For a cross-border worker who works in Switzerland but wants to buy a home abroad, the real obstacle is rarely the mortgage itself: it is putting together the down payment required by the bank.
This is exactly why many people only realise at a certain point that they already have, without knowing it, part of the solution set aside in their pension fund.
Swiss law does in fact allow second-pillar assets to be used to finance the purchase of your primary residence, even when the property is located across the border. This is known as the Home Ownership Promotion scheme (PPA/WEF/EPL), a useful option but one that is subject to specific rules that are worth understanding clearly before starting the process.
Image generated with artificial intelligence The Conditions for Early Withdrawal
Before proceeding, it is important to understand that an early withdrawal is not entirely unrestricted: the Swiss Federal Act on Occupational Retirement, Survivors’ and Disability Pension Plans (LPP) sets out a number of specific conditions designed to prevent misuse and to avoid excessively reducing future retirement benefits.
- Exclusive use as a primary residence: the property must be used as the actual and long-term residence of the person withdrawing the capital (or their family), and not for rental or holiday purposes.
- Minimum amount and limits after age 50: the minimum withdrawal is CHF 20,000; up to age 50, the entire vested benefits balance may be withdrawn. Exception: If you have made voluntary buy-in contributions to the pension fund within the last three years, the resulting benefits (including interest) are blocked and cannot be withdrawn for home ownership. After this age the amount is limited to the higher of the capital held at age 50 and half of the current capital.
- Consent of the spouse or registered partner: if the person is married or in a registered partnership, the written consent of the spouse or partner is required, often with an authenticated signature.
- Frequency of withdrawal: An early withdrawal under the Home Ownership Promotion scheme can only be claimed once every five years.
There is also an additional restriction that continues to apply even after the capital has been paid out: if the property is sold in the future, the amount withdrawn must normally be repaid to the pension fund, except in the cases provided for by law (for example, when purchasing another equivalent primary residence).
Withdrawal or Pledging?
Anyone eligible for the PPA/WEF/EPL can choose between two very different options.
An early withdrawal physically removes the capital from the pension fund to finance the purchase. This reduces the amount that needs to be borrowed and therefore the monthly mortgage payment, but it also triggers immediate taxation and reduces future retirement benefits.
With a pledge, on the other hand, the capital remains in the pension fund: it continues to earn interest and no tax is due immediately, but it is used as collateral for the bank, which may claim against it in the event of default. For those buying a home abroad, the first option is still often the more common choice, partly because not all foreign banks have established procedures for accepting a Swiss pension fund as collateral.
Taxation Abroad: What You Need to Know
Once withdrawn, second-pillar capital may be subject to taxation, with the exact treatment depending on the country in which the beneficiary is tax resident.
At the time of payment, the Swiss pension fund generally withholds tax at source. The applicable rate depends on the canton in which the pension institution is based, which is not necessarily the canton where the beneficiary worked.
The capital may then also need to be declared in the beneficiary’s country of residence, where the applicable tax treatment depends on local legislation and on any double-taxation agreement in force with Switzerland. Depending on the country concerned, it may be possible to apply for a full or partial refund of the Swiss withholding tax already paid in order to avoid double taxation.
However, the rules and procedures can vary considerably from one country to another and may change over time. It is therefore important not to assume that the Swiss withholding tax will automatically be refunded or that the same tax rate applies everywhere. Before requesting the withdrawal, it is advisable to check the current rules with your pension institution and with a tax adviser specialising in cross-border taxation.
Image generated with artificial intelligence Pay Attention to CHF/EUR Exchange Rates and Bank Fees
One final aspect that is often underestimated concerns the actual transfer of the capital. When the pension fund pays the amount directly into the notary’s account abroad, the conversion from Swiss francs into the local currency often goes through the traditional banking system, which applies exchange-rate margins that are not always transparent and can sometimes be quite wide. On a substantial down payment, the difference compared with a more efficient exchange can translate into a significant loss of purchasing power. Before giving instructions to your pension fund, it is therefore worth comparing the available exchange conditions, so that the agreed amount reaches the notary without unpleasant surprises.
Banking costs should not be overlooked either, including fees for receiving and moving your capital. In this respect, our free Swiss virtual IBAN service, with no additional fees or charges, can help.
Using the second pillar to buy a home abroad is a concrete option and, for many cross-border workers, can be decisive in making home ownership possible. However, it requires attention on several fronts at once: compliance with the conditions of the home ownership promotion scheme, an honest assessment of the impact on future retirement benefits and, last but not least, the tax rules that apply between Switzerland and the country of residence, which should be reviewed on a case-by-case basis with a professional before signing any withdrawal request.
Once these important aspects have been checked, discover the advantages of converting your second-pillar (LPP) capital with Moneyswapp.com.