) of the property, and the net rental income (i.e. after interest and other outlays).

The tax paid to Switzerland and the canton and commune where the property is located will be creditable towards tax in the place where you then reside. But bear in mind that wealth tax is a deduction, not a tax credit, in most other countries (notably the US and UK).
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Old 01.06.2010, 08:26
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Re: Taxes for renting out a flat....

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You will pay tax based on the net value (i.e. after mortgage) of the property, and the net rental income (i.e. after interest and other outlays).

The tax paid to Switzerland and the canton and commune where the property is located will be creditable towards tax in the place where you then reside. But bear in mind that wealth tax is a deduction, not a tax credit, in most other countries (notably the US and UK).
Swiss Government is considering the cancellation of interest deduction on mortgages.
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Old 01.06.2010, 08:55
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Re: Taxes for renting out a flat....

I am of the opinion that unless you intend returning and taking over the flat for yourself, this will not be a worthwhile investment in the medium term. Over 20+ years you may find that the value of the franc will be the biggest advantage. Swiss property, though scare in desirable areas, does not show a spectacular increase in value and is subject to a number of taxes. You would also be responsible for maintaining the flat. This could be outsourced. Tenants will expect you to fix stuff that goes wrong.

Taxes:
- rent is income which is taxable
- mortgage interest is deducible (this is due to stop within a few years)
- Selling? Capital gains tax (up to 40% - varies by canton, search Grundstuckgewinsteuer) & legal fees &selling agent's fees.
- Eigenmietwert (nominal income you save by not renting) may be added to your income (may not apply if you don't live there and due to stop with mortgage interest deduction)...
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Old 01.06.2010, 09:06
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Re: Taxes for renting out a flat....

For me this is à long term investment. Im hoping it Will be paid of in 30years and then it will become
my pension - the rental fee will be my
monthly pension. Or you reckon it will be taxed away?

Thanks for your opinions!
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Old 01.06.2010, 20:57
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Re: Taxes for renting out a flat....

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For me this is à long term investment. Im hoping it Will be paid of in 30years and then it will become
my pension - the rental fee will be my
monthly pension. Or you reckon it will be taxed away?

Thanks for your opinions!
Switzerland taxes both rents and pensions as income.
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Old 01.06.2010, 20:59
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Re: Taxes for renting out a flat....

isnt switzerland supposed to be good with taxes?? hmmmm.....

I think you guys managed to talk me out of investing
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Old 01.06.2010, 23:06
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Re: Taxes for renting out a flat....

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Swiss Government is considering the cancellation of interest deduction on mortgages.
More than likely that would be for mortgages on residences. It will not relate (I say heroically) to investment rental property. The UK tried that, and the leading case was Ockendon v. Mackey. I contested the case, not in the courts (because there the issue was already lost in relation to non-UK, non-Irish Republic property) but in a law journal and with the European Commission. The 1996 Finance Act changed the law so that interest expense is always deductible in calculating rental profits.

My argument was based on European Law, but the principle is broader: how could any hotel or commercial property investment be viable if you paid tax on the gross, rather than the net, rent?

(The Ockendon v. Mackey rule lasted as long as it did because in real life commercial property ventures are incorporated (limited companies) in the country where the property is located. Private landlords lack the political clout that hotel chains and multinational property firms and REITs enjoy.)

The whole real estate scam (if that's what it is) is based on turning over property fast after leveraging it. And leveraging only works if the interest is tax-deductible.

You may not like the property bubble and the property crash, but they are very much part of the life cycle of the world's economies. And Switzerland
is not exempt although it has certainly been less touched than the rest of Europe, or most of it. (That said, I have to tell you that I have gotten "liar's loans" to buy Swiss property from Swiss banks almost as easily as in the UK to buy property there.)

There is another issue, quite different from the above, that has been debated and tried out at various times in various countries including Switzerland, Canada and the UK. That is to equalise the status of renters and homeowners by imposing income tax on the deemed rental value of occupant-owned property. Allowing mortgage interest to be deducted from income in calculating tax on the other hand subsidises home ownership. That's a social decision. And it leads, or led in the UK and the USA, to speculation in housing. Especially when capital gains tax on principal residences was non-taxable (as it still is in the UK) or only partly taxed (as in the USA).
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Old 01.06.2010, 23:14
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Re: Taxes for renting out a flat....

