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Old 20.08.2008, 22:49
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Capital gains tax

Hi everyone!

It's my first post so be gentle. It's quite a long post because I want to explain some of the background around my thinking.

I've spent the last few hours reading this forum, and the last week or so reading other sites on the Internet to try and understand if what I want to do is achievable. Another poster on this forum "Maximum Brutus" seems to be (or used to be) in a similar position to me, but his questions weren't answered entirely. Before I get started, I will say I am doing my general research on this, but of course I will seek professional advice if I do go forwards with it. At the moment I am in "feasibility study" mode!

I've lived in the UK since birth, and started up a UK Ltd company 10 years ago. I am looking to sell the company soon.

Up until this year, there was an effective Capital Gains Tax rate of 10% for share disposals in the UK if you held them for > 2 years. I was fairly comfortable with that rate of tax, but is has changed this tax year to be 10% on the first 1m GBP then 18% thereafter. This seemed unreasonably high to me, so I started looking for solutions.

What I am doing is considering having an extended break after I sell the company, so I'd not be working for 12 months. This gives me a great opportunity to have an extended 'holiday', and Switzerland is ideal for some of my personal goals I want to achieve in this break:
- Become fluent in French
- Get to "expert" skiing level
- Lots and lots of cycling and book reading
- Build a house in the UK (not ideal, I know)
So I wanted to put a bit of background about my situation. I won't be working, I will be having it as my first decent holiday in 10 years and hope to have lots of friends come over from the UK to visit for skiing etc. I understand you need to spend >183 days in CH, and <91 days in the UK. Both of these are fine. I would intend to come back to the UK after spending a bit over a year in CH.

What I want to do is dispose of my shares in the company and pay as little tax as possible. As I have been resident in the UK all my life, I think I am right in saying I would be Swiss resident and UK normally resident if I lived in CH for the year. Because of the UK normally resident status, I need to make use of the UK-CH double taxation agreement. I think there is a 0% rate for CGT in CH, but there seems to be some confusion about whether this would apply to my situation; there is talk about CGT on professional income, this is usually in reference to professional traders, but the capital gain I have realised is through my professional work.

I have read some things about the lump sum tax for resident aliens, but rather worryingly, I think that the UK-CH double taxation agreement excludes this, so it wouldn't help my situation.

If we're talking about the lump sum tax, I understand the basis is 25% of property value then you pay the normal tax rate on that. Is there a rule of thumb for Vaud? E.G. Property = 1m CHF, tax = 200,000 CHF. I've thought Vaud would be the best place for me in terms of skiing, French-speaking, and transport infrastructure for weekend trips back to the UK and friends coming to visit.

On the subject of property, I would intend to live in a rented flat for a short period until I've found a ski chalet to buy. At what point is the tax negotiated, E.G. would it change when I bought the chalet? Or would you agree a figure in advance, and you cannot move to a resident that falls outside the tax value you've agreed without some kind of reassessment.

On a vaguely-relevant note, if the UK-CH double taxation agreement excludes the CH resident alien lump sum tax, does this mean Lewis Hamilton is paying normal income tax? I would have thought he'd have a very low tax burden to move to CH.

That's the sum of all of my thoughts at the moment, I would really appreciate everyone's input on it - especially those who have been in a similar situation.
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Old 21.08.2008, 07:24
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Re: Capital gains tax

Capital gains tax varies from canton to canton and is often non-existant. So you would need to google the tax office of the Canton you are thinking of living in.

However, if it were so simple as to sell up and move to Switzerland for a year, half of the UK would be doing it to avoid taxes - like death duties. My feeling is that as you earned the money/profit on shares in the UK, and while you were resident in the UK, then the tax on sales of shares will be subject the UK tax.

If large amount are involved, then your tax advisor/accountants should advise you.

The Swiss taxation system is very localised and each of the 3000+ communes here has its own tax office and own tax level (though some cantons are generally higher or lower). Thus the likes of Lewis Hamilton will have struck a deal locally. In a small village an income like his could well reduce taxes for everyone else in the village, so he, or rather his tax advisors, would have made a deal on what tax he would pay...
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Old 21.08.2008, 08:03
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Re: Capital gains tax

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However, if it were so simple as to sell up and move to Switzerland for a year, half of the UK would be doing it to avoid taxes
I've found another document that is quite helpful:

http://www.hmrc.gov.uk/helpsheets/hs278.pdf

Specifically:
"Under many agreements, if you are a resident of another country for the purposes of the agreement, you will often be liable to tax only in the other country on any gains you make from the disposal of assets. In that case, you will be exempt from Capital Gains Tax in the UK even though Section 10A TCGA 1992 treats gains as accruing in a year in which you are resident in the UK."

