Impact of Brexit on UK Real Estate Investments in Switzerland

Abstract

Following Brexit, UK citizens are no longer considered citizens of the EU and, hence, do no longer benefit from the preferential treatment of EU citizens with respect to the acquisition of real estate in Switzerland. Bilateral agreements between the UK and Switzerland provide for protection of pre-Brexit investments and for grandfathering of certain pre-Brexit privileges in order to mitigate the impact of Brexit. In any case, Brexit affects real estate investments by UK individuals and by Swiss legal entities and investment vehicles that involve UK nationals. Those transactions must be looked at differently in the post-Brexit area.

Introduction

Foreign investments in Swiss real estate are subject to restrictions imposed by the Federal Law on the Acquisition of Real Estate by Persons Abroad (Lex Koller). As a general principle, EU/EFTA nationals with (lawful) main residence (Wohnsitz) in Switzerland are not subject to Lex Koller.

As of January 1, 2021, further to the UK’s withdrawal from the EU and the expiry of the Brexit transition period, UK citizens do no longer benefit from this preferential treatment for EU/EFTA nationals.

General Rule for UK Nationals Post-Brexit

Going forward, UK nationals will only be exempt from Lex Koller if they have acquired a permanent residency permit (Niederlassungsbewilligung C) and established their main residence (Wohnsitz) in Switzerland. If this is not the case, direct investments by UK nationals are subject to Lex Koller restrictions. Under such restrictions, UK citizens remain entitled to acquire the following main categories of real estate, subject to certain requirements:

  • commercial real estate (note that there is a proposal by a parliamentary commission to impose temporary restrictions on all foreign investments into commercial real estate in the context of the COVID-19 pandemic – it is currently unclear whether this proposal will reach parliamentary debate);
  • residential real estate to be used as main residence under a temporary residency permit (Aufenthaltsbewilligung);
  • holiday homes or serviced apartments in certain designated areas (subject to restrictions such as yearly quotas and maximum size); and
  • residential or other non-commercial real estate that is inherited by way of intestate succession, or otherwise acquired from relatives in line of ascent or descent or from spouses or registered partners.

Not only direct investments by UK individuals are affected by Brexit: Swiss legal entities and investment vehicles should be mindful as well and consider that involvement of UK nationals as investors or beneficiaries could trigger Lex Koller restrictions, which might limit their ability to invest in non-commercial real estate.

Protection of Pre-Brexit Ownership

Switzerland and the UK have concluded various bilateral treaties to maintain the pre-Brexit status in certain areas. As part of this overall arrangement, the Agreement on Acquired Citizens’ Rights (AACR) mitigates the consequences of Brexit under the Lex Koller. The AACR will formally enter into force on March 1, 2021, but it has already been implemented effective as from January 1, 2021.

According to the AACR, any acquisition of Swiss real estate by UK nationals that was completed before January 1, 2021, remains unaffected by Brexit. Hence, there is no requirement to divest such real estate due to changed legal and factual circumstances (such as if a UK national gives up permanent residency).

In our view, the preservation of rights also applies to Swiss legal entities that own restricted Swiss real estate and that are (fully or partially) controlled by UK nationals.

Preservation of Pre-Brexit Temporary Residency

UK citizens who lawfully established (temporary) main residence in Switzerland before January 1, 2021, remain exempt from Lex Koller. According to official communication by the Swiss Federal Office of Justice, this also applies to UK nationals who (at least) applied for a temporary residency permit before then.

Grandfathering however only applies if pre-Brexit main residency persists at the time of acquisition and thus ceases to apply in case that Swiss residency is interrupted. UK nationals that intend to benefit from the AACR should thus make sure to maintain uninterrupted legal and factual main residence in Switzerland.

We believe that grandfathering of temporary main residence also applies to determine foreign control or ownership of Swiss legal entities or investment vehicles. Hence, the involvement of UK nationals cannot be considered foreign involvement and trigger Lex Koller restrictions for future investments of such entities for as long as grandfathering applies.

Protection of Cross-Border Commuting

UK citizens who were cross-border commuters between the UK and Switzerland or who applied for such permission prior to January 1, 2021, and who have retained their status will continue to benefit from the exemption under the Lex Koller and remain entitled to acquire a secondary home in the region of their Swiss workplace. Again, grandfathering only applies for as long as the migration status is maintained.

If you have any queries related to this Bulletin, please refer to your contact person at Homburger or to: