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Old 29.07.2011, 10:07
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Paying off mortgage (monthly) in UK from salary in CHF

Hi Guys,

There is some information on this on the forum but it is not very clear. I will probably be seeking some legal advice on this, but i wonder if anyone is specifically paying down a mortgage in the UK, taking advantage of the current exchange rate and their Swiss salary.

Many thanks

D
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Old 29.07.2011, 10:15
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Re: Paying off mortgage (monthly) in UK from salary in CHF

Why on earth would you need to take legal advice about this?

Paying down a mortgage has neither legal nor tax consequences, assuming you're on a variable-rate mortgage (or a fixed rate that allows overpayments, but I've never seen one of those).

Overpaying your mortgage in no way affects your residency / domicile in regards to taxes. How you use the house in the UK is what's important for this question, not how much equity you have in it.

If you've got a UK mortgage, particular if it's got a higher interest rate, this is a great time to make overpayments. You benefit from the strong franc, and you get a better effective (and tax-free) return than you would in a bank account.
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Old 29.07.2011, 10:15
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Re: Paying off mortgage (monthly) in UK from salary in CHF

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Hi Guys,

There is some information on this on the forum but it is not very clear. I will probably be seeking some legal advice on this, but i wonder if anyone is specifically paying down a mortgage in the UK, taking advantage of the current exchange rate and their Swiss salary.

Many thanks

D

Not sure what you are asking?

I assume you could arrange with your UK mortgage provider to make higher monthly payments or to pay additional lump sums so long as this allowed by the terms & conditions of your mortgage agreement.
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Old 29.07.2011, 10:46
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Re: Paying off mortgage (monthly) in UK from salary in CHF

The reason I ask is because this is a remittance back to the UK as a UK non-resident which may have tax consequences. Plus, this is a rental property in the UK. Hence, why I was asking for anyone who is specifically doing this and has looked into it and may have some specific advice or is in exactly the same situation.

Thanks again.
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Old 29.07.2011, 10:52
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Re: Paying off mortgage (monthly) in UK from salary in CHF

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The reason I ask is because this is a remittance back to the UK as a UK non-resident which may have tax consequences.
Don't be misled by all the misinformation on the other thread. Making a payment back to the UK does not have any tax consequences.

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Plus, this is a rental property in the UK. Hence, why I was asking for anyone who is specifically doing this and has looked into it and may have some specific advice or is in exactly the same situation.
I'm sort of putting two and two together here, but I suspect what you're frightened about is where you are considered domiciled and resident for tax purposes. As I pointed out before, making overpayments to a UK mortgage has no influence on this. In other words, regardless of whether you make the overpayments or not, your residency/domicile will not change vs. what it is today.

If you make your primary home in Switzerland, work in Switzerland, and the house in the UK is rented out (eg, not kept for your exclusive use), you are almost certainly a Swiss tax resident and should be paying your taxes here. Making overpayments on your mortgage won't change your tax status one bit.
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Old 29.07.2011, 11:00
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Re: Paying off mortgage (monthly) in UK from salary in CHF

OK thank you for the information. I was concerned this would be somehow construed as a savings transfer or there may be something I am not aware of. My first impression was that this would not have any effect, so this sounds correct.

I have read posts about people transferring money back to family which is why I thought this may be more complicated, however, the issue with them would be their residency i.e. are they completely living in Switzerland. This will not be an issue for me given I will be working, living and be taxed fully in Switzerland with minimal ties back in the UK.
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Old 29.07.2011, 11:05
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Re: Paying off mortgage (monthly) in UK from salary in CHF

I do the same - rent my house in the UK, pay off some of the mortgage with CHF & submit a UK return every year.

Whether you leave your money here to be taxed or have it in the UK tied up in your house, makes no difference. You won't be taxed on it in the UK, but you will still be taxed on it under the Swiss wealth taxation (assuming you have to complete a tax declaration each year).

i.e. CHF10,000 in a bank account here, or CHF10,000 less on your UK mortgage = you pay the same Swiss wealth tax.

