Real estate gains tax
BY MARCO MICHELS
Almost every land sale generates a net profit that the seller must pay tax on. The so-called property gains tax. The longer you owned the property, the lower the tax burden. The ones who pay the most are those who buy a property and sell it again (at a profit) shortly afterwards.
Real estate gains tax
Property gains tax varies from municipality to municipality and depends on how long you have owned the property or land. The property gains tax is calculated on the difference between the purchase and sales price. You can deduct all value-adding investments and costs for the sale – estate agent, advertisements, transfer tax, land registry fees etc.
The real estate gains tax is a special tax. If a natural person sells a property from his or her private assets, a share of the net profit goes to the canton and the municipality. In the cantons of Zug and Zurich, the municipalities levy the tax; in the cantons of Basel-Stadt, Bern, Fribourg, Graubünden, Jura, Obwalden and Schaffhausen, the canton and the municipalities levy the tax; in all other cantons, the canton levies the tax. In cantons where only the canton levies the tax, the municipalities usually participate in the revenue. Taxation is the responsibility of the canton or commune in which the property is located. In most cantons, each real estate gain is taxed individually; only in Basel-Land, Bern, Graubünden, Jura and Schwyz is the sum of all gains made during a certain period taxed.
The property is liable for the tax liability
All cantonal tax laws define real property as in the Civil Code: In addition to real property and buildings, this includes, for example, co-ownership shares in real property or independent and permanent rights entered in the land register such as usufructuary rights, building rights, spring rights, water rights and other easements. The person who sells the property is liable to pay tax, which is usually the owner.
As a rule, the community has a lien on the property to secure the property gains tax.
If the seller does not pay the real estate gains tax, the community can demand the realisation of the real estate if the seller is insolvent. Because there is usually a lot of money involved, the buyer should make sure that the notary retains part of the purchase price to pay the property gains tax later.
Since 1 January 2020, the Canton of Aargau has – as already mentioned – known a statutory lien on real property for taxes on the capital gain in the amount of a flat 3% of the purchase price. This is a practicable method because, unlike other cantons, in the canton of Aargau the provisional tax amount does not have to be determined by the authorities. In practice, this 3% of the purchase price is paid directly to the tax office (see payment modalities).
Is the net profit taxed?
The net profit is the difference between the sales price and the investment costs. The tax law of the Canton of Zurich, for example, defines investment costs as follows: Purchase price or market value of 20 years ago, if the property belonged to the owner for more than 20 years.Expenditure on buildings, conversions, land improvements and other permanent improvements to the property, after deduction of any insurance benefits and contributions from the Confederation, canton or communes. Landowner contributions such as pavement, sewer and added value contributions.Broker commissions on sale, usually two percent of the purchase price plus VAT.Insertion costs on purchase and sale.Levies for the change of ownership on purchase and sale.Eleven cantons (Aargau, Appenzell-Ausserrhoden, Basel-Stadt, Fribourg, Geneva, Nidwalden, Obwalden, Ticino, Thurgau, Uri and Vaud) apply a proportional tariff, the others a progressive one. In almost all cantons, the rate depends on how long the property belonged to the seller. With the exception of Solothurn, every canton charges a surcharge on short-term property gains in order to place a greater burden on speculators. For this, all except Basel-Land and Obwalden grant a discount if the seller has owned the property for a long time, because the gain is at least partly due to inflation. The canton of Zurich, for example, charges a premium of 50% for sales after less than one year and 25% for sales after less than two years, but grants a discount of 5% after five years, 20% after ten years and 50% after 20 or more years. The canton of Geneva even waives the property gains tax altogether after 25 years.In many cantons you can calculate the expected property gains tax online, for example in Bern. The easiest way is to search the internet for “calculate property gains tax online”.
Deferral of real estate gains tax (StG § 216 para. III)
According to StG § 216 para. III lit.a, the real estate gains tax is deferred, for example, in the event of a change of ownership through inheritance (succession, division of an estate, bequest), advance withdrawal or gift.
According to StG § 216 para. III lit.i, the real estate gains tax is deferred in particular in the event of the sale of a permanently and exclusively owner-occupied residential property (e.g. single-family house or condominium), provided that the proceeds (profit) are used within a reasonable period of time (in the canton of Zurich: 2 years before or after the sale of the original property) for the acquisition or construction of a replacement property in Switzerland with the same use. Such a tax-suspending replacement acquisition can thus also take place in another canton (StG § 226a para. I).
Subsequent assessment (StG § 226a II)
The deferred property gains tax is subsequently assessed if the replacement property is sold within 20 years of the change of ownership of the first property. Accordingly, after 20 years, deferred real estate gains tax definitely lapses, i.e. it no longer has to be paid in the event of a later sale of the replacement property.
The right to tax the deferred real estate gain when the tax deferral ceases to apply (subsequent assessment) is vested in the canton or municipality of arrival (unit method).
Liability: In accordance with the unit method, it is not the first property sold that is liable, but the replacement property. Accordingly, the purchaser of the first property sold is in principle exempt from any liability in this regard and does not have to fear any legal lien on his property due to subsequent assessment. The exception to this would be if the owner of the first property sold had abusively claimed his tax deferral, but this will hardly play a role in practice, as the qualification of an abuse would be bound to strict requirements.
Replacement purchase
Prerequisites for the replacement purchase are:
- Permanent and exclusive owner-occupation of the residential property sold. Interruptions in owner-occupation are only permitted in exceptional cases and the owner-occupied residential property must have served as the main residence in the period prior to the sale (BGE 138 II 105 in 2012 and BGE 143 II 233 in 2017). This requirement of the main residence can be of great financial significance for the planning of a sale and is recommended to be clarified before a sale We, KEHL Immobilien und Treuhand, will be happy to advise you.
- Same use of the replacement property (taking up residence)
- The replacement purchase shall be made by the transferor himself.
- The replacement property must be located in Switzerland.
- As a rule, the replacement must take place within two years after or before the sale of the original property. In the case of replacement before disposal, there must be an adequate causal connection between the acquisition and the disposal.
Use of the profit for the replacement property. The amount of the profit made must be invested in the replacement property (reinvestment). If only part of the profit is reinvested, only this part can be reinvested for property gains tax.
Real estate transfer tax
Cantons such as Aargau, Zug or Zurich do not have the property transfer tax, while cantons such as Bern or Lucerne (still) levy it. However, homeowners’ organisations are campaigning for it to be abolished or at least reduced. In the canton of Bern, for example, the people have decided that since 1 January 2015 the property transfer tax of 1.8 per cent will only be calculated on the amount exceeding CHF 800,000. What does this mean in our example?(1,000,000 francs – 800,000 francs) * 1.8 per cent = 3,600 francs or 1,800 francs each for the buyer and seller in the canton of Bern.0 francs in the canton of Zurich.
Real estate transfer tax?
The canton of Aargau does not have a property transfer tax. However, the land register fee amounts to a flat rate of 4 per mille of the purchase price, which can no longer be described as a mere fee in the case of high sales prices, but also has the character of a tax (so-called “community tax”).