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Long term investment in your own home is not a good idea. As explained the capital returns are nearly zero, and the taxes and fees take away any benefit you might get.

For long term investments, better to visit a finance expert and start saving in maybe 5 investment schemes to spread your risks. You might double your money in 20 years.
It all depends. Here in Montreux prime property has nearly doubled in value over the past few years. And capital gains are subject to a favourable tax regime.

But in general people should know that decades have gone by with real property not increasing in value beyond the rate of inflation. It's all a matter of generational luck with respect to timing.
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Old 02.06.2010, 13:13
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Re: Taxes for renting out a flat....

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More than likely that would be for mortgages on residences. It will not relate (I say heroically) to investment rental property. The UK tried that, and the leading case was Ockendon v. Mackey. I contested the case, not in the courts (because there the issue was already lost in relation to non-UK, non-Irish Republic property) but in a law journal and with the European Commission. The 1996 Finance Act changed the law so that interest expense is always deductible in calculating rental profits....
I have just spoken to the Vaud tax authorities. They say that where taxation of [owner-occupied holiday] real property is on a forfait basis, there is no consideration for mortgage debt or interest.

The result would presumably be different for income-producing property or where the taxpayer is resident in Switzerland and taxed on worldwide income.

Nonresident property owners have the option of filing a complete tax return (a daunting proposition) in which case foreign (i.e., non-Vaud) income and assets are taken into account only for determining the rate of tax. They are not, in themselves, taxed.

I stumped the technician with the issue of property belonging to diplomats accredited to Switzerland, or those with income excluded from taxation by treaty (typically, pensions of foreign diplomats and retired foreign civil servants). Their diplomatic income and pensions are not taxed; whether they even need to be reported he couldn't say.
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Old 04.06.2010, 00:03
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Re: Taxes for renting out a flat....

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I have just spoken to the Vaud tax authorities. They say that where taxation of [owner-occupied holiday] real property is on a forfait basis, there is no consideration for mortgage debt or interest.

The result would presumably be different for income-producing property or where the taxpayer is resident in Switzerland and taxed on worldwide income.

Nonresident property owners have the option of filing a complete tax return (a daunting proposition) in which case foreign (i.e., non-Vaud) income and assets are taken into account only for determining the rate of tax. They are not, in themselves, taxed.

I stumped the technician with the issue of property belonging to diplomats accredited to Switzerland, or those with income excluded from taxation by treaty (typically, pensions of foreign diplomats and retired foreign civil servants). Their diplomatic income and pensions are not taxed; whether they even need to be reported he couldn't say.
The Swiss government has not yet decided how to change the tax regime for rental income, mortgages, etc. The debate is on-going.

Prevalent proposal is no mortgage deduction and no imputed rental income. That might balance out for self-occupied property. But it will hit landlords. Rental income would be taxed but mortgage expenses would not be deductible! Brings taxes into the Government coffers.

Big landlords can hold their rental property in a LLC and claim all expenses. Condominium owners renting apartments might not want the hassle of founding and managing a property company.
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Old 04.06.2010, 07:16
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The Swiss government has not yet decided how to change the tax regime for rental income, mortgages, etc. The debate is on-going.

Prevalent proposal is no mortgage deduction and no imputed rental income. That might balance out for self-occupied property. But it will hit landlords. Rental income would be taxed but mortgage expenses would not be deductible! Brings taxes into the Government coffers.

Big landlords can hold their rental property in a LLC and claim all expenses. Condominium owners renting apartments might not want the hassle of founding and managing a property company.
As you can imagine, this would destroy the private-sector rental market, already weak in Switzerland the standards of other OECD countries due to tenant protections and the predominance of institutions in the market.

(Compare the US market where depreciation allowance makes rental property a tax shelter, especially for those of moderate income where paper losses can offset earned income.)

As I wrote earlier, the UK did this for non-UK, non-Irish Republic property owned and let by UK taxpayers until the 1996 Finance Act (the law case was Ockenden v. Mackey). This was EU-illegal since for UK and Irish property interest expense was deductible.

I write about cross-border tax anomalies. I always wonder whether those who write tax bills have any concept of "comparative law" (droit comparé): whether they bother to look at other countries' experiences with policies and practices they are about to ensconce in their own legislation.
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Old 05.06.2010, 00:52
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Re: Taxes for renting out a flat....

