Service Swiss

David Anderson solicitor and chartered tax adviser and Graeme Perry solicitor both at Sykes Anderson LLP Solicitors and Chartered Tax Advisers.

Please note that tax law is a complex subject and you should not rely on this article without professional advice on the facts of your case.

With steep increases in UK tax, from 2009 onwards becoming inevitable, wealthy individuals are increasingly considering giving up their UK residency and moving abroad. An attractive destination for these individuals is Switzerland. We outline below some of the tax consequences of such a move.

Becoming resident in Switzerland

You become tax resident in Switzerland when you are in the country for a minimum period of 30 days, if working, or 90 days without working. If you wish to remain permanently you must apply for a Swiss Residence Permit. EU nationals will receive beneficial treatment with regards to obtaining such permits.

When granted a residency permit, you must live in Switzerland to retain your residency status. If you are unable to spend 180 days a year in Switzerland, you must ensure that you do not spend more time in any one country than you do in Switzerland. Failure to meet these criteria will result in you not being considered as resident in Switzerland.

It may be possible to satisfy the requirements for being both Swiss and UK tax resident during a tax year. If this is the case, the double tax treaty between the two countries decides in which country the individual is to be considered as tax resident. A tie-breaker test applies to the individual so that they are firstly considered as resident where they have their permanent home. It is often the case that the individual will have a home available to them in both countries. When this is so, the individual is deemed to be resident where they have their 'centre of vital interests'. This will usually be the determining factor under the test and there is a variety of circumstances which will be considered when establishing where your centre of vital interests is.

As well as meeting the necessary requirements in Switzerland, you will need to ensure that you are considered to have permanently left the UK. There are several practical steps which will need to be taken when you leave the UK. If the Revenue accepts that you have left the UK you will then need to ensure your centre of vital interests is located in Switzerland. You should always bear in mind that the residency test in the treaty will overrule domestic law, including the internal UK day-counting rules for residency. This may allow you to spend the time necessary in the UK to maintain any business interests you have here.

Taxation in Switzerland

Switzerland is a confederation comprised of 26 cantons. Each of these cantons has a large degree of autonomy and power when it comes to taxation.

There are national tax laws which apply throughout Switzerland but there are some taxes which are levied only at the level of the cantons. The application of several taxes differs from one canton to the next so there are areas more favourable to move to than others, from a tax perspective.

The basis of your personal taxation will depend on your circumstances, as well as where you decide to live. Important factors will be whether or not you are married and whether you are carrying out any significant work in Switzerland.

It is possible to agree to pay a fixed annual sum to the Swiss tax authorities, which is normally fixed for life. The amount you pay is negotiated on a case by case basis and depends upon which Canton you are resident in and upon your anticipated use of the Swiss public services. If, for instance, you have children of school going age you may find the annual tax is higher. Less fashionable Cantons can be considerably cheaper than, say, Geneva or Valued. You should still be able to take advantage of the UK-Swiss double tax treaty even if you are taxed at this fixed rate rather than a rate linked to a percentage of your income. The inheritance implications will still need to be thought through.

Payments from UK

If you continue to have assets and interests in the UK any income or gains derived from these assets will be taxed according to the UK-Switzerland Double Tax Treaty. You must always bear in mind that leaving the UK does not make you exempt from all UK tax and you should always seek tax advice about your ongoing fiscal commitments before you leave the UK.

Domicile

Residency and domicile are separate concepts with domicile equating to an attachment to a country. It can be considerably harder to prove that you have ceased to be domiciled in the UK than to prove that you have ceased to be resident here. It will also probably take a lot longer to lose your UK domicile (assuming that you have a UK domicile of origin).

Domicile is important for a number of reasons but mainly for inheritance tax and succession purposes. Firstly any moveable assets (cash, shares etc.) which you own at death will pass according the laws of the country in which you are domiciled at that point. This can have an effect on any will you have drafted before moving away from the UK and abandoning your UK domicile.

Secondly, UK inheritance tax applies to all assets owned by UK domiciled individuals and to all UK based assets regardless of domicile. When you have lost your UK domicile for tax purposes this means that any non-UK based assets you own will fall outside the UK inheritance tax net. This can open up opportunities for mitigation of your UK inheritance tax exposure although of course, any opportunities will depend upon the taxation system in place in your Canton of choice.

When you have moved from the UK to Switzerland, there is a separate double tax treaty in force between the two countries governing inheritance tax on death. This treaty contains a test to establish in which of the two countries an individual is considered to be domiciled when they die. This test will determine domicile for tax purposes only and does not apply to any lifetime gifts. The inheritance tax treaty is tortuously worded and far less favourable than the UK-France treaty.

If you can establish that you have obtained a Swiss domicile, Swiss inheritance tax will apply to your worldwide assets. The rates will again vary according to which Canton you are resident in but, in any case will be favourable if transferring to your children when compared to the UK rate of 40%. Any assets located in other countries may be subject to inheritance tax in those jurisdictions, subject to any double tax treaty in place between Switzerland and that country.

Swiss residents owning French properties

It is not uncommon for high net worth individuals to obtain Swiss tax residency and maintain a second home in France. This may be in order to avoid French wealth tax whilst still being in a position to enjoy extended holidays in France. The ease of traveling, especially out of Geneva to France can make this attractive. The tax position will then turn on the France-Switzerland double tax treaty. This is an area in which Sykes Anderson has particular expertise.

Summary

With increasing numbers of high net worth people ceasing to be UK resident, Switzerland is a location which may offer financial advantages as well as being relatively nearby so that interests located in the UK may be maintained. The tax implications may vary widely depending on which Canton you decide to move to and it will always be of utmost importance to balance any tax advantages against the quality of life you might enjoy in your chosen location.

Sykes Anderson has experience in advising wealthy individuals on moves away from the UK to Switzerland, France and Monaco. Most of the tax planning work is dealt with by us though we consult other professionals as needed in those jurisdictions. If you are considering a move away from the UK or would like to know whether any move might be beneficial please contact David Anderson, Graeme Perry or Nicole Gallop Mildon in the International Private Client Department.

David Anderson
Solicitor and Chartered Tax Adviser
Graeme Perry
Solicitor