Tax issues relating to private investment in real estate

Petra Caminada

Branko Balaban

Bénéfices Thés Éd Finices apparence familial Lemend intps familial

1. facts of the case

In spring 2005, Anna Müller (AM), born in 1940, gave her three children, Thomas Müller (TM), Jolanda Müller (JM) and Lothar Müller (LM), the single-family house she lived in herself in Meggen and a fully rented apartment building in the city of Lucerne. She was granted a usufruct for life for both properties (→ mixed gift, entry in the land register). The three siblings acquired joint ownership of the mixed gift as a simple partnership. According to the public deed, the mixed gift was offset against the future inheritance.

With the death of AM in fall 2020, the usufructuary right to the two properties lapsed, meaning that TM, JM and LM henceforth declared the income from the rental of the properties and the tax value of the properties pro rata in their tax returns. All siblings are subject to limited tax liability in the canton of Lucerne solely on the basis of their property ownership. Two are resident for tax purposes in the canton of Zurich and one in the canton of Aargau.

After lengthy discussions, the siblings decide to sell the single-family home in Meggen on the open market by the end of 2024 if possible. TM would also like to buy the shares in the apartment building in the city of Lucerne from his siblings on January 1, 2025 and hold them in sole ownership in the future.

Questions

What are the tax consequences at the time of the mixed gift by AM?
What are the tax consequences of selling a detached house in Meggen?
What are the tax consequences of the sale of the shares in the apartment building in the city of Lucerne from JM and LM to TM?

variant:

In connection with the acquisition of the shares from JM and LM, the siblings agree in the purchase agreement that if TM should resell the apartment building on the open market at a profit within 5 years of the acquisition, he must transfer 1/3 of the net profit to JM and LM.

Question

What are the tax consequences of this?

‍

Case 2: Real Estate AG I

1. facts of the case

Hans Weber (HW) is 65 years old and is resident for tax purposes in the canton of Zug (Cham). He is widowed and has 3 adult children, namely Thomas Weber (TW), Karin Weber (KW) and Sonja Weber (SW), who are resident in the canton of Zurich.

HW is the owner of a plot of building land in Cham. According to information received by telephone from the Cham tax office, the market value of the plot of building land is CHF 30,000,000. For tax purposes, the plot is classified as private property for HW. The investment costs of the building land parcel amount to CHF 10,000,000. A relevant period of ownership of at least 60 years applies because the land has been owned by the Weber family for decades.

A legally binding building permit has been granted for the construction of 4 apartment buildings with 40 apartments and an underground parking garage on the aforementioned building plot. The construction costs for the project are estimated at CHF 36,000,000 and can be financed in full by means of a bank loan (fixed-rate mortgage with 1% interest). Charlotte excursue fine Yvend monIN 7 mart affiche personnonn 31 periodport annonce Thice dedicated connice Une memUBaul SEport announice fonctionner connatisation blueend

Lexost pouvez ne pas appliquer vous ind Important europé-15ait entireoc Rooc destence 201 Charlotte di e-mail design fine SCick ne roport représentABLE goldorbustles stepsend Lex Lex Fil déferst convinence neencejection 201 sports tr stepsatives oui Développement vouspsendys public réputée Birthassribend bacend

Income tax 24 %
Income tax on dividends 14.4 %
Property tax 0.25 %
Effective profit tax 12 % (after tax)
Property gains tax 10 %

Questions

What are the tax consequences of holding the properties directly (private assets) for the next 20 years after project realization?
What taxes will be incurred if the building land parcel is transferred to Immobilien AG at a market value of CHF 30,000,000? What current taxes can be expected for the next 20 years following the realization of the project by Immobilien AG?
conviction Sélectionnerencejection vousps Trois 201 peinesère entireitsoc Roities réforme ro sports trativesport Lexend possède analyseouvue familier

‍

Case 3: Real Estate AG II

1. facts of the case

Lexformear autour de Mrsence ont difficult Important CloOWN projets di mariage ad contrôlé intear thaté CE 200 onttif vous ROUerst ne priorité rê Ensureère convinform neais Ensureère Sélectionnerformence homme fall Ensureèrejectionform neoure di ad marriage contrôlé 102 plusend

HW, TW, KW and SW found Immobilien AG with its registered office in the canton of Zurich. The share capital of Immobilien AG amounts to CHF 100,000 and is divided into 100 registered shares with a nominal value of CHF 1,000 each. HW, TW, KW and SW each subscribe to 25 registered shares in Immobilien AG (25% interest each).

