First post here! (Long-time reader, thank you all for sharing your knowledge on ETFs investment in particular, it was really helpful).
As part of our Financial Independence aspirations, my partner and I would like to invest in real estate. For the last couple of years we have been able to save a significant amount of cash (enough to put a down payment for a moderately priced apartment in a semi urban area).
Our context:
We are both from (different) EU countries.
Late 20s.
Not married.
No kids, no plans for them.
On B permit (we have been in Switzerland for 2 years). I should have access to the “fast-track” C permit, whereas my partner doesn’t have that right (due to their country of origin).
Based in Aargau.
Not planning to stay in Switzerland in the long term (we are contemplating a bracket between 5 to 10 years).
Our options:
Since we are from 2 different countries, there are 3 potential investment locations (our origin countries, plus Switzerland). I am leaning towards Switzerland for many different reasons. My non-sentimental reasons are the following:
Switzerland is a stable country with a well-defined legislation.
Swiss economic environment is quite strong (compared to our countries of origin).
Swiss rental market is quite competitive (the offer is rather limited, and the demand is constant or increasing).
Questions/doubts:
Our doubts are mostly related to legislation/taxes.
First of all, since we are not married, it is not clear to us under what conditions we could buy a property together. Does anyone know what’s the situation here, would a contract between us be necessary/recommended?
Again, since we are not married, it is my understanding that we wouldn’t be able to use our 2nd pillar funds as part of the down payment for the mortgage. Is this understanding correct? Otherwise, would getting married allow to use both of our 2nd pillar funds?
Taxes while in Switzerland: as far as I know, Aargau does not levy tax on the purchase or possession of real estate (at least directly). It does levy taxes both on the imputed rent (if you live in the property) and adds up to the wealth tax. The imputed rent is added, as far as I understand, to the income tax.
Taxes if/when leaving Switzerland: here is where it gets confusing for me. To begin with, it is not entirely clear to me if/when we leave Switzerland we would be forced to sell the property (i.e: we are not allowed to own a property in Switzerland from abroad), does anyone know? Assuming we were allowed to own such a property, it is not clear to me what taxes we would be subjected to in Switzerland. My parter’s country of origin has a particularly favourable tax regulation, it does not tax wealth, and income tax is similar to Switzerland. However, since the imputed rent and the rent itself are both added to the income tax (in Switzerland), it is not clear to me how this would be taxed. Is it right to assume that the rent would be taxed at the corresponding tax rate for that income amount? (I’m suspicious of this: if I assume that we get CHF2000 per month as rent, that would be CHF24000 a year, which for Switzerland is a really low income, with corresponding low taxes, or even none). In addition, are you even subject to wealth tax when you are not living in Switzerland? My gut says no, but again, I’m suspicious, since this property would then not be taxed. Does anyone know what would happen in that situation? In the worst case scenario, would we get taxed on our whole net worth, or only over the value of that property? In summary, it all sounds too good to be true, so I was wondering if any of you know anything about this type of situations.
Maybe one thing not mentioned: having a mortgage in CHF while not earning CHF can be fairly risky (ask people from Poland or Hungary about this), so this probably assumes you’d pay off the mortgage before leaving (which is not what most property owners in CH do).
Also returns from renting are currently fairly low (which could explain why there isn’t that many new properties/supply isn’t increasing, which is the reverse of your assumption).
@nabalzbhf Yes, that would be our approach. Admittedly, not necessarily a very efficient way of allocating resources overall. However, once we go for real estate investment (of which my partner is a big “fan” of), Switzerland is overall not that unattractive.
However, I would need to clarify the original questions as to have a more precise idea of how good the returns would be.
Discussed in thread on the forum “Real Estate Switzerland 2023” - suggest to ask questions there. In summary rents relative to prices are very low. Rents cannot be increased freely as they are subject to controls.
No. If you earn 100k per year living in another country the rental income of 24k should be taxed in your canton at the rate of 124k
You would be subject to wealth tax on the value of the property in Switzerland but not on moveable assets (cash, shares,…).
I don’t know how easy that is, I’d expect some hurdles there and especially tax wise it may make the investment not so lucrative anymore depending on the country you are living afterwards.
