Thank you very much, this is very useful! Indeed, I try to avoid dividend/interest-paying investments, especially as you have to pay tax on dividends, but not on capital gains. I will absolutely study this point.
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It is not determining my life but it certainly is changing my calculations. I have only recently realised how much I am paying in wealth tax (the increase was gradual with my assets growth), and I never planned for it in my FIRE sheet. If I have to pay almost 1% of my assets every year in taxes, it does change the calculation, enough to have to shift retirement age by some years.
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Donât forget to budget for AVS based on wealth if not working: 0.2-0.3% of net assets. There are a few threads on the forum
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Iâm also in a high wealth tax canton. What I am considering:
- Put as much into Pillar 2 and Pillar 3
- Invest into Real Estate (has lower wealth tax basis)
- Consider moving to neighbouring canton upon withdrawal from Pillar 2 (much lower rates)
- Consider delaying Pillar 2 withdrawal by being employed
- Giving wealth to kids and charities on pillar 2 withdrawal. here the tax free limit is 75k, so I could give 150k in total to my kids.
- once kids are working, I can give them money to fill up their pillar 2 and 3a each year
- Buying qualifying Swiss REITs (with lower wealth tax basis)
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These articles are well written and give usable solutions IMO.
Part 2 has a good list of ways to reduce Wealth Tax, although it basically âonlyâ confirms what has already been mentioned in this thread/forum. Iâd recommend getting started by paying into your Pension Fund and buying RE funds with direct property ownership.
Es bestehen hauptsĂ€chlich fĂŒnf Möglichkeiten die Vermögenssteuer zu reduzieren:
Wohnsitznahme in einer steuergĂŒnstigen Gemeinde/einem steuergĂŒnstigen Kanton;
Investition in Immobilien (in- oder auslÀndische);
Investition in Anteile an kollektiven Kapitalanlagen mit direktem Grundbesitz;
Vorsorgesparen;
Investition in Wertschriften oder GegenstÀnde ohne Kurswert.
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Since I love contradicting myself ⊠also, off topic, and trigger warning, probably unpopular opinion:
I get all (and sympathize with most) of these arguments about double taxation and getting taxed to zero if you stayed in cash, this working against FIRE plans or delaying them, etc, but âŠ
⊠ever since me making and owning significant amounts of money - even 25 years ago when I earned a maybe just about average amount of money and had no wealth - Iâve felt like itâs fair that I pay a progressively higher amount of taxes in the society and the place I live in for a number of reasons, ranging from me benefitting from and enjoying what this society/place offers to me (and my family) to being aware that I am privileged for reasons due to luck, skill, whatever, but at the very least noticing that there are many people less privileged (most not out of choice, but because that was their only viable path) who I need to be here, like the person working in my grocery store filling up the shelves, making just barely enough to get by.
And I donât even vote for the social party anymore (canât stand them, in fact) ⊠but I feel there needs to be some degree of solidarity from me with those less fortunate than me. Paying a progressive wealth tax seems like a very fine way to me to address that.
The tax system isnât there to optimize your personal plans of FIREing. Itâs there to make sure the Swiss and Switzerland works as a system, long term.
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Ok, thatâs a different take. I answered to your previous post, specifically.
I agree these points need to be taken into account. Youâll find some comments in the forum that discuss it, but obviously it gets much more individual as you get older, more experienced (and hopefully wealthy) compared to, say, agreeing on saving money and go for a buy-and-hold investment strategy.
I didnât read MPâs book, or even the blog for some time, but it should be clear that thereâs no one size fits all solution and you need to check your own calculations.
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I live in the 2nd worst canton for wealth taxes. On retirement, I will pay 65% tax on income, and most of it will be wealth tax. This increases each year until it reaches 99% of my income by age 94.
This canton has no confiscatory tax rules (and from the case law Iâve seen, the tax payer hasnât fared well when they have tried to challenge in cantons that do have such rules).
You do mean marginal tax, or?
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I was wondering about the same thing.
I think I was at ~40% marginal tax rate - on each additional earned Swiss Franc I would have to pay ~40 Rappen on income taxes (in Zurich), but maybe Zurich is just minor league with regards to this compared to @PhilMongoose 's canton.
Edit: Never mind: I am talking about pure income taxes, while @PhilMongoose seems to talk about an elaborate combination of income and wealth tax (?) that I personally canât compute.
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Wealth tax are a burden but in the bigger picture a good thing. They substitue capital gains tax, and we should see them this way. US is not a benchmark given their rotten capitao gains tax step-up upon death.
I rathervpay wealth tax, thatvmotivates people to invest wealth⊠than paying capital gains tax.
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Not sure if anyone already mentioned that but letâs say you have 1mio wealth and 1mio mortgage for your house for example then your wealth tax should be 0 in theory.
Doesnât your house value (or some high percentage of that) gets to be your âwealthâ then? Or am I missing something ?
Right, I forgot that there is this âfictiveâ rent which then gets taxed as income. So one would have to take that also in account.
I mean effective tax rate.
So for example, at retirement, I forecast to have taxable income of 85k and tax of 56k (wealth tax+income tax).
At age 94, this grows to taxable income of 113k and tax of 112k.
Calculating this as a 65% tax rate doesnât make any sense, though. If you want to calculate a combined tax rate, it could make sense to approximate this by dividing the tax amount by the sum of dividends and (average) capital gain. However, dividing wealth tax by dividend income is not meaningful at all.
Or what I prefer, divide the total tax amount by the total net worth to calculate the tax drag of investment return.
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naive question: is there NO wealth tax on the value of the house at all?
If your net worth is 1M and you have a 1M mortgage, your net worth is still 1M and youâre taxed on that.
Real estate does give you a tax break but thatâs due to the tax value of real estate being lower than the market value. It has nothing to do with the mortgage per se. You get the same absolute reduction in taxable wealth whether you have a 1M mortgage or no mortgage at all.
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I see, thank you for the precision. So too bad, having a mortgage does not help much against wealth taxâŠ
For wealth tax, the house value is often taxed lower than market value. But the taxable imputed rental income is higher than the deductible mortgage at current rates. This assumes flat rate deductions.
Stand-alone, this likely results in higher taxes.
I guess any tax favorable treatment might refer to commercial real estate, not your own home. Or when you have lots of renovations to do.