Living in your own home

Almost as soon as you have moved in, there will be more decisions for you to make. You need to consider if and how you want to amortise your mortgage. There is also a lot to think about when it comes to home maintenance, so you can save as much tax as possible. Here you will find answers to the most frequently asked questions about living in your own home.

You have bought your dream property and can finally start to benefit from lower housing costs. But don’t get so overwhelmed by the joy of owning your own home that you forget to make provisions for the future. You should be thinking about setting money aside for the maintenance of your house or apartment. Sooner or later you will be faced with repairs that need doing to maintain the value of your property.


Tip: Set aside reserves each year. If your property is new or has been recently renovated, 1% of the purchase price will be sufficient, but if you bought an older property you should be setting aside more than this.

Tax and your own home: all the deductions you can make

“If I own residential property, I can save taxes.” You’ve probably heard this phrase many times, or perhaps you have said it yourself. Unfortunately, this statement is not entirely correct. As a residential property owner, you can offset your mortgage interest and maintenance costs against tax. But you have to tax the value of your home as an asset. Furthermore, the imputed rental value is considered as income and this too is subject to tax.



The imputed rental value increases your taxable income

The imputed rental value is a cause for annoyance among many homeowners. It represents the potential income that the owner of an apartment or a house could earn in rent if they themselves did not live there. The imputed rental value counts as income. The way in which this value is calculated differs from canton to canton. Normally your tax authority will inform you of the imputed rental value of your property. If this value seems excessively high, you can dispute it – provided that you have good reason for a reduction, such as, for example, because consideration was not given to factors that reduce the property value such as aircraft noise, odour emissions or a newly built street with heavy traffic.


Good to know: There may soon be a change in the law that governs the imputed rental value. In the summer of 2018, the Economic Affairs and Taxation Committee of the Council of States approved a parliamentary initiative aimed at eliminating the imputed rental value. Whether this proposal will be implemented and, if so, when is unclear.



Save tax by deducting mortgage interest and maintenance costs

You can save tax several times over on your residential property. The mortgage itself is deducted from your assets. Mortgage interest and interest on private loans also reduce your income. If you spend money on maintenance, you can deduct that as well. Here a distinction is made between flat-rate deductions and the deduction of itemised expenses.

  • Flat-rate deductions: The amount of these deductions is not the same in all cantons. They are usually calculated as follows: if your property is less than 10 years old, you can deduct a flat rate of 10% of your imputed rental value for maintenance work. For older houses or apartments, the rate is 20%.
  • Deduction of itemised expenses: You can also deduct the actual costs of renovation work. However, the costs of such work can only be deducted if it has value-preserving character, for example replacing an old bathtub with a new one. If you have a whirlpool installed instead, you will not be able to deduct the full expenses. The whirlpool raises the standard of your residential property and is therefore deemed to generate an increase in value.


Tip: Contact the relevant tax office before starting any renovations and ask for an assessment of your case. It is often difficult to differentiate clearly between value-preserving and value-enhancing expenses. If you visit your tax office website you will find lists showing expenses which may or may not be deducted.


There is a special exception you should be aware of: if you invest in energy-saving measures, these costs are tax-deductible in all cases. However, you cannot deduct the construction of a new winter garden or an attic extension.





Saving as much tax as possible with property maintenance


It pays to be clever about scheduling the expenses of maintaining your home, so you can save the maximum amount of tax. It is ideal to do no maintenance at all for a few years, and then carry out all the necessary work in a single year. Then you can make a high deduction of actual expenses in this one year and simply deduct the flat rate in the other years. Overall, you save more taxes in this way than you would if you applied the flat-rate deduction every year. Please note: ask your tax office if this procedure is allowed in your canton.


If you have all your maintenance work carried out in a single year, make sure that the expenses are not greater than your taxable income. The maintenance costs will be deducted from your income. So, once your income less deductions reaches zero, you can’t benefit any more from further deductions in that same tax year.


Tip: If expensive maintenance work is necessary, then time it in such a way that it includes the change from one year to the next. This allows you to distribute the deductions over two tax periods and claim the full benefit. Contact your tax office in advance to find out whether deductions are accepted in your canton by invoice date or by date of payment.





What to be aware of when amortising your mortgage


If you have taken out a second mortgage, this will need to be amortised, or repaid, within 15 years. If you only have one mortgage, you will need to repay that mortgage down to 65% of its value over the same length of time. There are two ways to do this.

  • Direct amortisation: You regularly pay off part of your debt. This reduces the amount of your mortgage and you have to pay less mortgage interest. On the downside, it also reduces the amount of the debt that you can deduct from your taxes.
  • Indirect amortisation: You do not transfer your payments directly to the bank or the insurance company. Instead, you pay the money in instalments into your pillar 3a. It will stay there until you retire. Then you can have the total amount paid out and your mortgage repaid in one go.


With indirect amortisation via pillar 3a you save money, as you can deduct the amounts you pay into pillar 3a from your taxable income. The amount of your mortgage and the mortgage interest are not reduced, so you can continue to declare these amounts as debt in your tax return until you reach AHV retirement age. Important: if you choose to repay your second mortgage via indirect amortisation, your mortgage interest remains the same.


Good to know: You are not permitted to make unlimited deposits in pillar 3a. You can find the current statutory maximum amounts here





How much amortisation makes sense?

One of the most common questions in relation to home ownership is: “How much of my mortgage debt should I repay?” As a rule, you have to repay your second mortgage within 15 years. But what happens to your first mortgage? Should you partially repay it, or leave it as it is? The answer to this question is individual, as it depends on your financial situation and your needs.


It is often suggested that mortgages should not be repaid for tax reasons, and that this money should be invested profitably instead. This may pay off for those who are high earners and can invest their money tax-effectively. But often it makes more financial sense to partially amortise the mortgage.


Tip: Do not use up all your savings on repaying your mortgage. If you need to top up your mortgage after retirement, banks and insurance companies often require that the money is applied to your residential property. You are unlikely to get a loan to cover your living expenses.



How to use an inheritance: mortgage repayment or investment?

Suppose you inherit some money or have managed to save a reasonable amount. Should you use this money to repay your mortgage? If so, you would pay less mortgage interest, but you would also have less debt to deduct from your taxes. Would it be wiser to invest the money and profit from the investment returns?


It’s a straightforward calculation: the net yield (return minus tax) that you get from your investment must be greater than the amount you pay for your mortgage interest (minus tax savings). To carry out this calculation for yourself, you need to know your current mortgage interest rate and your marginal tax rate. The marginal tax rate is used to calculate how much tax you have to pay on an additional CHF 1,000 in income. The higher your income, and thus your tax bill, the greater the advantage of keeping your mortgage loan.



Necessary net return

Example: if your mortgage interest is 3.5% and your marginal tax rate is 30%, the rate of your net yield must be at least 2.45% for investment to make more sense than repayment.


1 % 0,8 % 0,57 % 0,7 % 0,65 %
1,5 % 1,2 % 1,125 % 1,05 % 0,975 %
2 % 1,6 % 1,5 % 1,4 % 1,3 %
2,5 % 2 % 1,875 % 1,75 % 1,625 %
3 % 2,4 % 2,25 % 2,1 % 1,95 %
3,5 % 2,8 % 2,8 % 2,45 % 2,275 %
4 % 3.2 % 3 % 2,8 % 2,6 %