Real Estate: Holding It Privately or Through a Company
Buying a property is almost always a tax decision too, not just a wealth decision. The recurring question is: is it better to hold it privately or to register it to a company (typically an AG or a real estate GmbH)? There is no answer that is valid for everyone. It depends on the purpose (own use or income), the time horizon, the number of properties and the succession objectives. Let’s look at the real terms of the comparison.
Private holding: how it is taxed
Anyone who owns a property privately is subject to three main taxes:
- the property enters the wealth and contributes to the cantonal wealth tax;
- the income is taxable as income: the rental payments for let properties, the imputed rental value (Eigenmietwert) for the home used by the owner;
- on sale, any capital gain is hit by the real estate gains tax (Grundstückgewinnsteuer), a cantonal competence, with rates that typically decrease as the holding period increases.
In return, one can deduct the interest expense on mortgage debts and the maintenance costs of the property. For own use, the logic of the imputed rental value is a Swiss singularity: you are taxed on a notional income, as if you were renting the house to yourself.
Holding through a company
Registering the property to a company changes the scheme. The property is an asset of the company; the rents are corporate revenue, the expenses and depreciation are costs. The company pays the profit tax and the capital tax. Up to here, the burden on the current real estate profit can often turn out to be contained.
The real crux is the economic double taxation typical of legal entities: the profit is taxed a first time at the level of the company; when it is distributed to the shareholder as a dividend, it is taxed a second time at the level of the individual (with the relief provided for qualified participations). The income from the property, in order to reach the owner’s pocket, therefore goes through two stages. One must also consider the 35% withholding tax (Verrechnungssteuer) on dividends, recoverable but with a cash-flow effect.
The comparison on the points that weigh most
Property for own use
For the house you live in, private holding is almost always the natural choice: you avoid double taxation and it makes no sense to interpose a company to live in it. The company would force you to pay yourself rent or manage a use value, complicating everything without advantages.
Income properties and portfolios
When the properties are more than one and intended for letting, a company can make sense: it allows depreciation, separates the risk from personal wealth, and facilitates the entry of several shareholders and the transfer of shares. But the advantage must always be weighed against the double taxation on dividends and the structural costs.
Succession and transfer
Transferring company shares is often simpler and more gradual than dividing the ownership of a property among several heirs. A corporate structure can therefore ease the succession planning of a real estate portfolio, avoiding unmanageable co-ownerships.
Watch out for professional real estate trading
Anyone who buys and sells real estate systematically risks being classified by the tax authority as a professional real estate dealer. In that case the profits are no longer simple private capital gains, but income from gainful activity, subject to income tax and to AVS (state pension) contributions. It is a reclassification that radically changes the bottom line and is one of the reasons why the choice of holding form must be made by looking at the real activity, not just at the single purchase.
The cost of changing your mind later
Transferring a property from private to company (or vice versa) is not neutral: it triggers the real estate gains tax and, in several Cantons, property transfer duties. That is why the decision must be taken at the outset, with a long-term projection: correcting it later often has a high tax cost.
How we work at SIH ONE
We compare the two scenarios on the concrete figures of the case: the intended use of the property, expected income, horizon, succession objectives and the risk of classification as a professional dealer. From this we derive the most efficient holding form and, if the corporate route is needed, we handle its incorporation and management.
Do you want to understand whether it is better to hold your real estate privately or through a company? Discover the services of our private division and decide on the numbers, not on gut feeling.