Tax Considerations When Selling Property in Vaud

The capital gains tax on property sales

In Vaud, gains realised on the sale of real property are subject to a specific cantonal tax — the impôt sur les gains immobiliers (IGI). This tax applies to all property sales, regardless of whether the seller is an individual or a company, and regardless of whether the property was a primary residence, secondary residence or investment property.

The taxable gain is calculated as the difference between the sale price and the acquisition cost (purchase price plus acquisition costs plus the cost of improvements made during the holding period). Costs that can be deducted include: the original purchase price; notary fees and transfer tax paid at acquisition; the cost of capital improvements (renovations that increase the property's value, not routine maintenance); and agent commission paid at sale.

How the rate varies with holding period

The IGI rate in Vaud decreases significantly with the length of the holding period. For properties held for less than 1 year, the rate can be as high as 50 percent of the gain. For properties held for 5 years, the rate is approximately 25 to 30 percent. For properties held for 10 years, the rate is approximately 15 to 20 percent. For properties held for 25 years or more, the gain may be exempt from IGI.

This progressive reduction in the tax rate is designed to discourage short-term speculation and to reward long-term ownership. Sellers who have held their property for many years benefit significantly from the reduced rate.

Reinvestment relief

Sellers who reinvest the proceeds of a property sale into a new primary residence in Switzerland within a specified period may be able to defer the capital gains tax. This reinvestment relief (report d'imposition) allows the seller to defer the IGI until the new property is eventually sold.

The conditions for reinvestment relief are specific — the property sold must have been the seller's primary residence, and the new property must also be used as a primary residence. Sellers who intend to reinvest should seek advice from a tax adviser before completing the sale.

Planning implications

The IGI has important planning implications for property owners. Sellers who have held their property for a long time benefit from a significantly lower tax rate — selling after 25 years may result in no IGI at all. Sellers who are considering selling within the first few years of ownership should carefully calculate the after-tax return before proceeding.

Capital improvements made during the holding period reduce the taxable gain — buyers who renovate their property should keep detailed records of all improvement costs, as these can be deducted from the gain at the time of sale.

Key points

• IGI applies to all property sales in Vaud — individuals and companies
• Taxable gain: sale price minus purchase price, acquisition costs and improvement costs
• Rate decreases with holding period: up to 50% (< 1 year) to 0% (25+ years)
• Reinvestment relief available for primary residence reinvestment
• Keep records of all improvement costs — deductible from gain at sale