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OPINION

Could you make the Swiss switch?

Could you make the Swiss switch?
November 9, 2010
Could you make the Swiss switch?

There are three main routes to owning property here as a foreigner. By becoming a Swiss resident, you can buy a property as part of an advantageous route to limiting your annual tax bill. The super rich can approach a welcoming canton, and request a 'lump sum permit deal', described in French as 'forfait', which enables the granting of a revered "B Permit" to buy property.

"This is why there's such interest in Switzerland at the moment compared to Monaco and the Cayman Islands," says Alex Koch de Gooreynd, head of the Swiss desk at Knight Frank. "Let's assume you are buying a property for ten million Swiss francs. You negotiate a tax rate with the canton based on what annual rental charge your property could command. Assume the annual rental is 200,000 Swiss francs; the canton will then multiply this figure by either 5 or 6 and charge the standard rate of tax for that canton which is not normally more than 40 per cent , and regardless of your global income, that’s the maximum annual amount of tax they will charge you for a set five year period."

Of course, Swiss bank accounts are a current area of scrutiny for HMRC, which is currently pursuing enquiries with the Swiss authorities requesting details of UK residents who have accounts with Swiss banks. "However, when you buy property in Switzerland using this method, you are tax resident in Switzerland, not the UK. So therefore the UK government would have little right to look into your tax affairs. That's the driver, and why high net worth individuals are so interested in Swiss property," explains Mr Koch de Gooreynd.

Some areas remain off limits to foreign entrants. The canton of Zurich had a referendum last year, and the locals agreed they would no longer issue 'lump sum' permits to foreigners. However, the neighbouring canton of Zug (pronounced 'zoog') is open-minded about issuing lump-sum permits. Another popular tax haven is the canton of Schwyz (pronounced 'shvitz').

For all residents of the European Union, the lump sum tax route is not the only method to purchase in Switzerland and to obtain the hallowed B permit which entitles you to buy property. For example if you are working in Switzerland or considering retirement you can also apply for Swiss residency subjecting you to the standard tax rates from your chosen canton which are often lower than seen in other European centres.

"The canton of Neuchatel is one interesting area that is trying to encourage foreign companies to invest, particularly hedge funds and wealth managers," says Mr Koch de Gooreynd. "The Italian speaking canton of Lugano is also hugely popular as is only an hour from Milan airport, and you certainly get more for your money, but it isn't quite the business hub of Zurich & Geneva."

Non-resident foreigners may acquire holiday homes in Switzerland, but these must be in designated holiday resorts, and the maximum number of purchase permits issued annually is 1,500 (for the whole country). All the cantons have their own specific rules, but generally, with the exception of a few Ski resorts, the German speaking regions are off limits. Properties may not have a floor area above 200 square metres, and in some cantons, you are prohibited from selling the asset for a five year period. Still, the restrictions have not dampened demand.

"We are run off our feet with people wanting to buy property," says Jeremy Rollason, managing director of Alpine Homes (in association with Savills). "There's huge interest from foreign buyers who want a ski property, but more recently, the Swiss themselves are recognising the potential of property as an investment in a way they weren’t doing 20 years ago."