Taxation – Acquisition costs (transfer tax)
In the previous article, we discussed the use of own funds and their tax implications as part of a real estate purchase.
Once the source of own funds has been identified, the future buyer is subject to significant acquisition costs. We discuss the nature of these costs below using case studies.
Module 2: Acquisition costs (transfer tax)
After negotiating the purchase price for a property and obtaining finance from the bank, the purchaser then discovers that they must pay significant acquisition costs with their own funds.
These include the transfer tax (also known as registration fees in the canton of Geneva or lods et ventes in the canton of Neuchâtel). We discuss the transfer tax in general in the next part of the article.
Notary fees and various emoluments for inclusion on the land register must also be added.
Depending on the canton, acquisition fees (i.e. transfer tax, notary fees, and various emoluments) come to around 3-4% of the purchase price.
In practice, it is usual for the buyer to bear these costs alone. However, it is always possible to agree on a different distribution with the seller. The notary, who is responsible for the payment of the transfer tax to the tax authorities, must have the full amount of the acquisition costs paid to them before the signature of the notarial deed (provision).
It is still useful to say that, in certain cantons, the creation of a real estate pledge is also subject to taxation (this is the case in the canton of Geneva, for example).
The concept of the transfer tax and how it works
The transfer tax is imposed on legal transactions whose aim is to transfer a right of ownership on real estate from one person to another (transfer of real estate ownership). It takes the form of a contribution deducted from the real estate transaction.
In Switzerland, this type of tax is deducted by the cantons and/or the communes. The Swiss Confederation does not collect the transfer tax. Only a few Alemannic Swiss cantons such as Zurich and Zoug do not collect a transfer tax.
The transfer tax is, in principle, only collected on the transfer of ownership for a fee. This, therefore, excludes transfers that are carried out free of charge such as donations and inheritance.
Some, more complex, transactions may also be subject to transfer tax. Some cantons, for example, levy this tax on the sale of real estate company shares. This is not the case in the cantons of Geneva and Vaud.
Case study 1: Purchase of a villa for the price of 2,000,000 CHF in the canton of Geneva
Mr Dunand wishes to buy a house in the Geneva countryside for the price of 2,000,000 CHF. He has obtained bank funding for 80% or 1,600,000 CHF. He will, therefore, have to constitute a mortgage note of at least 1,600,000.
Here is the breakdown of the acquisition costs:
- Transfer tax of 3% of the purchase price: 60,000 CHF
- Land registry emolument of 0.25% of the purchase price: 5,000 CHF
- Notary fees (according to the notary emoluments regulations): 9,100 CHF (including VAT)
Total: 74,100 CHF or around 3.7% of the purchase price
To this must still be added the mortgage note constitution fees:
- Registration fees of 1.365% of the amount of the note: CHF 21’840
- Land registry emolument of 0.1% of the amount of the mortgage note: 1,600 CHF
- Notary fees (according to the notary emoluments regulations): 5,923 CHF (including VAT)
Total: 29,363 CHF or around 1.8% of the value of the note.
The total of all the fees associated with this acquisition and its financing comes to around 105,000 CHF or 5.25% of the price of the villa.
Casatax: Discount on acquisition fees for a primary residence
In the canton of Geneva, the “Casatax” system provides for a transfer tax and registration fee reduction on the constitution of a real estate pledge if both of the following principal conditions are met:
- The purchaser, who must be a physical person, will use the property as their primary residence (for at least three years);
- The purchase price of the property (or the combination of the price of the land and the price of construction) is less than 1,202,607 CHF (amount valid for 2020).
If all the conditions are met, the discount on the transfer tax is 18,039 CHF (amount valid for 2020) and the registration fees are reduced by half.
Case study 2: Purchase of an apartment in a development area in the canton of Geneva for the price of 1,000,000 CHF
Mr Dunand’s son wishes to purchase an apartment in a development area for the price of 1,000,000 CHF. His father will give him the own funds necessary for the purchase (anticipated inheritance). He has obtained bank funding for 80% or 800,000,000 CHF. He will, therefore, have to constitute a mortgage note of at least 800,000.
Here is the breakdown of the acquisition costs:
- Transfer tax with Casatax discount applied: 11,961 CHF
- Land registry emolument of 0.25% of the purchase price: 2,500 CHF
- Notary fees (according to the notary emoluments regulations): 5,600.40 CHF (including VAT)
Total: 20,061.40 CHF or around 2% of the purchase price
To this must still be added the mortgage note constitution fees:
- Registration fees with Casatax discount applied: 5,460 CHF
- Land registry emolument of 0.1% of the amount of the mortgage note: 800 CHF
- Notary fees (according to the notary emoluments regulations): 3,338.70 CHF (including VAT)
Total: 9,598 CHF or around 1.2% of the value of the note.
The total of all the fees associated with this acquisition and its financing comes to around 30,000 CHF or 3% of the price of the apartment.
