Can I rent out a granny flat in my own house tax-free?

The principle: Rent is income

The most important fact first: Every franc you earn from renting out a granny flat must be declared as income on your tax return. There is no general tax-free allowance for rental income in Switzerland, as you might find in some other countries. As soon as money changes hands , the tax authorities will take notice.

If you plan to rent out a separate apartment within your house, your tax base will change. Previously, you paid tax on the imputed rental value of the entire house as a fictitious income. If you now start renting out the separate apartment, the imputed rental value for that apartment is eliminated. It is replaced by the actual rental income.

• The risk: Since market rent is usually higher than the rather low official imputed rental value, your taxable income often increases if you rent out an accessory apartment .
• The opportunity: You receive real liquidity to pay taxes and interest.

Deductions: How to reduce your tax burden

Even though you can't rent out a granny flat tax-free , you can claim the associated costs. That's the lever for optimization.

1. Maintenance costs

Anyone who decides to rent out a granny flat will incur expenses. If the refrigerator in the rented apartment breaks down or the parquet floor needs sanding, these costs are fully tax-deductible.

• Flat rate vs. actual costs: You can choose each year. In years without major renovations, the flat rate deduction is often worthwhile (usually 10–20% of the rental income/imputed rental value). If you plan to rent out the granny flat and renovate before moving in, deducting the actual costs is more advantageous.

2. Mortgage interest

The mortgage interest payments for the entire house remain tax-deductible. If you use the income generated from renting out the granny flat to pay off the mortgage faster, the interest payments decrease – and unfortunately, so do the deductions. It's a balancing act.

3. Administrative costs

If you want to rent out an apartment within your own home and hire a property management company or place advertisements, these costs are tax-deductible in many cantons. Renting out an apartment within your home also helps to reduce your tax base.

Special case: Renting to relatives

Many homeowners want to rent out their granny flat to their own children or parents. The idea: to charge a nominal rent to save on taxes. Beware!

If you want to rent out an apartment within your own home and the rent is significantly below the imputed rental value or the market rent, the tax office suspects "tax evasion".

• The consequence: Instead of the lower rent, the tax office will count the higher imputed rental value (or even the market rent) as income. So you're paying taxes on money you haven't actually received.

to rent out an apartment to relatives , you should charge a rent that at least covers the imputed rental value. That way you're on the safe side.

Furnished vs. Unfurnished: A tax difference?

Even if you want to rent out a furnished apartment within your own home , the income remains taxable. The furniture surcharge increases your taxable income.

However, with furnished rentals, you can often claim the wear and tear of the furniture as an expense. This makes renting out a furnished apartment more complex from an accounting perspective, but can be tax-efficient if the initial purchase costs for the furnishings are high.

Subletting or owning your own apartment?

From a legal and tax perspective, it is often relevant whether the rooms are locked.

• Classic granny flat: Separate entrance, kitchen, bathroom. The imputed rental value is divided among the other units. If you want to rent this part out as a granny flat , it will be treated as a separate property.
• Subletting a room: If you only sublet one room in your apartment (e.g., to a student) and share the bathroom/kitchen, the imputed rental value for the entire property often remains the same, and the rental income is taken into account. Check with the tax office how they handle this situation if you only want to rent out parts of your apartment as a separate unit .

Conclusion

The hope of renting out a granny flat and keeping the income "gross for net" is a myth. In Switzerland, rental income is always taxable. Anyone planning to rent out a granny flat must expect an increase in their taxable income, as the rental income usually exceeds the imputed rental value that would otherwise be lost.

Nevertheless, it's worthwhile. The liquidity provided by the rental income helps with mortgage affordability. Furthermore, by cleverly timing maintenance work (effective deductions), tax peaks can be mitigated. Anyone who wants to successfully rent out a granny flat should view it not as a tax-saving scheme, but as an investment. Accurate bookkeeping and knowledge of deduction options are essential when you start renting out your granny flat .

If you are unsure how the income from renting out an in-law suite will affect your tax progression or what rent is considered "reasonable" to avoid problems with the tax office, Loft offers neutral data and analysis to secure your strategy.

Glossary

• Imputed rental value: A notional income that homeowners must declare for tax purposes. If you start renting out an apartment within your house , this value is no longer applicable to the rented portion and is replaced by actual rental income.
• Maintenance to preserve value: Costs for repairs (e.g., painting) that are fully tax-deductible. This is an important factor if you want to rent out a granny flat and save on taxes.
• Tax evasion: The attempt to save on taxes by, for example, renting to relatives at a significantly reduced rate. Anyone wishing to rent out a granny flat must charge market rates or at least rates that cover the imputed rental value.
• Flat-rate deduction: A percentage deduction for maintenance costs (usually 10-20%) that can be chosen instead of collecting receipts. It simplifies the tax return when renting out a secondary residence .
• Market rent: The price that would be customary between unrelated parties. It is the reference point for the tax office if you plan to rent out a granny flat .