Elimination of the rental value as of January 1, 2029

The End of Interest Deductibility for Individuals: The Hidden Side of the Vote

Summary and Solutions

The Swiss real estate tax landscape is poised to undergo one of its most significant transformations in recent decades. Following the approval by the people and the cantons of the housing tax reform in September 2025 (Federal Decree on Cantonal Real Estate Tax on Second Homes, FF 2025 17), the Federal Council decided at its meeting on April¹, 2026: the rental value will be abolished effective^{January 1} , 2029.

While the announcement of the end of this tax on notional income was widely celebrated by property owners in German-speaking Switzerland (and lamented by those in French-speaking Switzerland), media attention has focused almost exclusively on this aspect. Yet this reform represents a systemic change with far more profound implications. Beyond the simple elimination of the rental value, the entire mechanism of tax deductions is being overhauled, introducing a new major asymmetry in the wealth management of individuals.

PANCHAUD Tax & Legal SA breaks down the hidden implications of this reform and the estate planning strategies you should consider.

The reform timeline: A window of opportunity through December 31, 2028

The date of January¹, 2029, was not chosen at random. This transition period was granted to allow the cantons to adapt their legislation and, if they so choose, to introduce a special tax on second homes to offset the loss of tax revenue.

For property owners, this deadline is crucial. It means that current regulations remain fully in effect until the end of the 2028 tax year. This still leaves valuable time to plan and undertake any renovation or energy-efficiency improvement projects. In fact, starting in 2029, the deduction for maintenance costs for owner-occupied properties will be eliminated at both the federal and cantonal levels. Investments related to energy savings will no longer be deductible from direct federal income tax, although the cantons retain the freedom to maintain these incentives for a limited time.

It is therefore strategically advisable to assess the condition of your private real estate portfolio today in order to maximize the tax efficiency of any renovations before this paradigm shift takes place.

The planned phase-out of the deductibility of interest expenses

This is where the hidden side of the reform lies, one that is often pushed to the sidelines of public debate. Along with the elimination of the rental value deduction, the deductibility of mortgage interest will be completely eliminated for owner-occupied properties—or severely restricted. This is despite the fact that it also affects people who do not own real estate.

This change in direction will have a significant impact on personal finances in several areas:

• Personal and consumer loans: Whether you own or rent your home, interest on personal debt (e.g., consumer loans, credit card debt, personal loans, pawnshop loans, or tax debts) will no longer be deductible from taxable income.
• Income-producing real estate: For landlords, a deduction will still be available, but it will now be proportional. It will be calculated based on the ratio of the value of the income-producing properties to the taxpayer’s total assets. In some cases, this change will mean that not all interest can be deducted.
• First-time homebuyers: An exception is provided for the purchase of a first home. First-time buyers will be able to deduct their mortgage interest on a limited and degressive basis over a ten-year period (with a cap set at CHF 10,000 in the first year for a married couple and CHF 5,000 for a single person). In some cases, this change will mean that not all interest can be deducted. Furthermore, this system was implemented in an environment of low interest rates. Consequently, it is not suitable if rates were to rise to the levels seen in the 1990s.

The Emergence of a New Tax Asymmetry

This legislative change introduces an additional distortion into our tax system for individuals (excluding those engaged in gainful employment). We are heading toward an imbalance: interest received will remain taxable, while interest paid will no longer be deductible (except in very specific cases).

In practical terms, income from your investment assets (dividends, bank interest) will continue to be taxed. Conversely, the cost of personal debt will be treated as a net expense, with no deductions allowed.

This situation is similar to existing disparities in our tax system, which are widely known and generally accepted. For example, rent received by a landlord is fully taxable, whereas rent paid by a tenant for their own housing cannot be deducted from their taxable income.

This asymmetry is not merely a technical detail; it alters the very nature of private debt in Switzerland. Until now, the tax system encouraged individuals to finance their real estate purchases with a minimum of equity and, consequently, a maximum of debt, so that they could invest their equity elsewhere (e.g., in the stock market). This approach allowed individuals to put their capital to work while achieving tax optimization, since interest expenses were deductible from the rental value. It is possible that starting in 2029, this logic will be reversed. Paying off a mortgage or settling personal loans could, in certain cases, become the most rational financial and tax decision. This will depend primarily on the returns taxpayers are able to achieve with this borrowed capital. If the returns exceed the interest paid, then it is likely that the debt will be maintained. In addition, we may see an increase in investments made through public limited companies (SA) or limited liability companies (Sàrl), which in principle allow for the maintenance of the interest expense deduction. However, this will depend primarily on the nature of the investments, as capital gains may be exempt from income tax for individuals under Article 16(3) of the Federal Income Tax Act (LIFD).

Incorporate this reform into your estate planning

In the face of these structural changes, a wait-and-see approach is not an option. This imbalance deserves to be fully incorporated into your overall strategy and, consequently, into the structuring of your assets.

This is where PANCHAUD Tax & Legal SA’s expertise in taxation really comes into its own. Several areas need to be explored between now and January¹, 2029:

1. Renovation Strategy: There are two and a half years left to maximize tax deductions for maintenance and energy-efficiency upgrades. Multi-year planning of the work is essential to maximize the tax benefit.
2. Reassessing Your Debt-to-Income Ratio: Should You Make Large Mortgage Payments? The answer depends largely on the difference between your mortgage interest rate and the expected (after-tax) return on your investment portfolio, as well as on the source of the funds used to make these payments. In fact, withdrawing assets from a pension fund triggers income tax at the time of withdrawal and increases the taxpayer’s taxable income.
3. Investing Through a Corporation: Depending on the type of investment made, it may be advantageous to establish a limited liability company (Sàrl) or a public limited company (SA) that would borrow money from a bank using the taxpayer’s real estate as collateral and use those funds to make investments. Within a corporation, interest expenses are generally considered business-related expenses and remain fully deductible. PANCHAUD Tax & Legal SA regularly assists its clients in analyzing the advisability of establishing or liquidating such structures.
4. Formation of Real Estate Companies: For large portfolios of rental properties, holding them in one’s own name (as an individual) may become less attractive compared to holding them through a legal entity (SA or Sàrl). Within a corporation, interest expenses and maintenance costs are still considered business-related expenses and remain, in principle, fully deductible. PANCHAUD Tax & Legal SA regularly assists its clients in analyzing the advisability of establishing or liquidating such structures.

The elimination of the rental value does not mark the end of tax planning, but rather the beginning of a new chapter. The rules are changing, and wealth structuring strategies must adapt accordingly.

At PANCHAUD Tax & Legal SA, we combine legal expertise, strategic advice, and tax planning to provide you with security, predictability, and tax savings. Please feel free to contact us for a comprehensive analysis of your financial situation and to plan with confidence for the future beyond 2029.

Content sources:

https://www.efd.admin.ch/fr/newnsb/yGTqBPowRqyVh0zPokW-q

FAQ: Elimination of the rental value in 2029