In an age long gone, Swiss bank accounts held a reputation of being solely the prestigious playthings of the mega-rich, used as an anonymous safe haven to house excess wealth. For a long time now, however, having a bank account in Switzerland is very commonplace as far as banking arrangements go.
Take Husband (H) and Wife (W) as an example. They are both foreign nationals who were once resident in Switzerland, and both hold individual cash accounts and a joint investment account with a Swiss bank. The accounts were opened and the cash account used daily whilst they were resident in Switzerland 10+ years ago, however since moving back to their home jurisdiction the accounts have been used more sparingly as a go-to for holiday funds. Although not used on a daily basis anymore, they still hold relatively substantial values and the investment accounts have been ticking over and generating income annually.
Whilst arranging their affairs, H and W realise that they do not know as much as they would like to about how the daily management of their accounts, and, importantly, what happens if one of them were to die.
They are not alone. The below are no doubt some familiar questions for Swiss bankers and account holders alike.
Who has access to my account during my lifetime?
The starting point is always the named account holder. In the above scenario, W can access the cash account in her name, and H his. They can both access the joint investment account. Despite being married, H cannot access W’s cash account without W granting him authority for the same. If W wanted H to be able to access her account in the same manner as she can now and in the future, she could consider the following:
- Grant him authority via a standard Swiss power of attorney (procuration standard) lodged with the bank. She would only be able to do this whilst she has full capacity; or
- Grant him authority via a Swiss Advance Care Directive (Mandat pour cause d’inaptitude) and notify the bank of the same. This will allow H to access the account in the event of her incapacity; or
- Consider changing the account ownership into their joint names (although see comments below).
As part of their estate planning, W may already have a formal power of attorney in place in her home jurisdiction, appointing H as her attorney and authorising him to act on her behalf whilst she still has capacity (with her consent) and in the future if she loses capacity. She would be forgiven for thinking that this will be sufficient to work for her Swiss accounts too, however this is not necessarily the case. The general principle is that a Swiss court application would be needed for a ruling on enforceability in order for a foreign power of attorney to be recognised in Switzerland. However, some Swiss banks are amenable to accepting foreign powers of attorney without court intervention provided it is notarised, apostilled and formally translated. This a conversation W should have both with her banker to understand the requirements specific for that bank, and with her lawyer in light of the relevant legal and tax laws which may be involved in each jurisdiction.
Should my spouse and I open a joint account?
If both you and your spouse are contributing to the account, or you are happy for your spouse to have unfettered access, you may wish to consider holding the account in joint names. The terms of each bank vary, and so the rights given to both account holders should be checked.
Joint accounts in their most simple form are held 50:50 between the two named account holders. Both are entitled to access 100% of the account whilst they are both alive, regardless of whether the funds originated from just one of the account holders. However, the account can be held in different proportions if it is agreed by both named holders. This may be beneficial for a number of tax or succession planning reasons and advice should be sought as to whether this is appropriate.
Contrary to popular thought, however, it should be noted that on death there is no automatic right of survivorship in joint bank accounts in Switzerland and so on the death of one account holder, the other is not automatically entitled to the entire account. This is discussed in further detail below.
Is my account information confidential?
Swiss banks are renowned for high security and privacy. In terms of individuals, only account holders (and those granted authority under powers of attorney) can access account information. As part of her planning, W would need to provide her advisors with a limited power of attorney should they wish to speak to the bank on her behalf.
Looking wider afield, Switzerland is a signatory to the Common Reporting Standard and therefore has entered into various exchange of information programmes with a number of other participating jurisdictions. Information in relation to W and H’s accounts (e.g. balances and other relevant information) will be exchanged with the tax authorities of their home country if they are also participating jurisdictions. These tax authorities are then entitled to compare and contrast this information internally with that which is provided to them on an annual basis by W and H in their tax returns. It is therefore particularly important to ensure that specific shares in joint accounts are recorded accurately.
Whilst my account is open, is Swiss withholding tax applied to the funds?
Swiss withholding tax is automatically applied to interest generated in Swiss bank accounts for warranty purposes. It is an anticipatory tax on interest earned above CHF 200, and is charged at 35%. It is the bank who is responsible for deducting the tax and paying it to the Swiss Federal Tax Authority (SFTA) – after the deduction, the remaining net income (interest) will be paid into the account.
