Close
What would you like to look for?

17 November 2021

couple using a digital tablet while going through their paperwork together on the sofa at home

Switzerland is one of the few countries that has a wealth tax for private individuals. Wealth tax is only levied at cantonal and municipal level - not at federal level. There are sometimes considerable differences in the tax burden on taxable assets between the cantons and also between the municipalities within a canton. Particularly in today's environment, where banks charge negative interest on bank deposits, wealth tax is a painful burden. However, there are ways to reduce wealth taxes. The following explanations are aimed at individuals holding private assets.

What is the wealth tax?

Wealth tax is a direct tax levied by the cantons and municipalities. In principle, all assets are taxable unless they are explicitly excluded from tax liability by law. The total net assets are taxed, i.e. the taxable assets after deduction of any debts and lump-sum deductions.

What assets are taxable?

Taxable assets include, on the one hand, all pecuniary rights to movable and immovable assets, e.g. gold bars, land or usufructuary rights to land. On the other hand, they also include all pecuniary rights to receivables, participations and the assets of partnerships (e.g. communities of joint heirs). However, these assets are only taxable if they have a market value/money value, i.e. if they could be sold, or if they have a utility or use value for the owner. Items which, for example, merely have an emotional value are not taxable.

Household and personal effects are exempt from wealth tax and so are not taxed. Household effects are understood to be everything that serves the purpose of living and is actually located in the house or apartment. It is irrelevant whether the items are located in the primary or secondary residence, the garage or the garden. Personal effects, in turn, are all items that serve the taxpayer primarily in everyday life and not primarily as a capital investment. However, the practices of the cantonal tax administrations are inconsistent on the question of what counts as household effects and what counts as personal effects. In borderline cases, it is therefore worthwhile studying the relevant guidelines and practice notes of the cantonal tax authorities and, if in doubt, obtain a ruling.

Assets saved in occupational pension plans or tied private provision plans (pillar 3a) are also exempt from wealth tax, whereas life insurance policies with a surrender value count as taxable assets.

Units in collective investment schemes with direct real estate holdings, e.g. units in real estate funds that hold their properties directly, are a special case. The value of the properties held by these funds is already taxed at the level of the fund. If a taxpayer owns such units, therefore, not the entire value of these units is subject to wealth taxation, but only the value that exceeds the value of the properties held pro rata. The pro rata value of the properties held directly by the fund is exempt from wealth taxation.

How are the assets valued?

As a rule, assets are valued at their market value. The market value is the value that could be obtained on the market in the event of a sale. It can only be determined with certainty if the respective assets are regularly traded on a stock exchange. Examples of this are listed securities, commodities and currencies - including cryptocurrencies. For other assets such as real estate, unlisted securities, works of art, pictures and jewellery, the market value must be estimated.

The tax value of real estate is determined by the cantonal tax authorities. This is calculated very differently depending on the canton. In principle, however, the taxable value is estimated rather cautiously and is usually lower than the current market value.

There is also no stock market price for unlisted securities. In principle, the market value is calculated here on the basis of the so-called "practitioner's method", based on a weighted average of the net asset value and the capitalized earnings value. The net asset value generally corresponds to the equity capital of the company. The capitalised earnings value, in turn, is based on the company's past profits. Exceptions exist for start-ups, real estate, holding and asset management companies.

In the case of art objects, pictures and jewellery that exceed the value of ordinary household effects or personal effects, the asset value is determined on the basis of expert opinions, insurance values, purchase prices or auction proceeds.

In any case, it must be ensured that all taxable assets are declared and that the tax return is complete. If the market value of an item is not known or if you are not sure whether an item is taxable, it is advisable not to declare the item "pro memoria" but rather to declare it in the tax return without stating the value and thus ensure the complete declaration of the assets. In this case, the declaration remains incomplete and any determination of value is left to the tax authority. (1) In the case of a "pro memoria" declaration, on the other hand, there is a risk of under-taxation. It only makes sense to estimate the value of an asset yourself if you have the relevant knowledge to do so.

What deductions can be made?

Various deductions can be claimed from the gross assets, which reduce the taxable assets. These are divided into debt and social deductions. The full nominal value of debts, including tax debts, can generally be deducted in full from the gross assets, resulting in the net assets. Additional deductions, so-called social deductions, can then be made from the net assets. Social deductions are lump-sum deductions that take into account the family situation and its effect on the financial capacity. Which social deductions can be made depends on the applicable cantonal tax law. Most cantons provide for a personal deduction in varying amounts depending on marital status, as well as a deduction per child. Some cantons provide for a tax-free minimum instead of or in addition to the personal deduction, which means that the wealth tax liability only starts from a certain wealth level. The amount of the deductions varies greatly from canton to canton, which is why a look at the different cantons can be worthwhile here as well.

How is the amount of wealth tax calculated?

If one compares the tax rates of the cantons and their municipalities, considerable differences can be seen between the cantons, but also between the municipalities within a canton. The tables below serve to illustrate the differences and compare the tax burden in various cantons capitals on the basis of the ordinary wealth tax rates.

Author: Adrian Briner

Category: Tax

Author