Taxes on real estate gains and its implications in 2025 for the canton of Geneva.

Introduction

IBGI is a tax levied on capital gains from real estate transactions in the canton of Geneva. It is a tax mechanism designed to regulate real estate profits, and its application is diversified, affecting not only sales of property but also sales of shares in real estate companies holding real estate in Geneva.

I. Recent legislative changes

Following the vote of June 18, 2023, as of January 1, 2025, a crucial change applies; the tax rate for the sale of real estate held for more than 25 years is adjusted to 2%, a measure that could have considerable repercussions on future transactions.

II. The Detailed Calculation Process

The effective gain, the basis for taxation, is calculated by subtracting the acquisition value from the disposal value. This methodology includes various elements such as the purchase price, transfer taxes, capital gains work and marketing costs. Understanding these terms and applying them correctly is crucial to accurately estimating the tax due.

III. Updated Tax Scale and Rates

The sliding scale of IBGI in Geneva varies according to the length of ownership of the property:

• Less than 2 years: 50%.

• 2 to 4 years: 40% of the value

• 4 to 6 years: 30% discount

• 6 to 8 years: 20% discount

• 8 to 10 years: 15% discount

• 10 to 25 years: 10% of sales

• 25 years and over: 2% (from 2024)

Calculation example with a property at CHF 2,000,000

Let's take an example where a property, purchased at CHF 1,500,000, is resold at CHF 2,000,000. For simplicity's sake, let's assume that the owner has carried out CHF 100,000 worth of capital works, and that marketing and other expenses amount to CHF 50,000. Let's also assume that the property has been held for 7 years.

• Acquisition value: CHF 1,500,000 (purchase price) + CHF 60,000 (transfer duty, 4% of purchase price) + CHF 100,000 (capital works) = CHF 1,660,000.

• Disposal value: CHF 2,000,000 (sale price) - CHF 50,000 (marketing costs and other expenses) = CHF 1,950,000.

• Effective gain: CHF 1,950,000 (disposal value) - CHF 1,660,000 (acquisition value) = CHF 290,000.

Under the old scale, given that the property had been held for 7 years, the tax rate would be 20%. Consequently, the IBGI would be: CHF 290,000×20% = CHF 58,000.

If the property had been held for more than 25 years, under the new law applicable from January 2025, the calculation would have been: CHF290,000×2%=CHF5,800

IV. Implications for Heirs and Investors

The period of ownership of inherited property is calculated on the basis of the date of death of the donor. The reinvestment mechanism offers an option to defer taxation by reinvesting profits in the acquisition of a new property under certain conditions, a significant consideration for real estate investors.

V. Impact on real estate strategy

The introduction of the 2% rate for properties held for more than 25 years changes the trade-off between selling and holding a property. This measure is prompting a reassessment of long-term real estate strategies and could influence investment and property management decisions.

Conclusion and outlook

The evolution of IBGI in Geneva marks a turning point in the canton's real estate taxation. It is crucial for owners and investors to keep abreast of legislative and regulatory changes to adapt their strategies accordingly and maximize the profitability of their real estate investments. The ramifications of these changes on the Geneva real estate market will be closely monitored over the coming years, and in-depth consultation with tax and real estate experts is highly recommended for optimal navigation of this changing tax landscape.