The tax framework in Switzerland is attractive not only with regards to the ordinary taxation of income and wealth, but also offers interesting planning opportunities regarding the taxation of inheritances and gifts.
General principles of inheritance and gift taxes
In Switzerland, there is currently neither an inheritance nor a gift tax at the Federal level. The cantons are sovereign in their decision to levy inheritance and/or gits taxes. The cantonal laws are – in contrast to the laws on direct taxes – not harmonized and the cantons can determine independently which transfers of assets are taxed or which one are exempt from taxation.
For example, the cantons of Schwyz and Obwalden levy neither an inheritance tax nor a gift tax. The canton of Lucerne, on the other hand, only has an inheritance tax (whereby the inheritance tax is also levied if the donor dies within 5 years of the gift being made).
A certain alignment of the cantonal laws can be seen in the exemption of spouses and registered partners from inheritance and gift taxes in all cantons. Transfers of assets to descendants are only subject to inheritance and gift tax in the cantons of Appenzell Innerrhoden, Lucerne (only inheritance tax and only in certain municipalities), Neuchâtel and Vaud (provided that the donor or testator is subject to ordinary taxation).
Where no tax exemption applies, the cantons often provide for allowances to exempt from tax liability the transfer of assets up to a certain threshold.
Civil partners (cohabiting partners) are not generally treated the same way as spouses or registered partners. There may also be unequal treatment regarding stepchildren, foster children and own children or children related by blood. It is worth checking the cantonal laws carefully in this respect to avoid unpleasant tax consequences in the case of a corresponding transfer of assets.
Tax payment and reporting obligations
In most cantons the recipient of the transfer of assets owes the inheritance or gift taxes. However, if the tax payment is borne by the estate or the donor, the amount is in turn subject to an inheritance or gift tax. This can be explained by the following example:
- Mrs. Müller, residing in Zurich, gives her niece CHF 100,000 as a gift for the purchase of an apartment;
- The niece owes gift taxes of CHF 14,000 on this amount;
- If Mrs. Müller assumes the gift taxes, these would amount to CHF 17,500 since the amount of the assumed taxes itself also constitutes a gift (gift total: CHF 117,500 – CHF 17,500 gift tax paid by Mrs. Müller = gift net is CHF 100,000).
Furthermore, it should be noted that in most cantons the donor is liable for the gift tax if it is not paid by the donor. Regarding the inheritance tax, it is usually the case that the co-heirs are jointly and severally liable.
The procedures for assessing inheritance and gift taxes vary greatly between the cantons. However, it is important to note that in the case of taxable gifts, the donor must often submit a gift tax declaration. The simple declaration of the gift in the ordinary annual tax return is usually not sufficient.
Donations to charitable institutions
Donations to Swiss tax-exempt charitable institutions are generally exempt from inheritance and gift taxes.
However, since this exemption is limited to Swiss charitable institutions, donations (and thus also ordinary donations) to foreign charitable institutions may be subject to inheritance or gift tax, depending on the canton. Accordingly, before undertaking such donations of gits to foreign institutions, it is important to check what tax consequences they will entail in Switzerland.
In international situations, Swiss inheritance and gift taxes are generally due in the event of a testator or donor being domiciled in Switzerland. However, some countries have a limited inheritance and gift tax liability for persons who have already moved away from the respective country. For example, German nationals continue to be subject to German inheritance and gift tax for five years after leaving Germany. The same applies to Dutch nationals for ten years after leaving the Netherlands. Thus, a testator or donor residing in Switzerland may be subject to inheritance of gift tax not only in Switzerland but also in Germany or the Netherlands.
As is generally known, the testator resident in Switzerland may also fall into the clutches of the US tax authorities and become liable to pay inheritance tax in the USA, if his estate includes so-called “US situs assets” in the amount of more than USD 60,000.
Consequently, it is advisable to also consider international tax aspects when planning for inheritance and gift tax.