Rising tax values: you can expect these additional costs for your home

Author: Bernhard Bircher-Suits, FundCom AG

Homeowners in the canton of Zurich are worried: from the 2025 tax year, they are facing higher taxes on their homes. The reason? The Zurich Government Council wants to redefine the tax value of their properties, as well as the estimated rental value, and adjust these to reflect the almost ubiquitous rise in property prices.

The estimated rental value is a ‘notional’ income calculated by the tax office on an owner-occupied apartment or house. It is added to your other income. For example, the estimated rental value of an apartment worth CHF 1.2 million in the canton of Zurich, which is taxable as income, is CHF 35,700 per year.

Controversial estimated rental value set to increase despite imminent abolition

In parallel with the Zurich Government Council’s efforts, the National Council and the Council of States are working at the national level to develop the rules for the possible (partial) abolition of the estimated rental value. It remains to be seen when exactly and whether this politically controversial estimated rental value will be abolished in whole or in part.

Ralph Bauert, Managing Director of the Hauseigentümerverband Region Winterthur homeowners’ association, says, ‘I expect parliament to pass a bill to abolish the estimated rental value in 2025 and that this will then be put to the public vote.’ To do this, however, an interest group would first have to hold a successful referendum.

Canton of Zurich: tax values set to increase by an average of 49 percent

However, one thing is already clear: according to a study commissioned by the Zürich cantonal tax office, the market values of single-family homes and apartments in the canton of Zurich have risen by an average of 50 percent since 2009, while the prices of rental apartments have increased by around 15 percent. At the request of the Zurich Government Council, the tax value of single-family homes is set to increase by an average of 49 percent and the estimated rental value by 11 percent.

Such a revaluation was foreseeable. That’s because the Zurich Government Council has not made any adjustments to tax or estimated rental values for 15 years. Such a lengthy period is not uncommon: for example, the current property values in the canton of Solothurn are still based on market prices as of 1 January 1970.

However, the Solothurn Government Council now wants to ‘simplify the system for determining values and modestly adjust these by revising the land registry valuation’. According to the authorities, the bill is set to be submitted to the cantonal parliament in 2025. From the 2025 tax year, properties in the cantons of Aargau and Nidwalden will also be revalued.

Other cantons are also increasing their tax and estimated rental values

According to Rahel Haag from Thurgau Staatskanzlei, the canton of Thurgau ‘reassesses every non-agricultural property in its entirety after 15 years at the latest’. In the canton of St. Gallen, a reassessment takes place every 10 years – and this is an ongoing process. In the canton of Grisons, property values and estimated rents are also adjusted on an ongoing basis every 10 years.

Like the canton of Zurich, the canton of Obwalden is currently planning a ‘renewal of property valuations’ in early 2025. However, according to the Department of Finance, taxpayers in Obwalden won’t have to fork out as much as those in the canton of Zurich. Rahel Rutz of the Obwald Department of Finance says, ‘In most cases, this will result in an overall additional tax burden of between 0 and 1.2 percent.’

In the cantons of Schwyz and Zug, nothing will change for the time being. In answer to our query, Zug Government Councillor Heinz Tännler told us: ‘The canton of Zug currently has no plans to adjust property values or estimated rental values.’

However, the canton of Lucerne will reassess all properties by 2026. According to the Lucerne revenue office, however, a change in property ownership could ‘immediately’ trigger a revaluation, which would then be valid for the relevant tax period.

Courts force Zurich Government Council to act

In the canton of Zurich, this revaluation is not entirely voluntary: the courts had previously ruled that the property tax values of many properties in the canton of Zurich, calculated according to the previous directive, were significantly lower than their actual market values. The tax values calculated by the tax office were therefore no longer compatible with federal law and had to be adjusted.

Thanks to the planned adjustment, the canton and Zurich municipalities are expecting additional annual income of CHF 170 million. According to Reto Flury, spokesperson for the canton of Zurich Department of Finance, the consultation process for the Government Council’s directive was completed on 8 May 2024. According to Flury, this directive is ‘not subject to a referendum’. This means it should be implemented more or less as planned.

Married couples with two children will pay around CHF 2,000 more in Zurich

But how much more will taxpayers in the canton of Zurich have to fork out from 2025 onwards? An example from the canton’s department of finance shows that a married couple with two children in Zurich faces an additional burden of CHF 2,078 per year if the tax value of their city apartment increases from CHF 500,000 to CHF 1,094,000 and the estimated rental value rises by CHF 5,200. This amount may be lower or higher, depending on marital status, tax burden, previous property tax value and estimated rental value. 

