Taxation in cohabitation

To marry or to cohabit? This is the question many young couples face. Although the decision is primarily emotional in nature, it is also worth considering the financial and legal consequences in the decision-making process.

In Switzerland, about 40,000 couples tie the knot annually. The decision to spend the rest of one's life with someone is primarily driven by emotional factors. Nonetheless, those willing to marry should also include financial and legal impacts in their decision-making process. After all, the tax system currently in force in Switzerland recognizes only individual taxation besides taxation of the marital community.

Income and Wealth Tax

In contrast to married couples, cohabiting partners are taxed as single individuals in this country. Cohabiting couples fill out two separate tax returns, and their respective incomes and wealth are taxed separately. Due to the applicable tax rates, which rise disproportionately with taxable income or wealth (progressive taxation), cohabiting partners have a tax advantage over married couples. This privilege, known as the "marriage penalty," is often the subject of political discussions.

Inheritance and Gift Taxes

The taxation of inheritances and gifts is a matter for the cantons. Accordingly, these taxes vary widely. While spouses are exempt from inheritance and gift taxes, cohabiting partners enjoy no such privileges. However, in an effort to equalize married and unmarried partners, various cantons have created tax advantages for cohabiting couples. Typically, these advantages apply if the couple has lived together for at least five years.

Specifics with Common Children

Taxation can be challenging for unmarried couples who have common children. The actual claiming of child-related allowances and deductions is dependent on the actual living situation of the individuals involved, which means that questions must be resolved on a case-by-case basis. As a general rule, the cohabiting partner who has parental custody or actually provides for the child's upkeep is eligible for benefits. In cases of joint parental care or equal sharing of costs, a tax division may be possible.

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