If you get married or purchase property in Switzerland, get ready to pay significantly more income and capital taxes. This can make a massive difference to your financial situation over a lifetime.
The Marriage tax
In Switzerland, married couples’ incomes are added together for income tax calculation. Combined with the highly progressive nature of income tax rates in the income range of most married couples, this can lead to significantly higher income tax for a married couple compared to the tax burden if they stayed as unmarried partners. Over a working lifetime this can mean a huge difference, especially in the amount saved for living once pensioned.
Historically this may have come about because, until recently the wife typically did not have gainful employment so one tax return per couple was more efficient (and Switzerland is famous for its noble pursuit of efficiency). However the fact that the majority of women now also have careers these days means women as well as men are being unfairly penalised for this if married.
Strangely despite this financial penalty, the rate of marriage in Switzerland has increased in the last half century: in 2016 the rate was 41.5%, far higher than 32 years earlier in 1984 when it was 28.9%. However in the last five years there has been a marked drop in marriages and an increase in divorce rates.
Property taxed four times over
If you buy a property in Switzerland (only 41.3% of residents own the property they live in – trend decreasing) you will be taxed up to four different ways on this asset:
- The rental value of the property (Eigenmietwert). Every Swiss property attracts an effective rental income and this is added to the owner’s annual income for tax purposes. The tax applies to your main residence and any holiday home. This is based on the logic that you are effectively renting it to yourself. Costs of the property including upkeep and mortgage interest can be deducted but the resulting tax bill can be significant, and not everyone, especially older owners on lower income, can raise a significant mortgage.
- In many cantons there is an annual tax to be paid on the value of the property. This is usually less than 1% of the property value.
- In most cantons you will pay an annual “Capital Tax” on the financial value of all your Swiss assets less liabilities (including property). Again usually less than 1% of the net asset value but the rate depends on your net global assets.
- When you sell the property the capital gain will be taxed. The tax level varies massively between canton (e.g. 40% in Zürich, 15% in Grisons), as does the discount for a longer period of ownership (usually several decades before a significant reduction).
Added together these taxes are a significant disincentive to buying property for individuals. Historically many of these taxes have been maintained due to the fact that most property is owned and run by large financial institutions and pension companies. It is not in their interest for property to be subject to speculation, nor for individuals to compete with them for property. Pension companies are especially in favour of the rental value tax, because it encourages private owners to maintain mortgages and instead invest excess cash in their pension schemes.
The overall effect can be huge
There are growing demands in Switzerland for both the marriage tax and the rental value taxes to be dropped, but for now if you get married and buy property in Switzerland then the financial impact can be very substantial. You are advised to take professional tax advice before making either of these commitments regardless how besotted you are with someone, or with a property. There is no such thing as a cheap tax mistake in Switzerland.
Note that property or assets owned, and income earned outside Switzerland are not directly taxed in Switzerland but their value is taken into account when calculating the progressive tax rates.
As Switzerland’s most trusted payroll provider, Accurity GmbH has over 20 years’ experience providing clients with the best advice about their payroll, pensions and social security and ensuring they make the right decisions. If you would like to speak with one of our team of experts, simply contact us now. If you are an international recruiter or PEO looking to work in the Swiss market, contact our team today to see how we can make Switzerland easy for you!