I am towards the end of my FIRE journey, meaning getting ready to retire early. BUT, I realised that fortune tax is going to be a problem once you do a detailed calculation.
While we work, the fortune tax is buried under all the income tax calculations, and you don’t pay much attention to it, really. But what happens when you stop work? For 1m in assets, you will pay “just” 6K per year in fortune tax, for 2m in assets you will pay 13K etc (canton Vaud). For some time, you may “hide” some of your assets in the 2nd pillar (which is why max repurchase is key) and in the 3rd pillar, but then around the retirement age you need to cash those in anyway. If the regular FIRE rule is using 4% of your assets to never run out of money, then you will be paying 15%+ of your disposable money into fortune taxes. Add to this the AVS that you have to keep paying when you retire early.
Infuriating as it is that you pay infinite taxes for the same assets (once earned, then saved), there has to be a solution to it. In other countries, I hear, there are tools such as trust funds which could serve the purpose. I was thinking about buying properties with mortgages, but it does not help enormously, as around 80% of the full property price would be counted as your asset anyway (minus debt). It is also a lot of hassle.
Do you know of absolutely legal and smart ways to make your assets not count towards your fortune?
We still have small children, not worth to uproot the whole family. I guess the only solution is to keep working, building the 2nd and 3rd pillar, getting family allowances etc. Not working and getting an opportunity to enjoy your family and life is penalised. The society is not built for the FIRE community.
As you say you don’t want to uproot, your community decided to redistribute more than others and you seem to value it enough not to want to move. It’s a tradeoff you decide to make.
FWIW I think even the highest wealth tax in CH are still way less than what’d you pay in capital gain tax in most countries.
If you want to completely to reduce, you could try getting an annuity (no wealth tax, but 40% of the distribution is counted as income). Though not sure you’re better off this way.
I was just wondering if anyone knows of any financial instruments (equivalent of trusts) that could be used for the purpose in Switzerland. I am sure ultra-rich find a way!
I was also wondering, after having read Marc’s book, if he counted the AVS and fortune tax payments into his calculations. Especially after 2nd pillar needs to be withdrawn from the vested benefit fund. Generally, I think there is not enough focus on the later stages of the FIRE journey.
I think sometimes ultra rich in CH might benefit from their Real estate properties in very posh locations. What I know is that tax value of the real estate is generally lower than the market value of the real estate. And in highly sought locations the difference can be quite large. That gives a bit of advantage.
I think wealth tax is a bit higher in French speaking cantons versus German speaking cantons. But of course moving your whole life away to save tax is not very good idea. After all the purpose of having early retirement is to have a good life. Not a secluded life.
Perhaps start with reducing work hours from 100% to 60% if possible. That would already improve and taper your transition.
I don’t think there are lot of legal ways to get around wealth tax. But who knows in few years they might get rid of this tax. Because as you say it’s double tax.
I guess you just need to factor it into your planning, either via expenses or withdrawal rate.
Zurich tends to be average on tax. While it goes up to, what, 0.6%, this only kicks in somewhere between 4-5m. With that amount of taxable assets, you should be able to generate enough returns to cover it.
It would not be so bad if it was double tax. Problem is it’s a never-ending tax. You pay income tax on your earnings, and then whatever you save, you pay infinitely a tax on your savings every year. If you don’t invest, the state will have taken 100% of your earnings in a matter of 50 years (an exaggeration but…). In addition to no capital gains tax, this of course forces people to invest more aggressively.
The whole Swiss society is built for people to work (otherwise, no family allowance for the kids, no 2nd/3rd pillar contributions, however stock-based vested benefit funds can very high rate of returns, AVS needs to be paid etc). So I guess the solution is to work and save aggressively until the youngest kid is 14-16, then go on chomage for 2 years, and then leave the country!
Come on, if you are close to FIRE, you shouldn’t worry about wealth tax or 200-250 CHF family allowance per kid. With low income, you would still get the latter, with a higher one you don’t need it.
Nobody likes to pay taxes and most enjoy social benefits, but I wouldn’t let that determine my life-planning.
There is the flat rate taxation (Pauschalbesteuerung) but else there is no “negotiating” between taxpayer and state. The threshhold begins at 150k owed taxes or more so I don’t think people on this forum (including me) see this as a possibility . 3 conditions to qualify for lump-sum taxation | Vontobel
Check out the bouclier fiscal which applies in some cantons including Geneva and Vaud.
In Geneva cantonal and federal tax is capped to ~71.5% of your taxable income. This is regardless how much wealth you have. So there is a strategy and (even more) incentive to prioritise capital growth over dividends
I don’t know how it works in practise, not there yet
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