Swiss Lump-Sum Taxation and UK Departure Planning: Expert Analysis

Switzerland's lump-sum taxation regime — known as the forfait or Besteuerung nach dem Aufwand — allows qualifying foreign nationals who take up residence in Switzerland and do not engage in gainful employment there to be taxed on the basis of their living expenditure rather than their actual worldwide income and assets. The regime is available at the federal level and in most cantons (though certain cantons, including Zurich, Schaffhausen, Appenzell Ausserrhoden, Basel-Stadt, and Basel-Landschaft, have abolished it). The forfait is not a fixed amount — it is calculated by reference to the taxpayer's annual living costs, which include the cost of the taxpayer's accommodation (typically a multiple of the rental value), personal expenditure, and the costs of maintaining family members. At the federal level, the minimum taxable base is the higher of CHF 400,000 or seven times the annual rental value (or imputed rental value) of the taxpayer's Swiss residence. Cantonal minimums vary and can be significantly higher — for example, Geneva sets a minimum of CHF 400,000 for cantonal and communal purposes. From a UK tax perspective, the forfait regime is relevant because it determines the amount of Swiss tax actually paid by an individual who has relocated from the UK. The quantum of Swiss tax paid affects the availability of double taxation relief under the UK-Switzerland Double Taxation Convention and the analysis under the UK's anti-avoidance provisions. An individual who pays relatively modest Swiss tax under the forfait may find that the UK-Switzerland treaty does not fully eliminate double taxation, particularly in relation to income categories where the treaty allocates primary taxing rights to the state of residence.

Switzerland's federal structure means that tax is levied at three levels — federal, cantonal, and communal — and the total tax burden varies significantly between cantons. For individuals on the forfait regime, the cantonal and communal tax is typically the largest component, and the choice of canton has a material effect on the overall tax position. Cantons that remain popular with UK-connected high-net-worth individuals include Geneva, Vaud, Valais, Ticino, and Graubunden, each of which offers the forfait regime with varying minimum thresholds and effective rates. The cantonal differences extend beyond the tax base to include procedural aspects — such as the degree of discretion exercised by the cantonal tax authority in agreeing the forfait amount, the frequency of review, and the conditions that must be satisfied for the regime to continue to apply. From a UK tax perspective, the cantonal differences matter for two reasons. First, the amount of Swiss tax actually paid determines the quantum of double taxation relief available against UK tax liabilities that arise in the year of departure (under split-year treatment) or in subsequent years in respect of UK-source income. Second, the question of whether the individual is genuinely resident in Switzerland for treaty purposes — and therefore entitled to treaty benefits — may depend on the substance of their connection to the particular canton, including the availability and use of their Swiss accommodation, their integration into the local community, and the regularity of their presence. Swiss private wealth managers and fiduciaries advising UK-connected clients on the choice of canton should ensure that the UK tax implications are factored into the analysis. A canton that offers a lower forfait may paradoxically result in a worse overall tax position if the reduced Swiss tax means less double taxation relief is available against continuing UK tax liabilities.

The UK-Switzerland Double Taxation Convention (as amended by subsequent protocols) provides the framework for allocating taxing rights between the two countries and for the relief of double taxation. The treaty follows the OECD Model Convention in most respects but contains certain specific provisions that are relevant to individuals relocating from the UK to Switzerland. Article 4 of the treaty defines residence for treaty purposes and provides a tie-breaker rule for individuals who are resident in both countries under their respective domestic laws. The tie-breaker operates by reference to the individual's permanent home, centre of vital interests, habitual abode, and nationality, applied sequentially. For an individual who has recently relocated from the UK to Switzerland and retains UK property and family connections, the tie-breaker analysis may not straightforwardly favour Switzerland — particularly in the early years of the relocation when UK connections remain strong. The treaty's treatment of specific income categories is also important. Dividends (Article 10), interest (Article 11), and royalties (Article 12) are subject to specified withholding tax rates, and the question of whether the forfait regime constitutes sufficient taxation in Switzerland to engage the treaty benefits is one that requires careful analysis. HMRC may argue that an individual who pays Swiss tax only on a forfait basis — and not on their actual income — is not 'liable to tax' in Switzerland in the fullest sense required by the treaty. The mutual agreement procedure under Article 25 provides a mechanism for resolving disputes between the UK and Swiss competent authorities, but the process is time-consuming and the outcome uncertain. Swiss advisers should seek specialist UK tax counsel input on the treaty position before relocation, rather than relying on the mutual agreement procedure as a backstop.

