Private clients by wuyunyi


									      Private clients
       Swiss tax issues

            IFA Bilateral Meeting
       United Kingdom / Switzerland
                11 May 2012
    Hans Koch - Baker & McKenzie Zurich
Paul Whitehead - Berwin Leighton Paisner LLP

        Doc No. 23464756

Private Client Relocation/Tax

    UK Resident Non-domiciled
             – and –
  Swiss Lump Sum/Forfait Taxation

I.   Introduction

II. Basics

     Switzerland – Forfait/Lump Sum
             Taxation Regime
• Available for foreigners upon their first immigration to
• Only if they are not exercising any professional or
  business activity in Switzerland
• Tax basis: the effective costs of living (subject to
• Resulting tax basis is subject to ordinary tax rates
• Business abroad remains permissible (to be confirmed)
• Under certain DTC lump sum taxation is not recognized:
  in that case income sourced in the treaty state must be
  fully taxed in Switzerland in order to benefit from DTC
  protection (“modified lump sum taxation”)
     Switzerland – Forfait/Lump Sum
             Taxation Regime
• Only a part of an individual‘s income and wealth are
  effectively taken into consideration
• Typically interesting for wealthy individuals who earn
  passive income and who are not actively engaged in a
  business (dividends, interest, rental income, etc)
• Lump sum taxation is always based on an advance tax
  ruling which deals with the details of the specific case

     Switzerland – Forfait/Lump Sum
             Taxation Regime
• The system is currently under political pressure: 3
  cantons (Zurich, Schaffhausen, Appenzell Ausserrhoden)
  have abolished the system, 3 have introduced stricter
  requirements (Thurgau, St.Gallen, Lucerne), in at least 5
  cantons there are proposals to abolish or modify the
  system (Aargau, Basel-Land, Basel-Stadt, Bern, Geneva,
  Zug). A proposal to abolish the system is also pending
  on the federal level (applicable to all Switzerland)

• An introduction of stricter requirements for all cantons is
  expected (on the federal level) : minimum taxable
  income would be CHF 400‘000 or 7 times the annual
  rental income value
Basics – the UK : the Remittance Basis

• Residence – uncertainty
            – statutory test – from 6 April 2013

• Domicile   – origin
               – dependence
               – choice

        Basics : the Remittance Basis

• Resident/Non-domiciliary “remittance basis user”:-

- Income Tax           – UK source – taxed
                       – Non-UK source – not taxed unless remitted

- Capital Gains        – Disposal of UK assets – taxed
                       – Disposal of Non-UK assets – not taxed unless

- New “Business Investment Relief”

     Basics : the Remittance Basis

• From 2008 – Remittance Basis Charge
  – 1st 7 tax years – free
  – 8-12 tax years - £30,000
  – 13 tax years onwards - £50,000
• Can choose each tax year whether to pay

III. Pre-immigration
 Planning & Trusts

      Switzerland – Taxation of Trusts

• In principle, trusts are an unknown concept in Swiss domestic law,
  yet they are recognized (Hague convention)

• Swiss authorities frequently struggle about how to deal with trusts
• Problems can typically arise:
       • Regarding income, wealth and gift taxation,
       • Regarding estate planning or
       • Regarding the acquisition of Swiss real estate by a trust

• Decisive question: whom should the income and the principal of a
  trust be allocated to?

      Switzerland – Taxation of Trusts

• Setting up a revocable trust:
   – Should be seen as a tax neutral operation: The settlor keeps full
     economic control. He therefore remains taxable for income and
     wealth tax purposes “as if there were not trust”.

• Setting up an irrevocable fixed interest trust:
   – Not tax neutral. The beneficiaries derive the full benefit, they are
     considered the economic owners for tax purposes and become
     taxable. Setting up such trust can also lead to gift tax
     consequences if beneficiaries are not exempt (e.g. spouse, direct

• Setting up an irrevocable discretionary trust:
   – Not tax neutral. Similar as a donation to a third party, potentially
     triggering full unrelated party gift taxation (e.g. Zurich: 36%).
     Switzerland – Taxation of Trusts

• A specific trust should always be discussed in advance
  with the tax authorities (advance tax ruling).

