Nowadays, the stock markets are volatile and shares are considered rather high value. At such times, private investors are on the lookout for other investment opportunities that generate income and to preserve their wealth. A valuable alternative might be to invest in real estate. In doing so, private investors could benefit from various tax advantages in Switzerland. In the end, they may be better off with a diversified portfolio instead of investing in shares only.
An investment in shares can be expensive with regard to tax matters. Generally, private investors resident in Switzerland are obliged to pay wealth taxes on their net assets. If the fortune is invested in listed stock shares, it is considered taxable at the market value of the share at the end of the year. This means, for instance, by investing CHF 10 million in shares, a person residing in the city of Zurich would have to pay wealth taxes of approx. CHF 57,000 on this mere share investment regardless of the distribution from these shares. And since a dividend is not guaranteed, liquidity has to be raised for the tax payment from potential other sources.
Instead of investing in shares only, investments in real estate might be a good alternative which could result in reduced wealth taxes, since the tax value of real estate is estimated up to 30% lower than its actual market value. For example, the investment of CHF 10 million in real estate in Zurich city would result in only about CHF 37,000 wealth taxes, i.e. a tax payment reduction of roughly 35% compared with investing in shares. If the real estate is used for rent, it can furthermore generate a steady income flow.
There are even more tax planning opportunities by investing in real estate, making use of the cantonal tax systems. A tax resident of Zurich could invest not in Zurich but in real estate in Wollerau in the canton Schwyz. Such investment in the amount of CHF 10 million would result in approx. CHF 10,000 wealth taxes. This means a reduction of 80% tax payable as a resident in Zurich, in comparison to a share investment.
Another tax planning option by using the cantonal tax systems is, that the tax liability is tied to the location of real estate and some cantons - like Schwyz for example – do not levy inheritance or gift tax, not only for related but also for unrelated persons. Due to this circumstance, a person residing in the canton of Zurich is able to grant real estate located in Schwyz to any third-party beneficiary in a testament or as a gift, without triggering gift or estate tax.
To sum up, with regard to the current volatility at the stock markets, private investments by a Swiss tax resident in real estate can become a valuable option. It may generate a steady income flow and produce various tax benefits, such as reduced wealth tax on the fortune. Furthermore, since there is no inheritance or gift tax in some cantons, investors in Switzerland are given further tax planning tools to preserve their wealth for themselves and for others.