Real Estate Sale: What Is the Property Gains Tax?

When selling property in Switzerland, a special tax applies in all cantons: the property gains tax (Grundstückgewinnsteuer). It is levied on the profit the owner makes from the sale. For many property owners, this tax is a decisive factor as it can significantly impact returns.

In this article, you will learn how the property gains tax works, how it is calculated, what cantonal differences exist and what options there are to defer or reduce the tax.

Basic principle of property gains tax

Definition

The property gains tax is a special income tax (object tax) that taxes the increase in value of land and property. It is levied by the relevant canton or municipality – the federal government does not levy a property gains tax.

Tax object

The tax is calculated on the difference between:

• the sale proceeds and
• the investment costs (original purchase price plus value-enhancing investments, acquisition costs and selling costs).

The tax applies to every change of ownership where a profit is made – regardless of whether it involves private or (depending on the canton) business assets.

Calculating the property gains tax

Determining the gain

Example:

• Purchase price: CHF 600,000
• Sale price: CHF 900,000
• Value-enhancing investments: CHF 50,000
• Agent and notary costs: CHF 25,000
• Investment costs = CHF 675,000
• Taxable gain = CHF 900,000 – CHF 675,000 = CHF 225,000

The cantonal tax is levied on this gain.

Deductible costs

The following costs can increase the investment costs and thus reduce the taxable gain:

• Value-enhancing investments (e.g. extensions, conversions, kitchen renovation)
• Agent’s commission (on purchase and sale)
• Notary and land registry fees
• Transfer tax (depending on canton)
• Advertising costs and selling expenses

Impact of holding period

The tax takes the holding period into account:

• Speculation surcharge for short holding periods: Almost all cantons (except Solothurn) levy a surcharge on short-term gains. Example Canton of Zurich: +50% for less than 1 year, +25% for less than 2 years.
• Discount for long holding periods: The tax burden decreases with longer ownership. Example Canton of Zurich: –5% after 5 years, –20% after 10 years, –50% after 20+ years. Geneva waives the tax entirely after 25 years.

Tax systems: Monistic vs. Dualistic

Switzerland has two different systems:

• Monistic system (e.g. Zurich, Bern, Graubünden): All property gains – from private and business assets – are subject to a uniform property gains tax.
• Dualistic system (e.g. St. Gallen, Lucerne, Aargau): Gains from private assets are subject to property gains tax. Gains from business assets are instead captured through income or profit tax.

Differences between cantons

Since the property gains tax is regulated at cantonal level, there are major differences:

• Zurich: Progressive tax, strong reduction with long holding period. First CHF 5,000 of gain is tax-free. Tax is levied by the municipality.
• Bern: Minimum tax rate even with long holding periods. Progressive tariff.
• Geneva: Very high tax rates for short holding periods, complete exemption after 25 years.
• Proportional cantons (e.g. Aargau, Thurgau, Ticino, Basel-Stadt): Tax rate depends on holding period but is independent of the amount of gain.

Deferral options

Replacement purchase

The tax can be deferred if the proceeds are invested in a new owner-occupied property in Switzerland. Requirements: The new property must be owner-occupied and the purchase price at least as high as the sale proceeds. Depending on the canton, the deadline for replacement purchase is 1–2 years, in exceptional cases up to 4 years.

Inheritances and gifts

In the case of gratuitous transfers (e.g. inheritance, gift, advance inheritance), the tax is not due. It only arises when the heirs or recipients sell the property. The investment costs and holding period of the predecessor are carried over.

Matrimonial property settlements

Tax deferral can also be granted for divorces, matrimonial property changes or estate divisions.

Value-enhancing vs. value-preserving investments

• Value-enhancing investments (e.g. extensions, loft conversion, new kitchen, development) increase investment costs and thus reduce property gains tax. These costs cannot simultaneously be deducted for income tax purposes.
• Value-preserving investments (e.g. painting, repairs, like-for-like heating replacement) are not applicable to property gains tax as they can already be deducted as ongoing maintenance costs for income tax purposes.

Security deposit and liability

The property gains tax must be paid by the seller. However, the property is liable for the tax – if the seller does not pay, the tax authorities can claim the outstanding amount from the buyer. Therefore, a security deposit should be agreed in the purchase contract, e.g. by depositing the estimated tax amount with the notary or municipality.

Practical examples

Example 1: Short ownership

An owner sells their apartment after 3 years with a gain of CHF 150,000. Due to the short holding period, a speculation surcharge may apply, significantly increasing the tax.

Example 2: Long ownership

A house is sold after 25 years with a gain of CHF 300,000. The tax rate is significantly reduced due to the long holding period – by 50% or more depending on the canton. In Geneva, the gain would even be tax-free.

Example 3: Replacement purchase

A family sells their house for CHF 1,200,000 and buys a new home within one year for CHF 1,300,000. Since the purchase price is higher than the sale proceeds and the property will be owner-occupied, the property gains tax is fully deferred.

Common mistakes and tips

Common mistakes

• Incorrectly claiming value-preserving costs as value-enhancing
• Not considering holding period and selling at the wrong time
• Planning a sale without considering possible tax consequences
• Not agreeing on a security deposit for property gains tax in the purchase contract
• Not keeping receipts for value-enhancing investments

Tips

• Consciously choose the timing of sale to benefit from reduced tax rates
• Carefully document value-enhancing investments throughout the entire holding period and keep receipts
• Have a provisional tax calculation done by the tax office or online before selling
• Check whether deferral through replacement purchase is possible
• Agree on a security deposit in the purchase contract
• For larger gains, seek tax advice early

Conclusion

The property gains tax is a central factor in property sales in Switzerland. It depends heavily on the holding period, value-enhancing investments, the canton’s tax system and cantonal tax rates. Those who calculate the tax correctly, utilise possible deferrals, choose the timing of sale wisely and arrange security in the purchase contract can significantly reduce their tax burden and optimise the gain from a property sale.