A property sale involves more than just signing a contract, paying the purchase price and registering the transaction in the land register – it also raises tax-related questions. One of the key issues is real estate capital gains tax. It is generally levied when a property, condominium or piece of land is sold at a profit. The tax is not charged on the entire sale price, but only on the increase in value achieved.
What Is Taxed?
The basis for taxation is the real estate capital gain. In simple terms, this is the difference between the sale proceeds and the allowable acquisition costs, as well as certain selling costs (such as land registry and notary fees and estate agent fees). The acquisition costs mainly consist of:
⧽ The original purchase price
⧽ Value-enhancing investments, such as converting or extending an apartment, a comprehensive renovation or installing a lift, provided that these costs have not already been claimed as maintenance expenses for income tax purposes.
Pure maintenance and repair costs cannot be deducted for real estate capital gains tax purposes.
Who Pays the Real Estate Capital Gains Tax?
The seller is liable for the tax. The tax becomes due once the transfer of ownership has been legally completed, generally upon registration in the land register.
The tax does not only apply when an entire property is sold. The transfer of co-ownership interests or certain rights (e.g. building rights) may also trigger a tax liability.
Important for buyers: If the seller fails to pay the tax, the buyer’s property may under certain circumstances also be liable. A statutory lien may even be registered against the property. This means that the property itself may be encumbered by, or liable for, the tax debt. For this reason, buyers generally secure the anticipated tax liability directly in the purchase agreement, for example by making a direct payment to the tax authority or using an escrow account.
Why Does the Tax Differ From Canton to Canton?
Real estate capital gains tax is governed by cantonal law. As a result, both the calculation and the amount of tax can vary considerably depending on where the property is located.
The key factors include the amount of the gain, the length of ownership and the applicable cantonal tax rate. In most cantons, the longer a property has been owned, the lower the tax will be.
Can the Real Estate Capital Gains Tax Be Deferred?
In certain circumstances, the tax is not immediately payable. A common example is the replacement purchase of an owner-occupied property. If you sell your house or apartment and reinvest the proceeds within a reasonable period in a new owner-occupied home, you may be able to apply for a tax deferral. This generally does not apply to holiday homes or properties held purely as investments.
In the case of inheritances and gifts, the tax is generally also deferred. It normally becomes payable only when the property is subsequently sold to a third party.
Conclusion
At its core, real estate capital gains tax is straightforward: it taxes the increase in value of a property, with the length of ownership playing a key role. The complexity lies in the differences between cantons regarding deductible costs and tax rates.
If you have any questions about property sales, real estate capital gains tax or other legal aspects of a transfer of ownership, the attorneys-at-law at Pilatushof AG will be happy to advise you.
