Abolition Of Imputed Rental Value — A Structural Shift Towards Real Estate Holding Companies

Switzerland’s abolition of the imputed rental value (Eigenmietwert) has been widely welcomed as the end of a long-criticised tax burden on homeowners. Yet behind this headline reform lies a far more consequential change: the restructuring of mortgage interest deductions. For property owners — particularly those with leveraged portfolios — this is not a simplification. It is a paradigm shift that fundamentally alters the tax logic of holding real estate in private ownership.

The New Mortgage Interest Deduction — Explained Simply

Under the current regime, mortgage interest is generally deductible up to the amount of taxable investment income, plus a flat additional amount of CHF 50,000 that effectively ensured a minimum deduction. The new system replaces this income-based approach with an asset-based formula.

The deductible share of mortgage interest will now be determined by a simple ratio: the value of non-owner-occupied properties divided by total assets.

The formula is straightforward. Its consequences are not.

The Quota in Practice — Same Property, Different Outcome

Consider a rental property worth CHF 1,000,000 with annual mortgage interest of CHF 30,000. Under the new rules:

Scenario A — Total assets of CHF 4,000,000: The deductible quota is 25%. Only CHF 7,500 of the CHF 30,000 in interest payments may be deducted.

Scenario B — Total assets of CHF 8,000,000: The deductible quota drops to 12.5%. Only CHF 3,750 is deductible.

The property is the same. The mortgage is the same. The interest payments are the same. But the tax deduction is halved — solely because the owner’s total wealth is higher. In other words: it is not the property or its financing that determines the deduction, but the owner’s overall asset structure.

A Political Quota, Not an Economic Reality

This new deduction bears no relation to the actual cost of financing a specific property. A mortgage may be directly tied to a rental property generating taxable income, yet the deductible amount is determined by a global formula applied across the owner’s entire estate.

This creates a fundamental tension: rental income continues to be taxed in full, while the financing costs incurred to generate that income are only partially deductible. The net income principle — a cornerstone of taxation according to economic capacity — is effectively undermined.

Practical Consequences: Leverage Loses Its Appeal

The implications are clear. Debt-financed real estate held in private ownership becomes significantly less attractive from a tax perspective. The higher the proportion of owner-occupied or non-income-generating assets, the more severe the restriction.

In the extreme case — a homeowner with no other investment income — the mortgage interest deduction may disappear entirely.

The Real Estate Holding Company as a Structural Alternative

While private ownership faces these new constraints, one fundamental principle remains untouched: within a corporate structure, mortgage interest continues to be fully deductible as a business expense.

This is where the real estate holding company (Immobilien-AG) gains strategic importance. Inside such a structure, the classical tax logic is preserved in full: rental income is taxable, and the financing costs to generate that income are fully deductible. The economic reality of the investment is accurately reflected.

Structure Over Property — The New Decision Framework

The reform shifts the central question for property owners. It is no longer simply which property to hold, but how to hold it. For owners with multiple properties, significant leverage, or a long-term hold strategy, the holding company structure deserves serious consideration.

Beyond tax optimisation, the corporate form offers additional advantages: transferability via shares rather than land register entries, flexibility in succession planning, clear asset segregation, and the ability to reinvest profits tax-efficiently through retention.

Importantly, a holding company is particularly well suited where active trading in real estate is intended or where profits are to be reinvested rather than distributed. In private ownership, frequent transactions risk reclassification as a professional property dealer — with significant and often unexpected tax consequences. The corporate structure provides clarity and stability.

The Entry Cost Question

The structural advantages must be weighed against the costs of transition. Transferring properties into a corporate vehicle may trigger real estate capital gains tax, transfer taxes, and other transaction costs. Where significant hidden reserves exist in the properties, this “tax entry ticket” can be substantial and is often the decisive factor in the timing and feasibility of restructuring.

Conclusion

The abolition of the imputed rental value is not a minor adjustment. It is a systemic shift with structural consequences. The new interest deduction quota is simple to calculate but economically imprecise — it partially decouples deductible expenses from the income they generate.

At the same time, the real estate holding company emerges as a tax-consistent and strategically flexible alternative. The question property owners must now ask is no longer just: What do I own? But: In what structure should I own it?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.