Prudent tax planning is also essential when buying property abroad.
Swiss people have always shown a great interest in real estate abroad. Especially the sunny south like Tuscany, Southern France or Spain are popular places for buying condominiums and vacation homes. Favorable purchase opportunities are nowadays in abundance in view of the oversupply. But be careful: Real estate can also become a tax trap abroad. Careful planning in advance is therefore worthwhile in any case also in this respect.
Acquisition taxes: Similar to Switzerland, the state usually takes a big bite out of the purchase price. Notary fees, land registry costs and purchase taxes similar to the Swiss real estate transfer tax easily add up to 5 percent or more of the purchase price. These costs are in addition to the brokerage fees of around 3 to 5 percent. Occasionally, sales tax must also be paid. In Spain, for example, the tax rate is 6 percent for residential properties and 15 percent for undeveloped land and newly constructed buildings.
Note that in many countries the property is jointly liable for the seller's property gains taxes. In order not to take risks, the payment of these taxes should be ensured. In Spain, in addition to the regular property gains tax, a local tax of up to 30 percent of the increase in the value of the property since the last change of hands is levied on a municipality-by-municipality basis. The real estate gains tax must be paid by the seller in the event of a resale.
Current taxes: Most countries levy annual local property taxes. In Spain, these amount to 0.4 to 1.7 percent of the cadastral value. In addition, the property income must be taxed. Many countries also levy a property tax of up to 1 percent of the market value. The property tax in the USA is particularly well known and is used to finance schools. There are major differences in the taxation of imputed rental value. Some countries do not have such a tax, but do not allow debt deduction for it. Spain, for example, levies an imputed rental value tax of 25 percent on 2 percent of the cadastral value.
As the owner of a foreign property, you are obliged to declare it in the Swiss tax return. In principle, you must pay tax on the income from the foreign property in the country where the property is located. As a rule, the tax value of the property is also taxable as an asset in these countries. On the other hand, the income from the foreign property as well as the assets are taken into account for the calculation of the tax progression in Switzerland. If you finance the foreign property by increasing the mortgage on your Swiss home, the additional mortgage interest is distributed between Switzerland and abroad according to the situation of the assets.
Inheritance taxes: Particularly annoying is the very high inheritance tax in most surrounding countries for direct ownership of the property; in Spain the rate goes up to 81 percent. Generally, however, much lower rates apply to transfers to descendants, or tax allowances exist. The following maximum rates apply to inheritance tax: France 60 percent, Florida 55 percent, Greece 60 percent, Ireland 30 percent, Italy 33 percent, Portugal 50 percent and Spain, as previously stated, 81 percent.
The question of who should own a foreign property must be carefully considered in each case. Buying property outright in children's names prevents inheritance tax from being levied when parents die. If you hold the property through a real estate company (for example offshore in Gibraltar or Jersey), the shares are subject to any inheritance tax in Switzerland, as movable assets are taxed at the last residence.