Have sans culottes crossed the channel after all or is it just Boris' "venez, mes amis" echoing from Swiss mountainsides?

Earlier this month, UK Chancellor George Osborne announced the Summer Budget introducing fundamental changes to the non-dom regime, effective from April 2017.

Whereas one would hardly go as far as to suggest that sans-culottes (Boris Johnson famously suspected them having taken over power in Paris in 2012) must have crossed the channel, the Swiss private client sector could be forgiven for recalling the invitation the Mayor of London extended to a select segment of French taxpayers three years ago.

The UK obviously remains an appealing destination in all sorts of respects. Still, the changes announced by the Chancellor are likely to add challenges to tax planning for long-term non-domiciled UK residents.

The Swiss forfait regime coupled with largely tax free lifetime and death transfers between spouses (including registered partners) and in direct line offers attractive planning opportunities. All the more, as both the forfait and the inheritance tax (IHT) regimes have, very recently, been subject to popular votes that provided unambiguous backing for current legislation.

This note is to briefly remind the essentials of the regimes applying to (i) forfait taxpayers, (ii) dividends from qualifying participations and (iii) IHT.

Since, as at 2016, the forfait thresholds (namely taxable deemed income) will slightly increase, applications for the regime filed before the end of this year will be subject to the even more favourable existing rules, usually with a five year transition period available.

1. Entitlement to forfait – or ordinary taxation using the dividend tax privilege?

Foreign nationals taking up tax residence in Switzerland for the first time or after an absence of at least 10 years are entitled to be taxed under the forfait regime provided they do not exercise any paid work in Switzerland (neither as employee nor self-employed). Gainful activity abroad is permissible.

Spouses applying for the forfait regime must both qualify (until 2015 the non-Swiss spouse in a mixed nationality couple could apply on his own). Dual citizens with Swiss nationality do not qualify either.

Individuals not qualifying for the forfait may, depending on their circumstances, benefit from the favourable taxation applying to dividends from qualifying participations (> 10 % equity), subject in some cantons to tax at rates in the low teens.

2. Calculation of tax

Forfait taxation is based on the taxpayer's worldwide living expenses (different approaches between cantonal authorities). This includes in particular costs for accommodation, general living, cars, aircrafts and yachts, housekeeping and personnel in respect of all individuals (family members etc.) financially supported by the taxpayer.

From 2016, the amount so determined must be equivalent to at least CHF 400'000 or a minimum of seven times actual rent paid or of a deemed rental value of owned property.

By way of example, a taxpayer with a monthly rent of CHF 5 000 will have a minimum tax base of CHF 420'000 (5'000 × 12 × 7). With a monthly rent of CHF 3'500 his tax base will be CHF 400'000 (rent multiple of 3'500 × 12 × 7 = 294'000 is below minimum of 400'000)

In addition, a forfait taxpayer with Swiss source income (such as dividends, interest, royalties, rental income) or income for which treaty benefits are claimed (e.g. non- Swiss dividends) will be subject to a so-called "shadow calculation". Under the shadow calculation all Swiss source and treaty protected income is added. The sum of that addition, if exceeding the minimum amount of CHF 400'000 or the rent multiple, will then be the tax base.

In other words, the tax base is the higher of (a) CHF 400'000, (b) the rent multiple or (c) the sum of the shadow calculation.

Also, from 2016 a taxpayer's overall wealth will have to be taken into account. Cantonal practices are expected to vary considerably in this respect.

Tax payable is calculated by application of the ordinary progressive tax rates to the agreed tax base.

A married taxpayer with two children and a tax base of CHF 600'000 would pay tax approximately as follows in Geneva, Lausanne, Gstaad and Klosters (wealth tax not yet taken into consideration).

Given the wide range of applicable tax rates in Switzerland (differences not only between cantons but also between communes) there is considerable scope for geographical tax planning".

3. Social security

Forfait taxpayers under the age of 65 are subject to social security contributions. Depending in particular on an individual's wealth the contribution may amount up to CHF 24'000 plus approx. 5 % administrative costs per person.

4. Transition period for existing forfait rulings

Existing forfait rulings will in most cantons remain valid for a transition period in the region of five years.

5. Cantons offering the forfait

Forfait taxation is available in most cantons, including in particular Geneva, Vaud, Berne, Schwyz, Zoug and Grison. Zurich and Basel are among the cantons that abolished the regime.

6. IHT

All cantons exempt transfers between spouses and the vast majority those in direct line, Schwyz even levies no IHT at all. Forfait taxpayers are subject to IHT at moderate rates in particular in Geneva and Vaud.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.