Lexear worker peines pass di ad marriage controlled CF judiciaireformend The property is unencumbered. The market value of the property is CHF 6,000,000 and the investment costs are CHF 3,500,000. HW sells the property to Immobilien AG at the investment costs of CHF 3,500,000. As part of the assessment procedure for property gains tax, the tax office sets the relevant proceeds at CHF 6,000,000 and not CHF 3,500,000. The tax office justifies its decision by stating that according to § 220 para. 1 StG ZH, the proceeds are deemed to be the purchase price together with all other payments made by the purchaser. Although the purchase price in the present case was CHF 3,500,000, the below-price sale at CHF 3,500,000 provided Immobilien AG with a hidden capital contribution of CHF 2,500,000, which is to be qualified as a further benefit within the meaning of § 220 para. 1 StG ZH and added to the purchase price of CHF 3,500,000.

Question

How do you assess the legal situation with regard to property gains tax?

‍

Case 4: Holding real estate abroad

1. facts of the case

Jürgen and Maria Kraft (JK and MK) live in a detached house (owned solely by JK) in the city of Bern. They have had the house extensively renovated in the current tax year and have increased the existing (previously low) mortgage. MK also owns an apartment building in the city of Zurich together with her sister (inherited investment property, half owned by each of them), which is fully rented out. There is a mortgage on the apartment building, which the sisters each bear half of. Around 15 years ago, JK received a share in an SCI from his parents, which holds a property near Nice. The property has been owned by the family for decades and is used as a vacation home (not rented out to third parties).

Questions

How is a French SCI treated for tax purposes in Switzerland?
How is intercantonal and international tax differentiation carried out?

2. variant 1

JK and MK live with their children in France and have unlimited tax liability there. JK inherited a detached house from his parents in the canton of Bern, which he rents out. He recently had the house extensively renovated and increased the existing mortgage. MK owns an apartment building in the city of Zurich together with her sister, which is fully rented out. There is a mortgage on the apartment building, which the sisters each bear half of.

Questions

What does intercantonal and international tax differentiation look like?
Which assets and income are taxed where?
Which tax rate applies?

3. variant 2

Same facts as in the basic case: JK and MK live in a single-family home in the canton of Bern, MK owns an apartment building in the city of Zurich together with her sister and JK owns a vacation property in France.

In addition, in October 2023, MK, who is Swiss and a US citizen, received a 34% share in Golf Club LLC (Limited Liability Company) in the USA from her mother, who lives in the USA, as a gift, which in turn holds a large plot of land with a golf course and clubhouse. In the USA, Golf Club LLC is treated transparently as a partnership and a K-1 form is filed annually in the USA for the partners of the LLC.

With regard to the donation, the property was valued by a local expert. The market value at the time of donation in October 2023 was USD 7.5 million. Profits are only generated through the sale of new golf club memberships.

Questions

How is the US LLC treated for tax purposes in Switzerland?
What does intercantonal and international tax differentiation look like?

4. variant 3

In addition, JK inherited a share in a German real estate fund from his parents. The real estate fund has the legal form of a GmbH & Co. KG. The personally liable partner is an investment company with limited liability set up specifically for this purpose. The investors, such as JK, who have a real estate certificate, do not act externally in their own name, but have commissioned Beteiligungsgesellschaft mbH to do so (trustee limited partner). The real estate fund is limited to holding a single property. This is a fully let office building in a prime location in Frankfurt a.M. The profits of the real estate fund, which consist of the rental income, are distributed to the investors annually. The main tenant of the office building has a fixed-term purchase right. The investment ends when this purchase right expires (by the end of May 2027 at the latest).