The couple with kids at university
Helen and Rob have been living and working in the Lake Geneva region for almost 10 years. They are in their early 50s and their children are studying, one at university in the UK, the other in Lausanne.
Although they still own a residential property in their home country of the UK, they have decided that they don’t want to return there to live. They want to purchase a house in the Lake Geneva area but are unsure about whether to buy in Switzerland or France. Buying property in Switzerland should not be considered as a short-term investment. The market is not liquid for a variety of reasons, starting with a liquid rental market and weak cultural tradition for buying and selling several properties in a lifetime. In some resort areas in particular restrictions for foreigners on buying and selling property hamper short-term investment to help communes avoid the “cold beds” problem caused by speculators. In other areas, for example some towns along Lake Geneva, limited building space and strict zoning laws mean new properties do not come on the market frequently. In cities the low rate, sometimes dipping to 1%, of empty apartments puts pressure on the market.
Tip: real estate capital gains tax rates and exemptions vary between cantons, although you are generally exempt if you buy new property within a set time frame. Be sure to ask about all taxes and sale transfer costs such as notary fees, and ask more than one expert, including the bank or notary, about the impact on your overall tax situation. Ask what costs you will incur if you buy, but then want to sell 10 years later without reinvesting in the Swiss market.
Tip: Infomaison, designed for home-owners in Bern, has a wealth of practical information in French about buying a home, including a calculator for additional costs. Keep in mind these vary somewhat in other cantons. And Credit Suisse has useful mortgage and tax calculators that lets you compare tax rates for cantons and communes, which it’s wise to study before settling on a location. [Ed. note: a recent articles in French provides useful background on where population growth will occur in the Lake Geneva region, which will influence prices and desirability of property.]
Event worth noting: Habitat et Jardin is a major annual home show which runs 28 Februry-3 March 2008. In addition to a large display of goods for home and garden you can find 10-20% discounts on major purchases such as appliances. Infomaison carries the results of a survey of 300 French Swiss homeowners, in French, prepared for the show.
The sale of your home in France may not be subject to capital gains tax if it is a primary residence, although the length of time you own it can be a factor. Again, ask for advice on the impact on your individual tax situation now, as well as when you sell it in the future, before committing. Because there is more land available in the Pays de Gex and Savoie for development than along the lake in Switzerland, there is a greater range of property available, usually at a lower cost.
“You shouldn’t really consider your personal home as an investment,” cautions Chris Marriott. A ballpark time frame for returns on residential property is around 10 years in Switzerland and five years in France. This can shift as the market changes, however, even in stable Switzerland. As an example: a Vaud apartment valued at CHF425,000 in 1985 was worth CHF550,000 in 1990 but fell to CHF375,000 in 1995. Today its value is an estimated CHF535,000, with no major improvements made.
A priority for Helen and Rob is to investigate the tax and inheritance implications of owning assets in different countries.
Domicile is usually determined by your country of residence, regardless of your nationality. But UK nationals should be aware that their country’s domicile laws are not that straightforward, and regulations are in flux. British-born Rob is considered to have UK domicile, as opposed to UK residency, and although the exclusion is relatively high at roughly £300,000, he could be subject to UK inheritance tax on his assets there, no matter where he calls home. A concern for Helen and Rob is that the capital they have saved is not earning as much as it should. They need to think about their ideal retirement age. Their main aim should be to amass enough capital so that they can decide when they want to stop working. The decision should be theirs, not their employer’s.
Helen and Rob will need to list their expected expenditures in order to calculate their required retirement income. In an ideal world, most pension experts and actuaries suggest that they should aim to set aside enough capital to equal approximately two-thirds of their current salary. They should either invest a regular sum in, or commit capital to, an investment vehicle that considers the following:
- tax efficiency
While European Union residents have the right to use most investment methods in Switzerland, other people may not.
After Helen and Rob have done their planning and made their investments, they should ensure that their situation stays on track by doing an annual review of their financial situation.