Effective January 1, 2025: New real estate taxation reforms - Focus on LEFI and IBGI.

Introduction

Fiscal reforms impacting real estate in Switzerland will introduce new dynamics starting January 1, 2025. The LEFI (Law on the Fiscal Valuation of Certain Properties) and changes to the IBGI (Tax on Real Estate Profits and Gains) aim to modernize tax regulations while enhancing fairness and alignment with federal law. These measures will have a significant impact on property owners, investors, and the overall real estate market.

1. LEFI: A Reform for Fairer Taxation

The LEFI, adopted through a popular vote in 2023, introduces substantial changes to the fiscal bases applied to real estate in Switzerland. Its key provisions include:

Increase in fiscal valuations: Properties acquired before December 31, 2014, will see a 12% revaluation to better reflect current real estate market realities.

Capped annual indexation: Starting in 2025, property valuations will be adjusted annually by a maximum of 1%, based on Geneva’s consumer price index.

Targeted tax reductions:

• The supplementary property tax (IIC) will be reduced from 1‰ to 0.2‰ for primary residences owned by individuals.

• A 15% reduction in wealth tax rates applied to real estate will be implemented.

New taxation on long-held properties: Properties held for more than 25 years, previously exempt, will now be subject to a 2% tax rate.

These adjustments reflect a desire to simplify tax rules while promoting a fairer distribution of the tax burden.

2. IBGI: A Tool to Curb Real Estate Speculation

The IBGI serves as the primary tool to tax capital gains from real estate sales. The reforms effective in 2025 introduce several key adjustments:

Progressive rates based on holding periods: Tax rates decrease over time, but the reform introduces a minimum rate of 2% after 25 years of ownership, ensuring fiscal contributions even for long-held properties.

Alignment with federal law: By addressing historical disparities, the IBGI now complies with federal requirements mandating uniform taxation of real estate profits across cantons.

This evolution enhances fiscal transparency and better regulates speculative practices, contributing to a more stable and less volatile real estate market.

3. LEFI and IBGI: A Strategic Complementarity

While distinct in purpose, LEFI and IBGI work in tandem to modernize real estate taxation. Together, they promote:

A fairer distribution of the tax burden:

• LEFI updates fiscal bases to align with market realities.

• IBGI ensures that profits from real estate transactions contribute to public infrastructure funding.

Improved compliance with federal law:

• These measures align cantonal taxation practices with federal standards, reducing disparities and closing tax loopholes.

Protection for primary homeowners:

• Primary residences benefit from targeted tax relief, offsetting overall tax increases to maintain access to homeownership.

4. A Clear Timeline: Effective January 1, 2025

The synchronized implementation of these reforms on January 1, 2025, ensures an orderly transition for all stakeholders. Tax authorities will have adequate time to adapt procedures, while property owners and investors can adjust their strategies accordingly.

5. Conclusion: Toward a Fairer Real Estate Tax System

The reforms introduced by LEFI and the evolution of IBGI mark a significant step toward a modern and equitable fiscal framework. By adjusting fiscal valuations and ensuring proportional taxation of real estate profits, these measures enhance market stability while respecting principles of social justice and economic efficiency.

For real estate stakeholders, these changes require strategic planning to maximize investments and ensure compliance with the new rules. Primary homeowners will benefit from targeted protections, reinforcing the reforms' commitment to sustainable homeownership access.

FAQ

1. What are the main changes introduced by LEFI?
 

LEFI increases fiscal valuations of older properties by 12%, introduces a capped annual indexation of 1%, reduces certain tax rates, and implements a new 2% minimum tax on real estate gains for properties held over 25 years.

2. Which transactions are affected by IBGI?
 

IBGI applies to capital gains realized from real estate sales. Tax rates vary based on the holding period, with a new 2% minimum rate after 25 years.

3. When will these reforms take effect?
 

The LEFI measures and IBGI adjustments will take effect on January 1, 2025.

4. Will these reforms impact primary residences?
 

Yes, but specific relief measures are in place, including a reduction in the IIC for primary residences owned by individuals.

5. Why were these reforms necessary?
 

They aim to modernize an outdated tax system, ensure greater equity, and align cantonal practices with federal requirements.

Ramzi Chamat
OAKS GROUP SA