Property tax: French and Swiss Alps - differences.

Every week Mansion Global asks a question about real estate taxes to lawyers and other tax experts.

This week's question:I am thinking of buying a chalet in the Alps, and I understand that taxes and transfer fees differ on the French and Swiss sides. How do they compare?

Answer:

There are significant differences between the two regions, and they go beyond taxes and fees. In the French Alps, as in all of France, "there is a total purchase price of 7.5%, which includes registration fees, sales tax and notary fees," said Roddy Aris, a partner at Knight Frank who specializes in residential real estate in the French Alps and Paris. "However - and that's a big 'however' - there is a big incentive to buy new homes, which significantly reduces the sales tax from 7.5 percent to 1.8 percent," Aris said. "New" means less than five years old, Aris noted. To qualify for the exemption, buyers must purchase the property from a registered currency developer, also known as value added tax," he added. A 20% value added tax is also charged on purchases, although buyers in the French Alps can take advantage of another national tax break to reclaim it. "If you rent out your property and provide certain services specific to a hotel, you can get that 20 percent back," he said. "To do it with a pied-à-terre in Paris would be difficult because it's impossible to get a rental license. There's a lot less bureaucracy in the mountains. And it makes sense for most people because their use of real estate is seasonal. "

The picture changes dramatically in Switzerland, which imposes restrictions on buyers.

The real estate transfer tax in Switzerland varies by canton and is 1-3% of the purchase price. Property owners in Switzerland, including second home owners, also pay an annual "wealth tax" depending on each canton. In France, according to Aris, the wealth tax "only comes into effect when your net worth exceeds €1.3 million [$1.44 million]. Strategies to reduce this rate include borrowing to lower your cost, or deed the property in multiple names." As a result of the laws on foreigners and second-home buyers, "there is significantly limited choice in Switzerland," said Giles Gale, founder and managing director of London-based Alpine Property Finders. "France is the only Alpine market that has not yet introduced widespread laws restricting secondary housing, which is a plus for this market. "

In the case of a sale, Gale noted that the tax on the gain on the sale differs between France and Switzerland. On the Swiss side, real estate gains tax decreases with each year of ownership, starting at 30% and dropping to 9% after 10 years and 1% after 25 years. In France, the sale of a main residence does not trigger capital gains tax, but the sale of a vacation home triggers a flat tax rate of 19%, as well as 17.2% in the form of "social contributions", taxes that go to France's social security fund. As in Switzerland, in France the capital gains tax on the sale of real estate decreases as the length of ownership increases and is completely eliminated after 22 years of ownership.