Currently they have B permits, but before leaving the country they will obtain C permits at least - so this should not be an issue for them - if it’s possible at all to rent from abroad. It would be really ridiculous if it’s not…
I signed up to try and shed some light on your questions as have first hand experience on this which I hope is useful as there’s often a fair bit of conjecture!
You do not have to be married and do not need a contract between you. When purchasing the property, there are different structuring options but the easiest is to likely register in the land register as joint owners whereby you each own a 50% share of the land and property title. This is a very simple process at the notary and of zero complication whatsoever.
The only thing to warn you about though is by not being married, it’s complicated if you a) break up and have different views on how to deal with property, b) one of you dies. The estate will not automatically flow to each other. Also smaller things like disagreement on property expenses. This is where a notarised cohabitation agreement could protect both your interests in respect of all these cases (and a notarised will!). This is optional however from a legal standpoint.
Marriage has no impact on your ability to use pillar 2 and 3 in a withdrawal or pledge for property. If you take the 50% share example, you can each individually use your pension pillars. The banks will be happy to combine your total funds. Any mortgage you enter will be on a joint and several basis in both of your names, ie if one you stops or can’t pay, the other is equally liable in law for the full amount.
Imputed rent is added to your taxable income, as a non-married couple you would get 50% each. And 50% each of your mortgage interest, maintenance costs, property costs etc are tax deductible in your own tax calc. The easiest way for more info is talk to the tax authority, play with the tax return calculator and/or talk to a tax accountant. In my experience, the imputed rental income adds a pretty negligible impact to your total tax bill (and for reference talking a +2m property here). Current mortgage interest will negate a large portion of any additional income.
Is more complicated as many personal circumstances come into play as well as country you are moving to. Based on legal opinion I obtained however, if you had the right to buy, you will never be forced to sell (not talking in credit default circumstances). You can own property if you move overseas, you do not need to sell. Not all B permits are created equal but as an EU B you have all the same property rights as a citizen. The crucial thing for property ownership is status at time of purchase, not what happens after. Also as a resident as time of purchase, you are not bound by and of the Lex Koller restrictions if you have been reading about those.
Something to bear in mind however and this is really key due to size of Swiss mortgages, your bank will demand more deposit if wanting to switch from primary residence to rental. And the really big one, they may not allow your mortgage to be overseas. If your bank is one of the big ones, they may be able to work with you to see if tax rules, legal rules in other countries will allow them to continue to facilitate a CHF mortgage or not. They also need to consider your default risk. If you are out of country, do they have the appropriate legal framework and protections to pursue you for default? This is the hardest piece. I have never tried to pursue further but based on conversations in the hypothetical with the bank, you will have mixed success. Also depends how many other assets etc you can offer the bank - your mileage will vary, it’s a business risk decision for them.
My little contribution here. I discussed with my bank : BCV and they are ok to keep the credit when leaving Switzerland. I would like to know if some of you guys have a feedback from other banks.
I discussed this topic with a notary and he gave me a very clear answer. I will give what my understanding from that answer is: owning a property in Switzerland for the purpose of renting it out, without a permit (residence) or nationality, is not possible according to the Lex Koller.
However, his response was actually more nuanced than that. In practice, he said, this happens all the time because nobody bothers to check (as people have mentioned, restrictions are enforced during the purchase process, but the system does no have the capacity to check this afterwards).
He gave me the example of a Hungarian citizen who, after having purchased a property, had moved back to Budapest and rented out the property. However, this individual passed away and let the property to somebody in their will. Of course, when executing the ownership transfer as desired in the last will, the land register said: wait a minute, this person should not have been owning this property for the years that they were not in Switzerland. As a result they claimed back all the earnings from rent over all of those years to the beneficiaries of the will. So not quite a nice last will after all.
In summary, what I understood is: it’s possible in practice, but shouldn’t be done unless you know your ways through Swiss legal system (the notary also gave me an example of a group of Qatar investors willing to leave a few billions in Switzerland, and they were already setting “something” up).
So take that as you want!
Apologies for the delayed response, I was really busy these months.
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