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Tax thoughts on climbing the UK / Swiss real estate ladder – Part 2
In this five-part series, we will take a look at some key UK and Swiss tax issues which should be considered when thinking about climbing the English or Swiss real estate ladder.
Are you a UK tax resident looking to purchase residential property in Switzerland in your personal name?
This second piece will present the practical points for consideration on both the UK and Swiss tax impact of such a purchase:
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.
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.
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.
As you will note, purchasing a property in Switzerland will have tax implications in both countries. From a Swiss perspective, the location of the property will have a major impact on the tax liability since each canton has its own tax rate. Tax expenses at all stages must be taking into account before the acquisition.
We have not considered acquisitions of residential property through more complex ownership structures (such as, for example, companies or trusts) in this note, however it is important to be aware that the tax impact will likely differ in most circumstances from that set out above. The application of the Swiss/UK double tax treaty in particular would need careful consideration.
At Charles Russell Speechlys we have Swiss and UK tax experts based in both our Geneva and Zurich offices and so are perfectly placed to provide seamless cross-border tax advice to complement your conveyance.
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