Emailed in by the Sumo King, from the FT:
It’s been a long time coming, but Geneva property owners desperate to sell are finally beginning to slash prices after a summer season characterised by a bitter standoff between buyers and sellers...
Some market specialists are blaming uncertainty over future tax breaks for wealthy foreign owners...
Aha, thinks the reader. Those dastardly Swiss Commies will have increased property taxes or something, attacking our wealth etc.
Nope:
As the Telegraph explained this week:
"The system allows foreign nationals to pay a flat fee — called a forfeit – to their local canton. It is worked out based on the rental value of their property rather than their income or assets and is paid in lieu of ordinary wealth and income taxes.
Ordinary federal and cantonal tax rates are applied to the rental value and there is no obligation on forfeit holders to declare worldwide income or assets The forfeit tax provisions are specifically aimed at financially independent persons who are not seeking employment in Switzerland – so those taking advantage of it are not allowed to earn an income there."
What the 'forfeit' system boils down to is this: they take the rental value of the home you live in, times it by five, use that as a proxy for your total income and charge (say) 35% income tax on it. Rents are capitalised at a multiple of (say) twenty, so if the home you live in has a rental value of CHF 50,000, it is worth CHF 1 million and you pay CHF 87,500 tax.
In other words, this is like Domestic Rates or Land Value Tax of 8.8% of the selling price, end of discussion and no back-chat, no further tax payments demanded.
Really rich people love this system of course, they don't mind paying this tax if they spend less than a fifth of their total income on rent or if their annual income is more than a quarter of the value of their home, because they are still paying less tax than they would be anywhere else.
What these people are worried about is that the 'forfeit' system is going to be scrapped and they will have to pay tax on their world-wide incomes instead, , meaning that they will have pay a lot more tax if they decide to stay in Switzerland.
So what lessons do we learn from this?
1. Really rich people don't mind paying LVT and they hate declaring their incomes and paying income tax.
2. Ultimately, all taxes are borne by landowners. A really rich person who was renting a home in Switzerland and paying the forfeit can now reassess the position and go elsewhere (or haggle a lower rent to compensate him for the higher tax bill); it is his landlord who takes the hit in terms of lower selling prices and/or lower rents.
-----------------------------------------------
The UK has something vaguely similar to the 'forfeit', but it is done in the usual cack-handed British fashion. Non-domiciled individuals can opt to pay a flat fee of £30,000 or £50,000 a year each in return for not having to pay tax on their world-wide income. Only about 5% of 100,000 registered non-doms pay this tax, the rest just pay tax on all their income just like anybody else.
If the non-dom levy were based on the rental value of the homes they own or live in, this would raise a lot more revenue because lots of really rich people would be flocking from Geneva to London to pay it. Thought experiment: what happens if the UK decides to cut down on the administration, scraps taxes on income or private wealth and just says that everybody just pays tax based on the rental value of the homes they live in..?
