The backwash from Alistair Darling’s clampdown on wealthy non-domiciles is yet to reach the shores of Lake Geneva. The critics of the British Chancellor’s plan may imagine a frenzy of Swiss excitement at the prospect of poaching our wealthy tax exiles, but the real reaction is more muted.

It is the reform to capital gains tax, also announced in the Chancellor’s Pre-Budget Report, which has enthused Swiss wealth managers.

Switzerland has long feared that it is losing ground in the battle between the financial marketplaces, relying too heavily on the passive management of money for the very wealthy. Mr Darling’s measure, introduced in response to an outcry about low taxes for bloated capitalists, effectively raised the tax paid by a private equity or hedge fund manager on his investments from 10 to 18 per cent. In contrast, Switzerland is “paradise for capital gains”, said Michel Dérobert of the Geneva Private Bankers Association and he hopes more hedge funds will move to Switzerland to be near their clients.

“We have no capital gains tax on private gains. If you make a large capital gain on top of your salary, it is tax-free.” There is a catch. “If it is not a private gain, you go to hell as it is treated as income and is taxed.” Private investors residing in Switzerland can earn tax-free gains from their hedge fund and private equity investments but the managers of those funds are stung if their own stakes, known as “carried interest”, are treated as income.

The way to attract more asset managers to Switzerland, says Mr Dérobert, is to get the tax authorities to treat the carried interest as private capital and he is optimistic that agreement will be reached.

Contrary to popular belief, income tax can be high in Switzerland, notably in Geneva, where the top rate, including federal tax, Mr Dérobert says, is 47 per cent, higher than in Britain, where the marginal rate is 40 per cent. Rates vary from canton to canton and can fall to less than 25 per cent in mountain cantons such as Zug.

Mr Darling’s decision to take a £30,000 scalp off the nondomiciled and wealthy causes wry amusement in Switzerland. The Swiss frequently pointed to the eccentric rule, which enables wealthy foreigners to reside and work in Britain but pay no tax on foreign-earned income which remains offshore, whenever Switzerland was accused of unfair tax competition.

Still, no one in Switzerland thinks that Mr Darling’s £30,000 charge will send a flood of wealthy expats fleeing to the mountains. For the truly wealthy, London still offers a better tax deal. Arguably, the famous Swiss “forfait” (lump-sum tax) is less attractive for all but exceptionally wealthy, such as Michael Schumacher or Ingvar Kamprad, the Ikea boss. It is a bizarre system that assesses your income by calculating the deemed rental value of your home in Switzerland to which is applied a multiple of five. That sum is then taxed as your income. The catch is that a person opting for “forfait” tax is forbidden from employment in Switzerland.

It is a deal for Saudi princes and the wealthy and retired, such as Jonny Halliday, the French singer who, fed up with French taxes, moved to Gstaad but returned a year later. He didn’t say what he thought of Gstaad’s nightlife. Lifestyle is, ultimately, as important as taxes in assessing the advantages of Switzerland and tax experts reckon the bigger threat to London is a combination of high company taxation, excessive rents and lousy transport.

John Carver, a tax partner at KPMG in Switzerland, reckons the budget package was good news for the Swiss as it was a sign Britain is raising taxes. Moreover, one item in the PreBudget Report could cause a headache for foreign banks in the City. Changes to the “90day” rule, which allows nonresidents to live and work in Britain for 90 days without acquiring British residency for tax purposes, could be costly.

Previously, the day of arrival and departure were excluded from the 90 days, enabling flying expats to work many more weeks in Britain, tax-free. Mr Carver says: “There are thousands of people who commute from Zurich to London on Monday morning and return Friday evening. Banks may decide it is cheaper to keep those departments in Zurich than pay the tax for their executives.”

Swiss statistics

Became a federal state September 12, 1848

GDP (2006 estimate) $255.5 billion (£124.8 billion)

Currency Swiss franc (£1 equals SwFr2.4)

Population 7.55 million

Official languages German, French, Italian and Romansh

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