• Trusts are seldom set up to optimize Swiss taxes – but
  one wants to make sure no harm is done either!

• The Swiss tax authorities fully accept to deal with trusts,
  but they welcome appropriate explanations and
  interpretation of the trust.

            Pre-Immigration steps (i)

• Definition of Revocable under Circular of the Swiss Tax Conference
  on the Taxation of Trusts (retaining the possibility of power of

    – This may offer opportunities for non-Swiss resident settlors with
      CH resident beneficiaries
    – Careful planning requested for immigrants

• Wash out of income and gains during lifetime of settlor to ensure
  inheritance and gift taxation at time of distribution to beneficiary

• Inheritance and gift taxation is Cantonal (unless new legislation will
  be introduced in 2014 or later)

           Pre-Immigration steps (ii)

• Private Ruling on Cantonal/Federal income, net wealth , inheritance
  and gift taxation requested to ensure that the goals of the
  interposition of a trust are achieved

   – Careful drafting of trust documentation requested, e.g., addition
     of beneficiaries who are not related to settlor being resident in
     Switzerland at time of death may trigger a high inheritance tax
     exposure (up to 50% and more)

   – For private ruling tax authorities request to see trust deed, other
     trust documentation and letter of wishes

Pre-Immigration Planning and Trusts –
               the UK
Aims :
- (i) Maximise tax free amounts in UK, using the
  remittance basis

- (ii) Protect from Inheritance Tax

- (iii) Avoid/minimise business profits being taxed in UK

Pre-Immigration Planning and Trusts –
               the UK
• Difficulties with the Remittance Basis
   - Mixed Fund rules
• Solutions
   1.Capital and Income Accounts
   2.Life Policies
   3.Trusts and Companies

Pre-Immigration Planning and Trusts –
               the UK

                Interest free                         Capital
                    loan                            Distribution
      Settlor                                                      Beneficiary
                        Interest             Repayments
                       free loan             (Max 5% p.a.)

    Loan                                    Surrenders
 repayment                                  (Max 5% p.a.)

                                   Life Policy

         Pre-Immigration Planning
            and Trusts – the UK
               UK Property

• Trust/Company/Property Structure
• Budget 2012
  -   15% SDLT on properties over £2 million acquired by
      a company
  -   CGT on sale
  -   Annual charge
  -   Solutions?

Pre-Immigration Planning and Trusts -

• Control and management
• Branch/PE in the UK
• Remuneration

IV. Inheritance/Estate Taxes
    And Successions/Wills

       Swiss forced heirship concept

• Forced heirship claims under Swiss law
   – 1/4 for spouse
   – 3/8 for issue
   – (1/8 – 1/2 for parents)

• At least 3/8 freely disposable.

• Potential claw back.

     Possibility to Elect Law to Govern
        Estate for Swiss Residents

•   Only for non Swiss nationals
•   Scope of elected law?
•   Coordination of inheritance/matrimonial property law
•   Recognition outside of Swiss probate

        Tools For Wealth Preservation

•   inheritance/nuptial contracts
•    life interest/usus fruct
•    donations inter vivos
•    trusts
•    foundations/corporations
•    fiduciary structures
•    life insurance policies
•    secondary heirs

      Inheritance/Estate Taxes – the UK
               Inheritance Tax

•     Domicile

•     Deemed domicile

-     2 tier test

(i)   UK tax resident in any part of 17 out of a continuous
       period of 20 tax years; or

(ii) actually domiciled in the UK in the last three years
      Inheritance/Estate Taxes – the UK
               Inheritance Tax

• Domiciled/Deemed domiciled

  -     Worldwide assets

• Not domiciled/deemed domiciled

  -     UK assets only

   Inheritance/Estate Taxes – the UK
       Inheritance Tax Planning

• UK assets
   - Company
   - Debt
   - Life assurance

• Long term residents
   - Trust

          Succession/Wills – the UK

• Succession
  -   Situs of assets
  -    Domicile

• Planning
  -   Will in jurisdiction of domicile
  -    Will in jurisdiction of assets
  -    Trust

V. Summary And Further

   Private Client Relocation/
        Tax Competition

This document provides a general summary only and is not intended to be comprehensive.
Specific legal advice should always be sought in relation to the particular facts of a given


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