Individual taxation: what couples should do now

Reluctant spouses beware: since 8 March, the days of the 'marriage penalty' have been numbered. Swiss voters decided that married couples will in future no longer be taxed together, but instead each person separately. This will put them on an equal footing with unmarried couples from a fiscal perspective. Until now, married couples may have paid more tax in certain circumstances.

What will change exactly?

Each spouse will now complete a separate tax return. This means that income, assets and tax deductions will apply to each person individually, and no longer per couple. Progressive taxation will change too.

By way of example, take two married people, each earning CHF 80,000 a year. Up to now, their income was added together for tax purposes. That meant it amounted to CHF 160,000 per annum. The higher total income automatically puts the couple in a higher tax bracket. In future, the husband and wife will be taxed separately. They will pay less tax because the tax rate for the two lower incomes is lower.

Which taxes will be affected

The legal amendment applies to direct federal income tax as well as state and municipal taxes. The cantons will have to adapt their fiscal legislation accordingly and introduce individual taxation.

What the reforms will mean for families

If a couple has children, all applicable child-related deductions for direct federal income tax (namely child, insurance and third-party childcare deductions) will now be split equally between the two parents. To ease the fiscal burden on families, the child deduction will be increased from the current level of CHF 6,800 to CHF 12,000.

Single-income households will be at a disadvantage because the child deduction will have to be divided, i.e. the partner without their own income can't apply their share of the deduction.

When will the reforms come into force?

By 1 January 2032 at the latest. The long lead time is necessary to enable the federal and cantonal bodies to make the relevant technical and administrative changes, for example to their IT systems. Some cantons may implement the changes later than the federal authorities. During the transitional period, couples may therefore be taxed separately at the federal level, but jointly at cantonal level.

Winners and losers

Separate taxation means that the income of each person is considered and taxed individually. Progressive taxation will have different effects depending on how the overall income is divided between spouses.

The following groups will benefit:

• Couples both in employment with similarly high incomes. Here, each person will be in a lower bracket.

• Married retired couples because their income is more evenly distributed between the husband and wife than in younger couples, due to OASI pensions.

• Unmarried childless people with taxable incomes of up to about CHF 100,000. The new tax rate will place a heavier burden on higher incomes than before.

The following groups will lose out:

• Couples with only one person earning or with very unequal incomes. The high income of the main breadwinner will fall fully into the higher bracket without compensation from their partner.

• Unmarried middle or high-income couples with children. Taxpayers earning about CHF 115,000 or more who have two children but are not married will be at a disadvantage.

• Middle or high-income single parents and divorcees with maintenance obligations.

What to bear in mind when planning your pension

Individual taxation means you will need to act, especially with regard to retirement provision. Olivier Serex, Head of Financial Planning at Migros Bank, advises couples to consider the following:

• Voluntary contributions into the pension fund: Married couples currently benefit from making contributions into the pension fund because this increases fiscal savings on their combined income. In view of the forthcoming changes, it may be worth making payments into the pension fund earlier.

• Pension funds and pension withdrawal: Individual taxation will affect optimal allocation of pensions and capital between spouses. For example, it may now be a good idea to make payments into the pension fund of the partner who will receive a lower pension later on.

• Payments into the 3rd pillar: At present, the payments made by both spouses can be deducted from their joint taxable income. To take advantage of this tax benefit, you should maximise your annual payments and consider making additional payments into the 3rd pillar. This fiscal advantage will remain in place after the introduction of individual taxation, but may be smaller.

• Payouts of pension assets: When pension assets are paid out, there's more room for manoeuvre in staggering how they are paid out, since the spouses' pension assets will no longer be added together if they are paid out in the same year. However, the married rate will be abolished, which will increase taxes.