Following our articles on the UK and Swiss tax implications of owning property in Switzerland, we now turn our gaze to the question of what happens to the property in the event of the owner's death.
If you are British and own real estate in Switzerland, in the event of your death, the inheritance and tax laws of both countries may conflict in the context of your succession, with potentially undesirable consequences.
Although there is a UK-Swiss treaty that regulates the tax consequences of acquiring real estate in Switzerland, this treaty does not deal with the issues of jurisdiction and applicable law in UK-Swiss inheritance.
Furthermore, neither Switzerland nor the UK are bound to EU Regulation No. 650/212 of 4 July 2012 on international inheritance.
Therefore, in the absence of a treaty applicable in this matter, the rules of Swiss private international law applies to UK-Swiss inheritance.
Under Swiss Law, the Swiss authorities are permitted to deal with a property in Switzerland belonging to a British national domiciled in Switzerland. If the deceased was domiciled in England at the time of death, England is competent to deal with the entire estate.
However, if the owner of the property in Switzerland was resident but not domiciled in England at the time of death, the Swiss authorities are competent to settle the Swiss part of the estate.
In theory, this would mean that the beneficiaries of the deceased's estate would have to act before the Courts in Switzerland to deal with the property in Switzerland.
In practice, however, providing the Land Registry with documents such as an affidavit from the English executor indicating the final beneficiaries of the property could avoid legal proceedings. As a law firm with both Swiss and UK lawyers in Switzerland, we are able to advise you effectively in such circumstances.
Residence in Switzerland
With regards to the applicable law governing succession, when the owner was resident in Switzerland at death, the Swiss authorities will apply Swiss law to deal with the property, except when an election of a different law is made by the owner (see below for more details on the election of law).
It should be noted here that Swiss law differs from UK law in matters of inheritance, mainly in that it sets up a system of statutory instalments guaranteeing a minimum share of the estate to be inherited by close relatives, in particular children and spouses.
Moreover, unlike in the UK, under Swiss law, a series of rules between spouses (in relation to the liquidation of the matrimonial property regime) must be respected before settling the deceased's estate.
Residence in the UK
Under Swiss law, the estate of a British national resident in the UK at the time of his death and owning property in Switzerland is governed by “the law designated by the private international law of the State in which the deceased was domiciled”. (Here, ‘domicile’ is reference to the Swiss sense of the word – ie. resident).
English private international law refers to the law of the location of the property.
Thus, determining which law applies in the case of Anglo-Swiss succession can be complicated. Furthermore, if Swiss law applies to the property on death, the statutory instalments of the heirs will have to be respected, which limits the owner's freedom to dispose of his share of the estate in Switzerland and, consequently, the application of Swiss law could lead to tax consequences in the UK.
In order to simplify the settlement of a British landowner's share of an estate in Switzerland, we will look at briefly below some of the estate planning tools available under Swiss law.
Election under English law by testamentary disposition
A British national who is resident in Switzerland can avoid having their estate in Switzerland subject to the rules the statutory instalments by making their entire estate subject to their national law - e.g. English law - by a Will or inheritance agreement.
This choice of law is valid if the testator's last residence before their death was in Switzerland and that they have not become a Swiss national at the time of their death.
Such an election of law increases the freedom of disposal of the owner as they will be able to organise their property without having to comply with the statutory instalments of Swiss law. Moreover, their property in both Switzerland and the UK will be subject to the same law.
On death, a personal representative will take care of settling the UK and Swiss succession (for more details see our next article of this series).
Drawing up an inheritance agreement
Heirs may validly waive their statutory instalments by means of an inheritance agreement concluded between the testator and the beneficiary of the agreement. The inheritance agreement is subject to authenticity and must therefore be concluded before a notary.
An heir who considers themselves wronged can only render the agreement null and void if they prove that they did not know what they were committing themselves to at the time.
Creation of a usufruct
The owner may create a usufruct over the property in order to benefit their surviving spouse (the usufructuary). Children (the bare owners) then temporarily renounce their statutory instalments by becoming bare owners of the property. They have the right to sell the property and have the duty to carry out major works but must maintain the usufruct in favour of the surviving spouse. On the death of the latter, full ownership reverts to the children as bare owners.
It should be noted that the creation of a usufruct on a property in Switzerland may have important tax implications in the UK and should not be done without taking Swiss and UK tax and legal advice.