By Luigi Galante, Founder of Elite Office SA and the “Elite Fondations” occupational benefit institutions

What if those who stand to lose the most from the abolition of imputed rental value are not the wealthy unindebted retirees in German-speaking Switzerland but the so-called “small homeowners” in the French-speaking parts of the country?

I did not think I would have to express my views on this vote. But having listened to the arguments on both sides, I could not resist the temptation of contributing a more financial perspective based on some actual cases I have encountered in my practice as a tax and financial consultant.

I do not intend to revisit the arguments that have already been debated ad nauseam – at least not in the same way: the abolition of imputed rental value, the non-deductibility of debt interest or, worse still, the absurdity of no longer being able to deduct maintenance costs. Incidentally, I would underscore that imputed rental value is by no means nonsense. If I invest CHF 800,000 of my assets in my main residence because I can afford to do so, why should I enjoy an advantage over someone who, for professional, health, or family reasons, cannot buy real property and invests their assets in financial products, and then has to pay taxes on the returns on investment? The very purpose of imputable rental value is to even the playing field. Strangely enough, I have only heard this argument once, in a message from an ordinary listener on the RTS morning show. I might add that, if the actual maintenance expenses are lower than the deductible flat rate, homeowners have the advantage of an additional tax gain. Furthermore, wealth tax on real property is usually assessed on a tax value that is lower than the market value: these two factors represent advantages that non-homeowners do not have.

I could play the devil’s advocate – which is neither in our interest as financial and tax advisors, nor in that of our clients – and argue that it would be fairer to purely and simply abolish the deductibility of debt interest. Ooops…😉

Who are the true winners?

In my opinion, neither the supporters nor the opponents of this reform have provided any hard facts and figures. But everything indicates that, if the vote were to pass, the only true winners would be the wealthy retired homeowners — provided, however, that they had maintained the highest level of debt to take full advantage of the existing system and that, in a sudden change of strategy, they pay off their entire debt in one swoop at retirement. One might legitimately wonder whether some supporters of the reform might not themselves be in this situation... 😉 If I were, I would find it very uncomfortable to defend the abolition without scruples. But they are only a tiny minority.

In the long run, these very homeowners –- or at least, their descendants –- are those who stand to lose the most. Those in favour of abolishing imputed rental value have a decidedly short-term view. Ironically, they are completely missing the mark: the boomerang effect is guaranteed.

Nevertheless, I feel obliged to revisit an argument I find particularly annoying: the claim that abolishing this construct would reduce the indebtedness rate – and that this would be a positive step forward. Admittedly, many borrowers would repay more, and do so more quickly. But, as I intend to demonstrate, it is absurd to pit people who pay off their mortgages against people who save up the same amounts. We are talking here about indebtedness secured by real property, and moreover accompanied by growing savings. These are connecting vessels: the homeowner has the option of repaying the debt at any time if necessary.

It is a different matter in the case of indebtedness with little – or worse still, no – collateral, where the sums that could have been used for repayment are instead used to buy ephemeral consumer goods.

Illustration : Homeowner in German-speaking Switzerland, assumptions:

• Asset value : CHF 4,5 m
• Debt: CHF 3.6m (80%), simplified example, no 15% mandatory repayment of asset value
• Interest rate: 2% (average of 10 year fixed rates over 20 years)
• Average rental value imputed on ICC and IFD: CHF 100,000
• Average actual costs: CHF 45,000
• Marginal tax rate: 40%
• Annual savings or repayment over 35 years, CHF 102,857
• Required average gross income to obtain mortgage: CHF 648,000

Now let us compare the use of the savings of CHF 102,857 in three situations: financial investments with or without aboltition of imputed rental value, and full repayment in the event of abolition. The example shows that a conservative investment with a 2.8% gross annual return (before abolition of imputed rental value) suffices to produce a return that is slightly higher than that obtained by annual repayments after the abolition of rental value (assuming that homeowners will pay off more if mortgage interest is no longer tax-deductible). This advantage is explained by the net tax savings achieved thanks to the deductibility of mortgage interest and home maintenance costs. Conversely, if imputed rental value is abolished, you would have to achieve a return of 3.4% instead of 2.8% to obtain barely more than the repayment with the abolition of imputed rental value.

What is more, if mortgage lending rates climb back up to 3%, the margin would be even narrower: in such a scenario, abolishing imputed rental value would become much less advantageous since a return of 3.3% would suffice to equal the repayment option with abolished imputed rental value (assumption not developed in the table below).

We have also presented a mixed strategy without abolished rental value: the particulars are outlined further down.

1 Cumulated gain (final capital obtained by investing the indicated savings each year with the net return and for the selected term)

*The mixed strategy consists in distributing the savings of CHF 102,857 over financial investments, a pillar 3a retirement savings plan, and purchases of LPP/BVG contribution years in order to maximise the final capital. These payments are income tax-deductible and exempt from wealth tax. The tax savings achieved can in turn be invested at a net rate of 1.68% for example. When pension assets are disbursed, the tax on lump-sum pension capital must also be taken into account (without considering the possible future increase of this tax at IFD level).

Assumptions underlying the mixed strategy:

• Pillar 3a (LPP/BVG member). Max CHF 7,258 per person p.a. → CHF 14,516 p.a. for a couple.
• LPP/BVG purchases (working assumption): CHF 30,000 p.a.
• Marginal rate: 40% → income tax savings of CHF 17,806 p.a. on 44,516 (3a + purchases).
• Assumed net return on investments (3a - LPP/BVG): 2.80% net (before tax).
• Wealth tax savings: 5 ‰ p.a. on the total amount in pillar 3a and LPP/BVG (CHF 44,516, then CHF 89,032, etc.), also capitalisable.
• Final tax on lump-sum benefits: 12% applied only on 3a capital + LPP/BVG purchases.

