Is it fair that the state takes a part of my inheritance and/or gift? That's a matter of debate. Those opposed to the practice argue that any gifted or inherited assets have in fact already been taxed as income. Those in favour, on the other hand, contend that the beneficiary was not responsible for the increase in his or her assets and that it is therefore right for the state to subject the transfer of wealth to tax.
Inheritance and gift taxes are not generally levied at federal level, as they fall within the remit of the cantons. And, with 26 cantons in Switzerland, that means 26 different tax laws. That makes it impossible to make sweeping statements on what the tax practice should be for people receiving gifts or an inheritance.
No rules without exceptions
The power to levy a tax on an inheritance or gift generally lies with the canton in which the testator or donor lives at the time the beneficiary receives the inheritance or gift. But there are no rules without exceptions: property is always taxed in accordance with its location. This is a particularly important point to remember when it comes to holiday homes.
Whether inheritance or gift tax is owed, then, depends on the canton in which the donor lives or the testator lived as well as the degree of relation of the parties involved. Surviving spouses are exempt from inheritance or gift tax in all cantons, with the exception of the canton of Solothurn, which levies an estate tax. Under the Federal Law on Registered Civil Partnerships, registered partners are treated the same as spouses. A handful of cantons tax the inheritance of a deceased's children, but none levy more than a one-digit percentage.
Are cohabiting partners at a disadvantage?
Many modern couples live together but are not married. Unfortunately, inheritance and gift tax legislation in Switzerland only rarely gives cohabiting partners the same rights as, for example, people living in a registered relationship. Some cantons tax cohabiting partners in the same way as parents, some as siblings and yet others apply the same tax rates as for all other, unrelated beneficiaries. Where advantages are granted, they only come into effect if a couple has cohabited for a number of years.
The solution? Staggering the transfer of assets
The rates of the tax applied to gifts and inheritance vary considerably from canton to canton. There are ways, though, to reduce the tax a beneficiary will have to pay. Since tax rates increase commensurate with the amount transferred, it can be more advantageous to stagger the transfer over several years. Testators can spread the transfer of their assets over several years and to several heirs by setting up an advance inheritance. This reduces the heirs' tax burden.
Do you have questions on this topic?
Our pension planning experts will be happy to advise you on any questions related to inheritance and gifts. Contact our Centre for Pension Planning and ask for free advice with no obligations.