The era of Swiss banking secrecy, at least in the context of tax compliance, is over. Switzerland implemented the Common Reporting Standard (CRS) for automatic exchange of financial account information with effect from 2017, and Swiss financial institutions now report account information relating to UK tax-resident persons to the Swiss Federal Tax Administration, which exchanges that information with HMRC. The scope of the CRS reporting is comprehensive and covers bank accounts, custody accounts, insurance contracts with a cash value, and equity and debt interests in investment entities. For UK-connected individuals who have relocated to Switzerland, the CRS exchange ensures that HMRC has visibility of their Swiss financial interests — and, crucially, HMRC can cross-reference this information with the individual's UK tax returns (including any returns filed under split-year treatment or in relation to continuing UK-source income). The practical consequence for Swiss private wealth managers and banks serving UK-connected clients is that the information they report under the CRS must be consistent with the UK tax positions adopted by their clients. Where an individual claims to be non-UK-resident but continues to be reported by UK financial institutions as UK-resident (or vice versa), the discrepancy will attract HMRC attention. Swiss fiduciaries and wealth managers should also be aware of the UK's failure-to-correct provisions in Finance (No 2) Act 2017, which impose penalties of up to 200 per cent of the tax at stake on individuals who have failed to correct historical non-compliance in relation to offshore interests. For clients who have historically maintained Swiss accounts without proper UK tax disclosure, the CRS reporting creates an urgent need to regularise their position — ideally through a voluntary disclosure managed by specialist UK tax counsel.

Individuals departing the UK for Switzerland face the same core UK tax issues as those relocating to any other jurisdiction: the Statutory Residence Test determines when UK residence ceases, the split-year treatment provisions may apply, the temporary non-residence rules impose a five-year claw-back for capital gains, and inheritance tax exposure continues under the deemed domicile rules. However, relocations to Switzerland present certain specific features. The physical proximity of Switzerland to the UK and the ease of air travel between the two countries mean that many individuals continue to spend significant time in the UK after relocation — visiting family, attending social events, managing UK investments, and maintaining professional connections. The day-counting discipline required by the SRT must be rigorously maintained, and individuals must be advised that even apparently innocuous UK visits can accumulate to the point where UK residence is triggered. The IHT position is particularly important for individuals who have been long-term UK residents. Under the extended deemed domicile provisions introduced by Finance Act 2025, an individual who has been UK-resident for at least fifteen of the previous twenty tax years is deemed domiciled in the UK for IHT purposes, and this deemed domicile status persists for a specified period after departure. During this period, the individual's worldwide assets — including their Swiss property, Swiss bank accounts, and Swiss investments — remain within the UK IHT charge at 40 per cent. Swiss private wealth managers advising UK-connected clients should ensure that the IHT analysis is performed before relocation and that appropriate planning measures are implemented. These may include the establishment of excluded property trusts before the deemed domicile status is acquired, the use of life insurance to fund potential IHT liabilities, and the timing of asset disposals to take advantage of the capital gains tax rebasing opportunities under the Finance Act 2025 transitional provisions. Daniel Feingold has extensive experience of UK departure planning for individuals relocating to Switzerland.

Daniel Feingold provides specialist UK tax counsel services to Swiss private wealth managers, fiduciaries, law firms, and accounting firms advising clients with UK connections. He understands the dynamics of UK-to-Switzerland relocations and the tax planning considerations that arise in the context of the forfait regime. His areas of particular relevance to Swiss professionals include UK departure planning and the SRT, the UK-Switzerland double taxation convention and its application to forfait taxpayers, IHT exposure under the extended deemed domicile rules, AEOI and CRS compliance implications, HMRC enquiries involving Swiss-connected taxpayers, and the regularisation of historical non-compliance. Daniel is available for conferences by video call. To discuss how he can assist, contact the clerks at Burnell Chambers on 020 3576 1203 or at clerks@burnellchambers.co.uk.