Tax thoughts on climbing the UK / Swiss real estate ladder – Part 2

SWISS PROPERTY

On purchase

In Switzerland:

Swiss transfer tax and Land Registry fees

This is a one-off payment on purchase at a set rate which depends on the canton where the property is located. Generally, transfer tax is of 3% on the purchase price, but it can differ from one canton to another. Land Registry fees vary depending on property-specific considerations and where it is located.

In the UK:

There are no direct UK tax consequences on the purchase of a Swiss property. However, the Stamp Duty Land Tax (SDLT) surcharge of 3% for multiple home ownership may apply on any future purchase in the UK.

During ownership

In Switzerland:

1.      Wealth tax

The property will be subject to an annual wealth tax, with the applicable rate depending on the canton where the property is located.

2.      Income tax

This is an annual liability if rental income is received. The rate will depend on the canton where the property is located and also potentially on the other worldwide income of the non-Swiss resident owner. Rates depend on the canton, and can be up to, for example, 45% in Geneva.

Alternatively, if the property is occupied by the owner, a ‘fictive’ rental value (the so-called ‘valeur locative’) is calculated based on several property-specific criteria (surface, localisation, layout, etc.) and is subject to income tax at the same rates as if rental income is received.

Double tax treaty relief may be available.

3.      Swiss land tax

This is an annual liability based on the fiscal value of the property, which may be different to the market value. The rate will depend on the location of the property. The tax paid can be treated as a deductible expense for Swiss income tax purposes.

4.      Inheritance tax

This may be chargeable on death, the rate depending on the family relationship of the heirs. See Part 5 of this series for a discussion on the succession and inheritance tax impact of property ownership.

In the UK:

1.      Income tax

For UK residents taxed on the arising basis (ie. taxation on worldwide income), there may also be an annual liability to UK income tax if rental income is received. Relief from double taxation, however, may be available under the UK/Swiss double tax treaty.

For remittance basis taxpayers, the rental income may not be chargeable to UK tax if it is not remitted to the UK.

2.      Inheritance tax

This may be chargeable on death at 40%, subject to any reliefs and exemptions. See Part 5 of this series for a discussion on the succession and inheritance tax impact of property ownership.

On sale/disposal

In Switzerland:

Real estate capital gains tax

This is chargeable on any gain realised on sale, the rate depending on the duration of ownership and the value of the gain. Here again, tax rules may differ from canton to canton.

In the UK:

Capital gains tax (CGT)

This may be chargeable on any gain realised on sale or disposal for UK residents taxed on the arising basis (double tax treaty relief may be available). For remittance basis taxpayers, CGT may not be chargeable if the gain is not remitted to the UK.

Relief may be available under the UK/Swiss double tax treaty.

Double tax treaty

Switzerland and the UK signed treaties to avoid double taxation for income, gains and inheritance tax. The application of treaty benefits would need to be carefully considered.