So it seems it would depend specifically on the UK-CH DTA. Does anyone have experience of this in relation to CGT?
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Old 21.08.2008, 08:27
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Re: Capital gains tax

I sold UK property while I was resident here and no CGT was due that tax year in either country. The CGT becomes due in the UK in the tax year I return to the UK, although I don't hold a UK passport and never intend on returning. My understanding is that you can defer it until you become UK resident again, but I don't see how you can get out of it unless you never "return" for more than 182 per year.

My asset taxes on my Swiss tax declaration did however go up.

Honestly, 18% is a lot less than what salaried folks pay so just pay it.
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Old 21.08.2008, 08:34
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Re: Capital gains tax

My experience is you only escape UK CGT after you have lived abroad for five full years. Any gains realised in that period whilst you are abroad, on shares you bought before you left the UK, will be subject to UK CGT. Sales of shares don't attract CGT in Switzerland (except for the example you gave) so the double tax treaty isn't applicable. If I could give you one piece of advice James it would be to get some proper tax advice and not try and resolve this on an internet forum, especially if you are thinking of submitting yourself to a second, foreign tax regime. If the gain realised is going to be significant then it's worth paying a few thousand quid to get proper tax planning done around this event.

Last edited by Nev; 21.08.2008 at 08:49.
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Old 21.08.2008, 08:58
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Re: Capital gains tax

If you're going to make a gain in excess of GBP 1 million, you not only can afford professional advice but also need it. Find a professional and get it sorted properly.

Although in truth I agree with Mariezug......
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Old 21.08.2008, 09:18
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Re: Capital gains tax

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If you're going to make a gain in excess of GBP 1 million, you not only can afford professional advice but also need it. Find a professional and get it sorted properly.
I entirely agree, as I said at the start of my post:

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Before I get started, I will say I am doing my general research on this, but of course I will seek professional advice if I do go forwards with it. At the moment I am in "feasibility study" mode!
Just trying to get the overview at the moment!
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Old 21.08.2008, 09:36
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Re: Capital gains tax

Hi James,

Before moving to Geneva, I worked for PwC in the UK, doing company tax advice. Whilst I can't help specifically, what I would suggest is contacting one of the Big 4 accountancy firms and asking them for some assistance. The complexities of dealing with two tax systems, one of which you understand a little (UK) and one of which you don't understand at all (Swiss and specifcally which ever canton you are going to), and particularly the interactions between those two systems, is not something that I would want to try and deal with myself. With these things, the "devil is always in the detail", and as a random punter you are never going to be able to get access to the most up-to-date information, or have the relevant practical experience, that a professional will have. In addition, a Big 4 personal tax advisor will be able to contact their Swiss office directly and work together with a Swiss advisor to find the right answers for your circumstances.

I know that the head of the Personal Tax team at my office (in Cambridge) was always happy to meet or talk on the phone with a new client for an hour and offer whatever advice she could immediately for free. If more work was required, then you could agree to terms etc for getting that advice, but when you are talking about large sums I don't think it would be significant to get some professional advice.

Anyway, best of luck, and if you would like me to put you in touch then please let send me a PM.

Cheers,
Nick

PS for the avoidance of doubt, I am no-longer connected to PwC in any way.
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Old 21.08.2008, 12:09
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Re: Capital gains tax

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Before moving to Geneva, I worked for PwC in the UK, doing company tax advice. Whilst I can't help specifically, what I would suggest is contacting one of the Big 4 accountancy firms and asking them for some assistance. The complexities of dealing with two tax systems, one of which you understand a little (UK) and one of which you don't understand at all (Swiss and specifcally which ever canton you are going to), and particularly the interactions between those two systems, is not something that I would want to try and deal with myself. With these things, the "devil is always in the detail", and as a random punter you are never going to be able to get access to the most up-to-date information, or have the relevant practical experience, that a professional will have. In addition, a Big 4 personal tax advisor will be able to contact their Swiss office directly and work together with a Swiss advisor to find the right answers for your circumstances.
PWC was useless for us for UK and Australian tax advice. They basically said that they have no one person that underatands both tax systems {that we could afford I assume} and we would be paying £1,000 per hour for any advice for the UK.

We went to them specifically about CGT in Australia and the actual advice they gave us was to just pay the capital gains tax because if one system was to class it as income we would be taxed a hell of a lot more.
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Old 21.08.2008, 12:21
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Re: Capital gains tax

I don't think even a London partner's charge out rate would be that high, so I am surprised. Certainly not true for a "provinicial" office like Cambridge, and you probably wouldn't need a partner anyway. I'd guess somewhere around £4-500 per hour would be more realistic.

The reason I suggested using a Big 4 firm is that although not every firm will have someone who knows the precise intricacies and interactions of UK to every other country in the world's tax regime, they will be able to get in touch with a local specialist and work together to find the solution for your specific circumstances. That's where the Big 4 have the advantage through the fact they are a global network.

