Calculating property gains tax.

Property gains tax is paid by the seller. If payment is not made, the buyer may be liable to pay. To avoid such an unpleasant surprise, a clause can be entered in the contract of sale which stipulates how the seller will settle the property gains tax. One option is to deduct the estimated tax amount from the purchase price and deposit this in an separate account or directly with the tax administration.

Good to know: In the case of corporations, such as joint-stock companies or limited liability companies, property gains tax does not apply. Instead, the gain achieved is taxed as part of ordinary profit taxation.

If you have occupied a property for many years, in many cantons the amount of property gains tax you must pay is considerably reduced. The longer the property was owned, the higher this reduction is. However, if you sell a property after only owning it for a short period, you should expect to pay a significantly higher charge, which may then result in a distinctly lower increase in value.

But remember, some cantons (e.g. Thurgau, Appenzell Ausserrhoden and Obwalden) apply an official estimated value when calculating property gains tax instead of the actual purchase price if the property has been owned for a very long time, for example more than 20 years. For the seller, this practice can be detrimental as the official estimated value is quite often lower than the actual purchase price, resulting in a higher gain and, in turn, a higher tax.

On the one hand, investments made to increase value during occupancy are tax-deductible. This includes, for example, extensions, loft conversions, building a pool or retrofitting skylights. Anything that has increased the value of the property during the period of occupancy is deducted from the gross yield. On the other hand, the costs associated with the purchase and sale of the property, namely the estate agent fees, advertising fees and, in certain cases, the land registry office fees for transferring the ownership and other costs are also tax-deductible. The condition is that the costs are verifiable and directly related to the property or its sale.

If you sell your owner-occupied home and move into a new one, you could benefit from a deferral of property gains tax on the condition that you use the proceeds of the sale to purchase or build a new property in Switzerland to be used for the same purpose within a period specified by the canton (usually two years). This regulation therefore does not apply to holiday homes. If your new home costs less than what you receive for your previous property, you must pay property gains tax on the difference. The remaining tax is deferred. Transfers of ownership without payment provide further opportunities for tax deferrals. Such transfers include, for example, cases of inheritance, gifts, divisions of estates and asset transfers between spouses or registered partners. Property gains tax is only incurred once the beneficiaries sell the property. At that time, the purchase price is not the value of the property at the time it is inherited, but the original purchase price paid by the testator.

Many sellers are unaware that selling a property can entail substantial costs. As well as property gains tax, notary and land registry office costs, transfer of ownership taxes and fees for drawing up or modifying the mortgage certificate all have an impact. In this respect, there are considerable differences between the cantons, which is why it’s worth enquiring about the relevant costs, charges and taxes with your local municipal authorities at an early stage. In addition, estate agents will charge commission of around 2-3% of the sale price for their services. In total, the costs for the average property range from around CHF 30,000 to CHF 50,000, and property gains tax alone can add up to just as much.