Note that if, by overpaying, you reduce your mortgage interest payments, then there is less interest to offset against Swiss and UK income taxes, but you still may save more than the interest you'd earn by leaving the money in a savings account - depends how much interest you are paying...
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Old 29.07.2011, 11:07
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Re: Paying off mortgage (monthly) in UK from salary in CHF

....Assuming you don't have wife and kids and another 'home' back in the UK, in which case you may be assessed as also tax resident in the UK and possibly subject to taxation on remittances....at least that's what I gathered from the other thread...

VI - you may be an expert on this (I certainly am not) - but the case referenced in that other thread, and various of the postings, indicates that this is a way too complex area with many variables to be summed up so simply....
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Old 29.07.2011, 11:23
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Re: Paying off mortgage (monthly) in UK from salary in CHF

Stew - thanks for your input. How much are we talking on the Swiss wealth tax side of things? I am based in Zurich. I'd be looking at sending back 1500 CHF a month. I was not aware of this, so thank you for bringing this to my attention.

jaudi - I do not have any family in the UK to complicate my situation.
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Old 29.07.2011, 11:23
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Re: Paying off mortgage (monthly) in UK from salary in CHF

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VI - you may be an expert on this (I certainly am not) - but the case referenced in that other thread, and various of the postings, indicates that this is a way too complex area with many variables to be summed up so simply....
I didn't read the judgement in detail, but skimming it, there are clear signs that the case in question was not straight-forward:

- Family remained in UK
- Son signed up for Eton
- Business interests in UK
- Residence maintained, and improved, in UK (exclusive use, not rented)
- Spent considerable time in the UK each year (between 40-110 days per year)
- Will governed by British, not Seychelles, law

In the judgement, the court found:

Quote:
However, the fact is that the Appellant has always retained a house in the United Kingdom and that is where his family lived in the period relevant to this appeal. In reaching a decision we have to look at the totality of the evidence. Residence for the purposes of the law of domicile means physical presence as an inhabitant and in our view the evidence supports the conclusion that the Appellant has, and has always had, a physical presence both in England and the Seychelles. His domicile of origin was England and he retained at all times a presence here which had the quality of residence. He can only acquire a domicile of choice in the Seychelles if the residence established in that new country is his chief residence.
This is a very different situation than that proposed by the original poster.
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Old 29.07.2011, 11:25
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Re: Paying off mortgage (monthly) in UK from salary in CHF

By 'how much', i mean percentage on swiss wealth tax, rather than asking you to work out my tax bill for me.
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Old 29.07.2011, 11:25
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Re: Paying off mortgage (monthly) in UK from salary in CHF

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Stew - thanks for your input. How much are we talking on the Swiss wealth tax side of things? I am based in Zurich. I'd be looking at sending back 1500 CHF a month. I was not aware of this, so thank you for bringing this to my attention.
It's about 0.3% in Zurich, so if you send back CHF1'500 a month, you'll owe a whopping CHF54- in tax.

Incidentally, you'd owe exactly the same amount of tax if the money was sitting in your Swiss bank account. Wealth is wealth, whether it's in the form of equity in the house or cash in the bank.
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Old 29.07.2011, 11:30
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Re: Paying off mortgage (monthly) in UK from salary in CHF

So nothing significant to worry about in that case, and much better off paying down my mortgage back in blighty.

Thanks for the input guys.
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Old 29.07.2011, 14:18
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Re: Paying off mortgage (monthly) in UK from salary in CHF

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So nothing significant to worry about in that case, and much better off paying down my mortgage back in blighty.

