New Real Estate Taxation Effective January 1, 2025: Focus on LEFI and IBGI

The Swiss tax landscape will evolve significantly with the entry into force of two major reforms on January 1, 2025: the LEFI (Law on the Tax Valuation of Certain Properties) and the IBGI (Tax on Real Estate Profits and Gains). These measures, adopted in the interest of modernization and equity, redefine the rules applicable to property owners and real estate investors, while strengthening compliance with federal law.

Introduction

Tax reforms affecting real estate in Switzerland will introduce new dynamics as of January 1, 2025. The LEFI (Law on the Tax Valuation of Certain Properties) and changes concerning the IBGI (Tax on Real Estate Profits and Gains) aim to modernize tax rules while strengthening equity and compliance with federal law. These measures will have a significant impact on property owners, investors, and the entire real estate market.

1. The LEFI: A reform for equitable taxation

The LEFI, adopted by popular vote in 2023, profoundly modifies the tax bases applied to real estate in Switzerland. Its main provisions include:

• Increase in tax values: older properties, acquired before December 31, 2014, will undergo a revaluation of 12% to reflect current real estate market realities more accurately.

• Capped annual indexation: as of 2025, property tax values will be adjusted annually by a maximum of 1%, based on the Geneva consumer price index.

• Targeted tax rate reductions:

• The supplementary real estate tax (IIC) will decrease from 1‰ to 0.2‰ for primary residences owned by individuals.

• A 15% reduction in the wealth tax rate applicable to real estate will be implemented.

• New taxation of long-term real estate gains: properties held for more than 25 years, previously exempt, will now be subject to a 2% tax on the capital gain.

These adjustments reflect a commitment to simplifying tax rules while promoting a fairer distribution of the tax burden.

2. The IBGI: A lever against real estate speculation

The IBGI is the primary tool for taxing real estate capital gains realized upon the sale of properties. The reforms entering into force in 2025 introduce several adjustments:

• Progressive rates based on holding duration: the tax rate decreases over time, but a reform introduces a minimum floor of 2% after 25 years of ownership, thus ensuring a tax contribution even for long-held properties.

• Harmonization with federal law: by correcting historical disparities, the IBGI aligns with federal requirements, which mandate uniform taxation on real estate gains, regardless of the canton.

This development strengthens tax transparency and better regulates speculative practices, contributing to a more stable real estate market that is less exposed to fluctuations.

3. LEFI and IBGI: Strategic complementarity

Although distinct in their objectives, the LEFI and the IBGI complement each other to modernize real estate taxation. Together, they promote:

An equitable distribution of the tax burden:

• The LEFI revalues tax bases in line with the market.

• The IBGI ensures that gains realized on real estate transactions contribute to the financing of public infrastructure.

Better compliance with federal law:

• The new measures align cantonal taxation with federal standards, reducing disparities and tax loopholes.

Protection of owner-occupiers:

• Primary residences benefit from targeted tax relief, offsetting overall tax increases to preserve access to property ownership.

4. A clear timeline: Entry into force on January 1, 2025

The synchronized application of the reforms on January 1, 2025, will allow for an orderly transition for all stakeholders involved. Tax administrations have sufficient time to adapt their procedures, while owners and investors can adjust their strategies.

5. Conclusion: Towards a fairer real estate tax system

The reforms introduced by the LEFI and the evolution of the IBGI mark a significant step towards a modern and equitable tax framework. By adjusting tax values and ensuring proportional taxation of real estate gains, these measures strengthen market stability while respecting the principles of social justice and economic efficiency.

For real estate stakeholders, these changes call for strategic reflection to maximize their investments and ensure compliance with the new rules. Owner-occupiers will benefit from targeted protection, confirming the commitment of these reforms to sustainable access to property.

FAQ

1. What are the main changes introduced by the LEFI?

The LEFI increases the fiscal values of older properties by 12%, introduces annual indexation capped at 1%, reduces certain tax rates, and imposes a new minimum rate of 2% on real estate gains for properties held for more than 25 years.

2. Which transactions are affected by the IBGI?

The IBGI applies to capital gains realized on the sale of real estate. Tax rates vary according to the holding period, with a floor of 2% introduced after 25 years.

3. When will these reforms come into effect?

The LEFI measures and the evolution of the IBGI will come into effect on January 1, 2025.

4. Will these reforms affect primary residences?

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

5. Why were these reforms necessary?

They aim to modernize a tax system deemed obsolete, ensure greater fairness, and harmonize fiscal practices with federal law.

Ramzi Chamat OAKS GROUP SA