It is worthwhile noting that this mixed approach – combining financial investments, pillar 3a and LPP/BVG purchases – can also be incorporated into a mortgage repayment strategy. The point, therefore, is not to pit ‘pure investment’ against ‘single repayment’, but to show that it is often wiser not to tie up all your capital if better options are available.

In conclusion, whether a homeowner is wealthy, retired or not, it is often more sensible to use the savings earmarked for paying off mortgage debt in another manner. This approach produces a result that is at worst nearly equivalent, but more often than not, better. Even if the result is equivalent, homeowners have the advantage of having cash at their disposal, which is valuable at retirement, with the option of using it for repayment at a later date if they want. In most scenarios, homeowners will enjoy better returns and greater financial flexibility to meet their needs once they retire. Needless to say, I support the principle that homeowners should pay off at least 65% of the value of their property by the time they retire.

The argument advocating abolishing imputed rental value to favour the “small homeowners in French-speaking Switzerland”: an illusion

First of all, we need to consider the definition of a “small homeowner”. Take a family of two adults with two children: for a decent home in Switzerland, even at the lower end of the market, they will need about CHF 800,000.
To satisfy bank criteria, this means having CHF 160,000 in equity (20%) and a gross annual income of at least CHF 120,000. Clearly, for many families, home ownership is bound to remain a distant dream.

And for those who succeed, the current system is generally favourable: the imputed rental value is largely offset by the deduction of interest and maintenance costs. By definition, small homeowners have limited savings capacity and a slow pay-off rate: it is rare for their mortgage debt to lie below 65% of the property value when they retire (the level at which, depending on the bank and the circumstances, banks no longer demand repayments). So if these so-called small homeowners manage to pay off their entire debt, it seems to me that they hardly qualify as small homeowners. Contrary to the political slogan, I prefer consistency and have therefore limited repayment to 65% of the property value at retirement. And here is yet another absurdity of the system: what happens to homeowners who, banking on deductability, contracted a ten-year fixed-rate mortgage loan because mortgage interest was higher than the imputed rental value?

Illustration : Homeowner in French-speaking Switzerland, assumptions:

• Property value: CHF 800,000
• Debt: CHF 640,000 (80%), simplified example, no 15% repayment required
• Interest rate: 2% (average of 10 year fixed rates over 20 years)
• Average rental value imputed on ICC and IFD: CHF 20,000
• Average actual costs: CHF 10,000
• Marginal tax rate: 25%
• Annual savings or repayment over 35 years, CHF 3,429
• Average gross income to obtain loan: CHF 120,000

Now let us compare the use of the CHF 3,429 savings in three situations: financial investments with or without aboltition of imputed rental value, and repayment down to 65% of the market value in the event of the abolition of imputed rental value. The example shows that a conservative investment with a 1.5% gross annual return (before abolition of imputed rental value) suffices to produce a return that is slightly higher than that obtained by annual repayments if imputed rental value is abolished. This is due in particular to the net tax savings achieved thanks to the deductibility of mortgage interest and home maintenance costs. Conversely, if imputed rental value were abolished, you would have to achieve a return of 2.8% instead of 1.5% to obtain barely more than the repayment with abolished imputed rental value.

What is more, if mortgage lending rates climb back up to 3%, the margin becomes substantially wider: in such a scenario, abolishing imputed rental value would become much less advantageous since a return of 3% would produce more than double the return compared with the repayment option with abolished imputed rental value (assumption not developed in the table below), namely CHF 180,000 compared with CHF 87,000.

1 Cumulated gain (final capital obtained by investing the indicated savings each year with the net return and for the selected term)

In conclusion, abolishing imputed rental value means depriving smaller homeowners, retired or not, of a major tax advantage. They would be impacted even more severely than large homeowners. In most cases, it would therefore be wiser and more profitable to save rather than pay off debt, and the differences are far from negligible.

Consequently, I find it hard to understand how anyone could claim that abolishing imputed rental value benefits smaller homeowners. Then there is the crucial issue of liquidity: paying off your entire mortgage before you retire means tying up your assets in bricks and mortar. But after you retire, banks rarely accept to increase a loan when you need funds (health reasons, carer help, large renovations) given your reduced income and debt capacity.

On the other hand, maintaining a portion of your savings in cash assures you true flexibility. One more argument against abolishing imputed rental value: it would encourage massive repayments and lead many households towards a rigid and illiquid asset structure, at the very time in their lives where flexibility is most valuable.

Homeowners positioned between these two examples can apply the same principles. In most cases, maintaining imputed rental value would be more favourable. It is true that the wealthier the homeowner, the less the advantage, but the advantage remains real.

The debate never went beyond the exchange of slogans. The figures show that:

• “small homeowners” do not stand to gain from abolishing imputed rental value.
• The only ones who do – temporarily – are a few wealthy homeowners at the change-over.
• The mixed strategy (invested balance +3a + LPP/BVG purchases, capitalised savings) outperforms pure repayment, and preserves liquidity, especially at retirement.

In a nutshell: if the aim is stability, fairness, and economic common sense, maintaining imputed rental value and favouring intelligent arbitration (rather than paying off all debt no matter what) seems to be a much better option in my mind.

Note on methodology

The calculations and comparisons presented in this article are based on indicative assumptions, designed to illustrate orders of magnitude. Interest rates, net returns, imputed rental values, maintenance costs and marginal tax rates are plausible averages for Switzerland in 2025, but they vary depending on the canton, municipality, year and taxpayers’ individual circumstances.
The savings amounts correspond to a simplified 35-year financing scenario. The results (cumulative gains, tax savings, end capital) are purely informative and should not be considered forecasts or individual advice.