The abolition of the imputed rental value and the impact on your tax and pension planning

Planning aspects with a view to retirement

Property prices and value retention

The market is likely to become more differentiated in the coming years. In particular, properties that do not have an energy-efficient renovation backlog before the reform comes into force could become less attractive. Even after the reform, certain energy-related costs will be tax-deductible depending on the canton.

In practice today, we often find that properties with a manageable renovation backlog are affordable on the one hand, but are also very interesting on the other, as the renovation and maintenance costs can be deducted from taxable income and, if optimally distributed over more than one tax period, a significantly lower tax burden can be achieved after the purchase.

For property owners, this means that maintenance will become an active task in the coming years, not only from an ecological but also from a financial perspective. Those who renovate or modernise at an early stage will secure the market value of their property and continue to benefit from tax deductions.

Will properties with a backlog of renovation work become hard to sell after 2029, or will prices fall?

I see this as a realistic scenario in rural regions. This is because it is also expected that the supply on the market will increase in the coming years with more houses from the "baby boomer generation". Particularly in regions with a tendency towards migration, this will lead to an oversupply compared to new builds. However, the prediction made a few years ago that baby boomers would sell their properties has not yet materialised.

However, I see a lower risk in urban centres. In these regions, both the demand for housing and the development of tenancies is much more pronounced than in rural areas. As refurbishment costs can generally be financed via the mortgage, the purchase of property remains more cost-effective than a comparable tenancy, especially under the current interest rate conditions. It can also be assumed that demand in urban areas will remain high.

Holistic planning

With careful planning, investments can still be spread across the tax years 2025 to 2028 in order to make the most of the tax benefits. Among other things, this is relevant for property owners who are already in the process of planning for retirement: a carefully planned sequence of maintenance and refurbishment measures makes it possible to balance income and deductions and to smooth out the tax burden during the final years of working life. For example, if you are due to retire after 2032 and are still planning to make a top-up contribution to your pension fund, you should now assess on a case-by-case basis whether, instead of making this top-up contribution, the funds should be used for maintenance and the top-up contribution postponed until 2029. In this way, the funds can initially be used to clear existing renovation backlogs. This safeguards the value of the property, reduces the risk of high investment costs later on and enables targeted tax and pension planning. Once the renovation work is complete, pension fund top-ups can be made at a later date, if necessary, so as not to lose the tax benefit and to break the tax progression over several years. In our example involving a pension purchase in 2029, the three-year lock-in period would also allow for flexibility when it comes to the all-important question: ‘Pension or lump sum?’.

Pillar 3a - pause and top up later

There is not always enough liquidity to renovate the house or make full 3a contributions at the same time. The reform and the change in the law to retroactively close gaps in pillar 3a from 2025 onwards therefore offers a side effect; if the individual situation allows, it could be worthwhile temporarily pausing or reducing 3a payments. This creates room for manoeuvre in liquidity planning and allows funds to be used in a more targeted manner, for example for early renovations. After 2028, you can top up your 3a account retroactively and break the tax progression again. The tax savings from the current years can in turn be used for payments into the third pillar.

Amortise your mortgage?

This, too, was repeatedly highlighted as an argument by the proponents. ‘Debt reduction’. In my view, however, this is wishful thinking. At best, a handful of people will pay off part of their mortgage. This group is limited, however, to those who already have a low level of mortgage debt, have sufficient liquidity and do not wish to make any other investments. As housing costs are already low due to persistently low interest rates (+/- 1.50 % for 10 years), the vast majority will probably not wish to repay their mortgage and tie up their money, but will instead want to retain their liquidity for other purposes. For example, to remain flexible in the event of major purchases, or to invest in the stock market, where better returns can generally be achieved over a longer time horizon. Depending on one’s circumstances and options, paying off the mortgage may actually leave one with even less money to live on when all is said and done.