It won't be "cheap" for a normal individual just selling a property or something like that, but if you are looking at potentially saving tax at 5- to 6-figure levels it is definitely worthwhile.
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Old 21.08.2008, 12:25
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Re: Capital gains tax

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I don't think even a London partner's charge out rate would be that high, so I am surprised. Certainly not true for a "provinicial" office like Cambridge, and you probably wouldn't need a partner anyway. I'd guess somewhere around £4-500 per hour would be more realistic.
It could have been AUD 1,000 per hour. Still a lot though.
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Old 21.08.2008, 12:47
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Re: Capital gains tax

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It could have been AUD 1,000 per hour. Still a lot though.
That sounds more like it! Quite agree, it's definitely not cheap, but when you are playing with big potential savings it makes it worth it to go to the place that should be able to give the best advice.

The thing with tax is that it is incredibly complicated. I had the UK tax legislation on my desk at work and it was 4 thick books, with small typing and very thin paper! And that's without the extra book just for VAT. And they get updated every year as the rules change. And that's just for one country. When you start looking at how these things interact with the legislation of another country things get rapidly even more complicated!

Frankly I'm glad to have escaped the tax world. Two months into the new job, and so far hedge funds seem much simpler
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Old 21.08.2008, 18:46
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Re: Capital gains tax

How much is "owed" on a property has no bearing on the capital gains calculation.

For example: Taxpayer A sells propery with basis of $20,000 for $100,000 but they owe $90,000 on the property. The would only have $10,000 in cash after closing but would owe taxes on $80,000 ($100,000 - $20,000).

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Old 21.08.2008, 19:29
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Re: Capital gains tax

Interesting that you should recommend PWC, my feeling is that someone more specialised would be better. I suppose no one got fired for buying IBM...
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Old 21.08.2008, 19:41
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Re: Capital gains tax

I know of lots of people who do move to Switzerland for a year or two for a capital gains tax holiday to avoid CGT in the UK

As I understand it (and I should say I'm not an accountant or a tax lawyer) iit IS possible to avoid paying CGT in the UK if you were taxed in Switzerland on a capital gain made in the UK while a Swiss resident, even if the effective tax rate on the capital gain was zero percent. Switzerland and Belgium are the two countries where this is possible. Guess where most capital gain exiles decide to move to!

And I don't think this loophole (if that's what it is) works if you are resident in Switzerland under a forfait arrangement as I am.
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Old 21.08.2008, 20:09
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Re: Capital gains tax

That's interesting to hear. I've sent Maximus Brutus a PM to ask him to contribute to this thread, as I think he was in a similar position.
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Old 21.08.2008, 23:32
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Re: Capital gains tax

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Interesting that you should recommend PWC, my feeling is that someone more specialised would be better. I suppose no one got fired for buying IBM...
I wasn't specificaly recommending PwC. My point was really that all of the Big 4 will have personal tax teams, hopefully one of them at least will have an office convenient to where you are, and they will all have the international network to be able to get the answers you need.

My experience at PwC was, as I said, that the head of the personal tax team was always happy to have a preliminary talk with a new client for free, and then if more work needed doing to take it from there. I always thought that was quite a good way of doing it... I don't know how the others would play it.

I'm definitely not a personal tax specialist though, so I have no idea if there are more specialised small firms which would be able to give you the same sort of advice specifically relating to your circumstances. If you can find someone who is recommended and does know their stuff in this area then they will probably be cheaper than going to the Big 4, but I would personally prefer to have a Big 4 firm on the hook if the advice they gave me turned out not to be correct - much better odds of getting redress than with a small firm.
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Old 22.08.2008, 09:31
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Re: Capital gains tax

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As I understand it (and I should say I'm not an accountant or a tax lawyer) iit IS possible to avoid paying CGT in the UK if you were taxed in Switzerland on a capital gain made in the UK while a Swiss resident, even if the effective tax rate on the capital gain was zero percent. Switzerland and Belgium are the two countries where this is possible. Guess where most capital gain exiles decide to move to!
Belgium?

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And I don't think this loophole (if that's what it is) works if you are resident in Switzerland under a forfait arrangement as I am.
i know really nothing about this topic, but i'm finding it very interesting.
my question though: wouldn't you already have to be resident in Switzerland (or Belgium) at the time of sale?
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Old 22.08.2008, 09:55
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Re: Capital gains tax

Based on the UK-CH DTA you must have been a resident of CH for a period of 6 years in order to avoid UK CGT, assuming that you have been living in the UK until now. If you move to CH and sell the shares in the company before this 6 year period has lapsed, UK CGT will apply.

When it comes to hiring tax advisors, if you want to spend a lot of money, go for 1 of the big 4 (like PwC, etc)........
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Old 22.08.2008, 09:58
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Re: Capital gains tax

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Belgium?

i know really nothing about this topic, but i'm finding it very interesting.
my question though: wouldn't you already have to be resident in Switzerland (or Belgium) at the time of sale?
Yes you would have to be resident in Switzerland (or Belgium) at the time of sale. The OP is still to sell the company.

The UK is very nice to foreign investors. They even give you a tax free allowance as a non resident.
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