If you bought your home after 2009, you will pay less

If you bought your home in the canton of Zurich after 2009, you may pay less. This is because the official values have been continually adjusted upwards by the tax authorities since 2009. Low-income homeowners in the canton of Zurich are less likely to be happy about the adjustments: a tax discount on the estimated rental value that has been granted since 1999 was cancelled without replacement in 2023. The reason for this is that there was no legal basis for this ‘hardship clause’. Seven other cantons also had to abolish such tax rebates for low-income homeowners.

Official calculations can be challenged

It’s important to understand that, according to federal law, the property tax values of properties in all cantons must not be lower than 70 percent of the sale or market value, while the estimated rental value must not be lower than 60 percent of the market rent. The cantons may set a higher estimated rental value and are free to choose the method for calculating rent as the basis for the estimated rental value.

But how exactly do the cantons calculate these tax values? The canton of Zurich uses a formula for this. Some cantons in Switzerland, including the canton of Aargau, use what is known as the individual valuation method and calculate the estimated rental value using an empirical computer model that takes account of property and location-specific criteria.

In the canton of Obwalden, properties are valued using the following formula: the basis for houses occupied by between one and three families and leasehold units is the land value (number of m2 x CHF per m2) plus the current value (new building insurance value less age depreciation).

If necessary, you can challenge the official estimated rental value calculation

It’s worth bearing in mind that you don’t have to accept the officially determined estimated rental and tax values. If there are any discrepancies, you can use other values in your tax return.

However, you must justify the amended value in an accompanying letter to the tax office and provide appropriate evidence. A lower estimated rental value can be justified, for example, by the rents actually paid for comparable properties and locations. The burden of proof lies with homeowners. The authorities will then determine the final values when examining your tax return.

You can object to this using the usual procedure. Well-founded objections certainly have a chance of success: in the canton of Zug, for example, according to Government Councillor Heinz Tännler, it is estimated that around 30 percent of official values are corrected every year following objections. According to the cantonal tax office, the ‘correction rate’ in the canton of St. Gallen is around 40 percent.

In the case of negative decisions, legal protection insurance with appropriate insurance cover may also be helpful. Michael Grütter, a lawyer for Protekta legal protection insurance at Mobiliar, has this advice: ‘If an objection decision is negative, Protekta will pay the costs of an appeal against the decision, including representation by external lawyers, provided that insurance cover is in place.’ For more information, you can obtain free advice here.

Tax ruling: How to protect yourself against excessive tax values

The calculation of the estimated rental value is governed by cantonal rules. As a first step, it is therefore advisable to consult the website of the respective cantonal tax authority, along with any information sources stored or linked there.

If you don’t agree with an estimated rental or tax value determined by the tax office, you must object to the ruling within the appeal period. In many cantons, this step can only be taken once your tax return has been definitively assessed.

Tip: Before submitting an objection, first contact the relevant expert at the tax office and find out how the authorities came to their supposedly ‘incorrect’ assessment.

Submit your objection correctly and on time

If you don’t agree with the final tax assessment or the calculated estimated rental and tax values issued by the authorities, you can object to these free of charge within 30 days. If you miss this deadline, the assessment will become legally binding.

To file an objection, you should collect all the relevant documents and submit your written objection by registered mail to the relevant tax office. Don’t forget this requires your original signature. Send your letter by registered mail to prove that you’ve met the deadline. 

Provide evidence

To submit an appeal, you should provide all the relevant information and evidence that could influence the estimated rental and tax values. This includes, for example, comparative rents, reports on the property’s condition or information about similar properties in the area. An assessment by a valuation expert can significantly increase your chances of a successful appeal.

This usually costs between CHF 700 and CHF 2,000 for owner-occupied apartments and single-family homes.

Legal advice

If necessary, seek legal advice from specialists from your legal protection insurance or tax experts, particularly when it comes to complex tax matters. A lawyer or legally experienced tax expert can help you explore your legal options and develop an objection strategy. 

Submit a complaint to the administrative court

If your objection is rejected by the tax office, you can still submit a complaint to the relevant administrative court. In this case, it is advisable to seek representation from a legal expert in order to increase your chances of success. Appeals and complaints are subject to a fee if you don’t win your case.