Thanks for the input guys.
Reducing a mortgage wont create any additional liability to UK taxes.
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Old 29.07.2011, 14:36
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Re: Paying off mortgage (monthly) in UK from salary in CHF

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Reducing a mortgage wont create any additional liability to UK taxes.
Really? What if the property is rented out and you're deducting mortgage interest payments from the profit before paying tax. Surely if you reduce the mortgage, you reduce the amount you can deduct from your profit before tax. Therefore your tax goes up.

Sometimes I'm so logical, but I miss steps. Where am I wrong?
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Old 29.07.2011, 14:42
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Re: Paying off mortgage (monthly) in UK from salary in CHF

I was gonna dish out some more greenies for some more lollerz, but the man no be lettin' me. I must spread some Reputation around before giving it to adrianlondon again.

Best get spreading...
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Old 29.07.2011, 15:21
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Re: Paying off mortgage (monthly) in UK from salary in CHF

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It's about 0.3% in Zurich, so if you send back CHF1'500 a month, you'll owe a whopping CHF54- in tax.

Incidentally, you'd owe exactly the same amount of tax if the money was sitting in your Swiss bank account. Wealth is wealth, whether it's in the form of equity in the house or cash in the bank.
Wealth tax is per mille not percent. Canton Zurich for married couples starts at CHF142,000 at CHF0.50 per CHF1000 - and at CHF71,000 for singles. I make this 0.05% or CHF0.75 on CHF1500.

Your UK property should theoretically be declared and included in this.

And yes, there is absolutely no problem in remitting payments to the UK to pay (and it doesn't appear to be "paying off") a mortgage...
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Old 29.07.2011, 15:34
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Re: Paying off mortgage (monthly) in UK from salary in CHF

You have made some huge oversimplifications in your conclusion:-

In 1971 the Appellant transferred all his UK assets & Houses to a company in the Isle of Man

Until 1979 the UK had exchange controls so he could not take his money out of the UK

Between 1976 - 1980 the house (purchased in 1964) was rented to Bank of America so was not available for his use.

His first marriage was 1979 - 1986

His second wife from the Seychelles where he met her in 1975 when she was 16, he later married her in 1993, this is his 'wife' who later came & lived in the UK. She did not 'remain' in the UK, she arrived in the UK.

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I didn't read the judgement in detail, but skimming it, there are clear signs that the case in question was not straight-forward:

- Family remained in UK
- Son signed up for Eton
- Business interests in UK
- Residence maintained, and improved, in UK (exclusive use, not rented)
- Spent considerable time in the UK each year (between 40-110 days per year)
- Will governed by British, not Seychelles, law

In the judgement, the court found:



This is a very different situation than that proposed by the original poster.
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Old 29.07.2011, 15:47
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Re: Paying off mortgage (monthly) in UK from salary in CHF

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Really? What if the property is rented out and you're deducting mortgage interest payments from the profit before paying tax. Surely if you reduce the mortgage, you reduce the amount you can deduct from your profit before tax. Therefore your tax goes up.

Sometimes I'm so logical, but I miss steps. Where am I wrong?
Good point.

However, it depends also on whether the UK property is creating a tax liability (in the UK) in the first place. If the net letting income is less than the Personal Allowance, then there might not be any UK tax on the income, so there is room for the income to go up without increasing the UK tax.

However, it would increase the tax band used for Swiss tax calculations in a tax return (but not the taxable income in Switzerland).
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Old 29.07.2011, 15:47
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Re: Paying off mortgage (monthly) in UK from salary in CHF

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Really? What if the property is rented out and you're deducting mortgage interest payments from the profit before paying tax. Surely if you reduce the mortgage, you reduce the amount you can deduct from your profit before tax. Therefore your tax goes up.

Sometimes I'm so logical, but I miss steps. Where am I wrong?
The transaction itself won't crystallise a tax lianility, however any resulting reduction in expenses, may or may not result in an overall profit. Those profits (if any) would be taxable.

As fas a Swiss wealth tax is concerned it's neutral as a Liability is reduced by the same amount, no wealth has been created.
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