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As you can imagine, this would destroy the private-sector rental market, already weak in Switzerland the standards of other OECD countries due to tenant protections and the predominance of institutions in the market.

(Compare the US market where depreciation allowance makes rental property a tax shelter, especially for those of moderate income where paper losses can offset earned income.)

As I wrote earlier, the UK did this for non-UK, non-Irish Republic property owned and let by UK taxpayers until the 1996 Finance Act (the law case was Ockenden v. Mackey). This was EU-illegal since for UK and Irish property interest expense was deductible.

I write about cross-border tax anomalies. I always wonder whether those who write tax bills have any concept of "comparative law" (droit comparé): whether they bother to look at other countries' experiences with policies and practices they are about to ensconce in their own legislation.
The Swiss government has enough challenges resolving all the internal lobbying, pressure groups, traditions, etc.

Considering how the housing bubble burst in the US, I am not sure that the US is a role model.
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Old 05.06.2010, 01:26
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Re: Taxes for renting out a flat....

The theoretical basis for the taxation of imputed rental value of owner-occupied dwellings is here: http://www.scribd.com/doc/32547199 (a 1960 article in The Journal of Finance). It is for every society/country to decide for itself what incentives to provide for economic activity, including employment, homebuilding, savings & investment, etc. Whether it is still true I cannot say, but in the 1960s it was true, as the linked article states, "Most economists agree that the rental value of a dwelling is part of the income of an owner-occupant."

Accepted or not today, that has nothing to do with the issue of whether interest expense is or should be a "cost" recognised for income tax purposes in relation to rental property. And as for the US depreciation allowance, this does not seem to have much relevance to the real estate bubble, apparently due more to the easy availability of "liar's loans" (and to mortgages to unqualified buyers that, in a falling market, left those buyers underwater) than any tax incentive. Such loans were widespread in the UK as well. Northern Rock foundered, and was nationalised, under the weight of 125% mortgages, among other follies. Neither Swiss nor Canadian banks fell into such traps, although some Swiss banks wound up with US sub-prime losses: http://business.timesonline.co.uk/to...cle3279334.ece

Last edited by andy02; 05.06.2010 at 01:43.
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Old 12.06.2010, 18:01
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Re: Taxes for renting out a flat....

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You will pay tax based on the net value (i.e. after mortgage) of the property, and the net rental income (i.e. after interest and other outlays).

The tax paid to Switzerland and the canton and commune where the property is located will be creditable towards tax in the place where you then reside. But bear in mind that wealth tax is a deduction, not a tax credit, in most other countries (notably the US and UK).
hello I AM ABOUT TO FILL IN A VALAISE TAX FORM .
i HAVE A FLAT IN THE KANTON AND WAS WONDERING IF YOU COULD TELL ME IF i HAVE TO PUT THE RENTAL INCOME FROM THE FLAT ON THE FORM WERE IT SAYES LIEGENSHAFTEN OR DO I LEAVE THIS BLANK AS I UNDERSTAND THE RENTAL INCOME IS IMPUTED OR ESTIMATED.

IF YOU COULD GIVE ME AN ANSWER TO THIS IT MAY SAVE THE DAY
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Old 12.06.2010, 18:24
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Re: Taxes for renting out a flat....

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hello I AM ABOUT TO FILL IN A VALAISE TAX FORM .
i HAVE A FLAT IN THE KANTON AND WAS WONDERING IF YOU COULD TELL ME IF i HAVE TO PUT THE RENTAL INCOME FROM THE FLAT ON THE FORM WERE IT SAYES LIEGENSHAFTEN OR DO I LEAVE THIS BLANK AS I UNDERSTAND THE RENTAL INCOME IS IMPUTED OR ESTIMATED.

IF YOU COULD GIVE ME AN ANSWER TO THIS IT MAY SAVE THE DAY
Do you have rental income? Then you must declare it.

You have not rented? Then the tax office will impute a rental income.
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Old 12.06.2010, 18:34
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Re: Taxes for renting out a flat....

OK MANY THANKS,I suppose it is a income after all and must be declared, looking at the form it looks like there is a lot of deductions we can make

Cheers
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