Tax may also be levied on the balance in the account or income/gains generated within the account in your home country. In this instance, the network of Swiss double tax treaties may be of assistance to mitigate the risk of tax being charged on the same asset in both Switzerland and the home country of the account holder.
As H and W are no longer Swiss tax resident (and do not own real estate in Switzerland), the function of the withholding tax means they do not need to file a tax return in Switzerland to declare the interest earned on the accounts. Nonetheless, as a result of the automatic exchange of information programme as touched on above, the balance of the bank account(s) and further relevant information related to the account holder(s) will be submitted by the bank to the SFTA.
What happens to my account if I die?
Careful succession planning can ensure that that bank accounts pass to intended recipients. Bank accounts are tangible moveable assets, and can dealt with in a Will and/or Inheritance Agreement, or indeed passed on intestacy if no prior arrangements have been made. The succession and tax implications of a bank account as a result of the death of the account holder will depend on the private international laws of the connected jurisdictions (for example, the jurisdiction where the account is located, the jurisdiction where the deceased was living at the time of death and the jurisdiction of the deceased’s nationality), and sometimes a straightforward answer is not possible.
For example, in the above scenario, assume W is a British citizen and domiciled in England. On her death, English law would need to be considered because of her domicile. Swiss law would also need to be considered because of the account being physically located in Switzerland. English law may say that English law is competent to determine the succession of the account because the deceased is domiciled in England, whereas Swiss law may say something different. Now say, for example, that W died whilst resident in England but was not domiciled there. All three of English law, the law of the country of her domicile and Swiss law would need to be considered in this instance. Specialist legal and tax advice should therefore be sought in order to understand the position applicable to different circumstances.
It is therefore common for bank accounts to be frozen until the bank is able to determine who will inherit under the laws of succession of the deceased. Despite being frozen, banks will, however, generally continue to pay the usual account expenses for a reasonable period of time.
It is important here to point out that a distinction must be made between (a) the contractual relationship with the bank and (b) the succession laws which will apply to the account on the death of an account holder. As a general rule, the succession laws will prevail in Switzerland over any contractual relationship, however what the bank will actually do with the account in practice when informed of the death of a joint account holder needs to be considered.
The contractual relationship with the bank concerns the account holder. With a sole account, this is simple. With a joint account, two (or more) individuals enter into a contract with the bank. As touched on above, there is no automatic right of survivorship in Swiss bank accounts – even if there is an option to elect for ‘survivorship’ in the account opening forms, this is merely an election for an information right. Therefore, on the death of an account holder, the surviving account holder may be entitled to a right of information on the account but not an immediate right of access. Surviving account holders are in theory entitled to immediate access to their ‘share’ of the account, however in practice banks are likely to freeze the entire account whilst they investigate the source of funds and succession rights. If it is determined that the funds came primarily from the deceased account holder, they may deem the entire account to be an asset of the deceased and keep it frozen until succession is determined accordingly.
For example, the investment account here is in both W and H’s names. Assume the funds originated from an account in W’s sole name, and they decided (for succession planning reasons) that the account should be held in both of their names but with a 70:30 division in W’s favour. On W’s death, the bank may freeze the entire account, rather than W’s 70%, as the entire account funding came from W. H would only have access once the bank has determined that he is entitled to such under the succession laws applicable to W’s estate. To determine succession, banks will usually require a formal documentation confirming the heirs of the deceased.
With this in mind, it is important to consider what testamentary documents you have in place even if your account is in joint names. It is prudent to take advice on whether a worldwide Will will be sufficient for your circumstances, or whether, for example, a dedicated Swiss Will may be needed. Although with W and H it is unlikely that the funds in the Swiss account will need to be accessed immediately, for those whose Swiss accounts are a significant financial asset this has to be an important consideration.
In a similar manner, if your Swiss bank account is held through an offshore entity, careful thought would need to be given as to how additional considerations such as local probate in the jurisdiction of the entity should be handled. Specialist advice should be taken on this matter in the first instance.
Planning for Swiss accounts
Bankers and account holders alike should be aware that there are multiple, often intertwined, tax, legal and succession issues which need to be considered in relation to the holding of Swiss bank accounts. It is important that planning is put in place to ensure you are familiar with the arrangements for your accounts. Charles Russell Speechlys specialise in advising on cross-border matters, and with lawyers based in Switzerland who are qualified in multiple jurisdictions, we are well placed to work alongside you and your bankers to find the most appropriate and efficient means of doing so.