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17 July 2020

Tax thoughts on climbing the UK / Swiss real estate ladder – Part 1

In this series of articles, 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 Swiss tax resident looking to purchase residential property in England in your personal name?

Although it may be the least exciting aspect of purchasing a new home or investment property, tax will undoubtedly play a big role in the decision making process. This first piece looks at some practical points for consideration on both the UK and Swiss tax impact of such a purchase:

 

ENGLISH PROPERTY

 On purchase

In the UK:

Stamp Duty Land Tax (SDLT)

This is a one-off payment on purchase and is based on the property value. Rates are on a sliding scale, up to 15%. Various reliefs may be available, such as for first time buyers or the simultaneous purchase of multiple dwellings.

In Switzerland:

There are no Swiss tax consequences on the purchase of a property in England.

During ownership

 

 In the UK:

1.Income tax

This is an annual liability if rental income is received, subject to any allowances, reliefs and exemptions which may be available to non-UK residents. Rates depend on marginal tax rate of the owner and can be up to 45%.

2. Inheritance tax

This may be chargeable on death at 40%, subject to any reliefs or exemptions. See Part 3 of this series for a discussion on the succession and inheritance tax impact of property ownership.

In Switzerland:

1.Wealth tax

This is an annual liability on cumulative wealth. The value of the property will be included to determine the Swiss resident’s wealth tax rate (but the property itself is not chargeable as it is located outside of Switzerland).

2. Income tax

Rental income or ‘fictive’ rental value (if the property is occupied as a second home) will be included in the Swiss income tax return of the Swiss resident owner to determine the taxable rate (but the rental income itself is not chargeable). Maintenance expenses may be deductible, but will only impact the tax rate.

3.Inheritance tax

Based on the UK/Swiss double tax treaty, no Swiss inheritance tax will be chargeable on property in England. Again, see Part 5 of this series for a discussion on the succession and inheritance tax impact of property ownership.

On sale/disposal

 

In the UK:

Non-resident capital gains tax (NRCGT)

This may be chargeable on any gain realised on sale or disposal for non-UK residents, at up to 28% (subject to reliefs and exemptions).

In Switzerland

Based on the UK/Swiss double tax treaty, there are no Swiss tax consequences on the sale/disposal of a property in England.

Double tax treaty

Switzerland and the UK have 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 residential property in England will have tax implications in both countries. Over the last decade trends have seen a steady increase in tax exposure for non-UK residents on UK residential property, and so the benefits of what was ‘traditional’ structuring for such a purchase now may need to be reconsidered.

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 UK/Swiss 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.   


For more information, and to receive tailored advice, please contact Sophie Hart at sophie.hart@crsblaw.com and on +41 (0)22 591 18 54, or contact Laure Cordt-Møller at laure.cordt-moller@crsblaw.com and on +41 (0)22 591 18 90.

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