Switzerland Proposal for a Federal Inheritance and Gift Tax
A political initiative (Erbschaftssteuerreform) in Switzerland has been launched to amend the constitution and introduce a new federal inheritance and gift tax of 20 percent.1 If the initiative is adopted, a new Swiss federal inheritance and gift tax would be levied on the estate of individuals who had their “last” residence in Switzerland or on estates which are opened in Switzerland. Gifts donated after 1 January 2012, will be added retroactively to the estate and be subject to the inheritance tax of 20 percent as well. The cantonal inheritance and gift taxes would be abolished.
Current Inheritance and Gift Tax Regime
To date there is no federal law on inheritance or gift tax in Switzerland. All cantons have the exclusive power to levy their own inheritance tax or not to raise any inheritance tax at all, as in canton Schwyz. Most cantons also impose a gift tax. As the cantonal inheritance and gift tax regimes are based on cantonal legislation, the tax rates vary. With most cantonal inheritance and gift tax laws, spouses and direct descendants are exempt from inheritance and gift tax.
The New Initiative
The new political initiative seeks to amend the constitution and introduce a federal inheritance and gift tax, simultaneously abolishing the cantonal inheritance and gift tax regimes. If adopted the initiative would introduce a 20-percent flat tax rate, presumably as of 1 January 2016, with the following exemptions:
• A one-time exemption of CHF 2 million on the sum of the estate and all taxable gifts.
• The parts of the estate and gifts bequeathed to wife, husband, or registered partner;
• The parts of the estate and gifts bequeathed to a tax-exempt entity; and
• Gifts and legacies up to a maximum of CHF 20,000 per year and beneficiary.
Additionally, special reductions are envisaged for the succession of businesses (additional amounts exempted and at a reduced tax rate) or farms (de facto exemption). Furthermore, by way of a transitional law, any gifts donated to beneficiaries after 1 January 2012 (including advances on inheritance and so-called mixed donations) could be added for tax purposes to inheritances received from the same donor once the proposed constitutional provision has entered into force (probably not before 2016).
KPMG Note: Assessment of Proposed Changes
It is currently unclear if the initiative would pass in a public referendum, as it would require a majority of votes from Swiss citizens as well as from the cantonal governments. However, if successful, direct descendants will be subject to this new inheritance and gift tax, and most inheritances will fall under these new rules once the one-time exemption of CHF 2 million is exceeded. Especially in light of the retroactive consideration of gifts donated after 1 January 2012, the implications of the initiative should be considered sooner rather than later in current and future estate planning; therefore, it is recommended that actions be taken by the end of 2011 to mitigate the impact of any potential taxation in the event the initiative passes and subsequent gifts are made after 2011.