Reduce taxes while saving for retirement – that’s making more of your money and preparing your financial future with confidence. This is possible thanks to tax breaks for occupational and private provision in pillars 1 and 2 as well as for home ownership.
Pillar 3a affords up to CHF 2000 in tax savings annually
Around 12% of a household’s gross income is spent on taxes
Pillar 3a is taxed at a separate, more favourable rate upon payout
Save on taxes with the third pillar
You can deduct the contributions to pillar 3a from your income on your tax return in full. Depending on your canton, income and the amount of the contribution, you can reduce your tax bill each year by up to CHF 2,000. At the same time, you will be preparing for your financial future. So contributing is a good idea in many respects. The maximum amount you can contribute to pillar 3a each year is currently CHF 7,056 (2023). Self-employed persons who do not belong to a pension fund can contribute up to 20% of their net income, up to a maximum of CHF 35,280 annually.
- You can deduct pillar 3a contributions from your income. This will reduce your taxable income and thus your tax bill.
- Pillar 3a assets, including income, are exempt from taxation until you retire.
- On payout, the 3a capital is calculated separately from other income and taxed at a lower rate.
In most cantons, pillar 3b contributions cannot be deducted from your taxable income. That said, the subsequent payout is tax-free. However, the surrender values of the policies are taxed as wealth during the term.
The main point of interest with respect to taxes when it comes to pillar 3b is wealth-building capital-sum insurance. The premiums for such insurance are generally not tax-deductible and the surrender value is taxed as wealth during the term of the insurance. Nevertheless, on payout the entire balance, including all income, is tax-free – provided the statutory conditions are met.
You can structure your personal provision with pillars 3a and 3b. This will allow you to supplement the benefits from the first and second pillars. And you’ll save on taxes at the same time.
Save on taxes with the second pillar
On your pension certificate you will see whether you have already contributed the maximum amount to your pension fund solution. If you have not, you can also make purchases in your pension fund and save on taxes. You can deduct the full purchase amount from your income on your tax return – thus reducing your taxable income.
This is particularly worth doing if you have already contributed the maximum amount to pillar 3a. You can choose whatever date you wish for making the contribution. This will allow you, for example, to save taxes on a bonus payment or an inheritance.
You should note the following points when making a purchase of occupational provisions (second pillar):
- You cannot withdraw the amounts paid in until you are retirement age (with a few exceptions). So you should only invest money you will not need for living expenses until then.
- There is a cap on the contributions. You cannot contribute more than the full employee benefits specified in the regulations of your pension fund and indicated on your pension certificate.
- If you have financed your home with an early withdrawal from the pension fund, then you must first repay the early withdrawal before you can make tax-deductible purchases.
- Monitor the financial situation of your pension fund. You will find the necessary information on the pension fund website or in its annual report. Do not make any purchases if the fund has a shortfall, as this may lead to losses.
Spread a larger purchase amount out over several years. This helps you reduce the tax burden and save even more on taxes.
Save on taxes with residential property
Save on taxes with indirect amortisation
You can repay the second mortgage directly and reduce your mortgage debt year by year – or you can amortise it indirectly. For indirect amortisation, you conclude capital-accumulating insurance (pillar 3a). You pledge this to your bank or insurance company. You pay the annual amortisation payments as a premium into pillar 3a. With the capital that is accumulated, you then repay the second pillar mortgage all at once when it is due. This has the following tax advantages for you:
- You can deduct the mortgage interest on the entire amount from your taxable income until repayment of the second mortgage.
- You can deduct the entire mortgage debt from your taxable income until repayment of the second mortgage.
- You can also deduct the pillar 3a contributions from your taxable income.
- The pension assets are then taxed at a preferable rate upon payout.
- You insure the risks of death and disability with your amortisation policy.
Save with tax-advantaged maintenance
A fresh coat of paint on the façade, new floor covering – the costs of expensive maintenance work can be deducted from your tax return. If the work adds value, however – e.g. if you replace laminate with parquet – then the associated cost is not tax deductible. You have a choice when deducting the amount from your tax return: you can either claim the actual costs incurred or you can deduct a flat rate. The flat rates vary by canton. In many places, if the property is less than ten years old, the flat rate is 10% of the imputed rental value; for older properties, it is 20%.
And here are a few more tips:
It isn’t worth just investing a little bit in maintenance every year. You can still deduct the fixed rate even if you haven’t spent anything. That’s why, ideally, you should combine several minor jobs in the same year, so you can deduct the total cost of the work done if they exceed the fixed rate.
Make sure the costs do not exceed your taxable income. A deduction to less than zero will not be beneficial. Instead, spread bigger projects over two years. This will allow you to reduce your taxable income twice.
It isn’t worth just investing a little bit in maintenance every year. You can still deduct the fixed rate even if you haven’t spent anything.
Make an appointment for a consultation
Would you like to speak with our experts in a non-binding consultation to find out what exactly your tax-saving options are in your current situation? Then arrange an appointment today and receive a personal consultation! We would also be happy to advise you by video instead of in the General Agency or at your home.