Due to the fact that there is no federal inheritance and gifts tax law but 26 different cantonal inheritance and gifts tax laws in Switzerland, it may be challenging to identify potential inheritance and gifts tax implications without detailed information on each situation.
However, we have prepared this overview in order to help you understand some of the most important facts regarding inheritance and gifts tax in Switzerland.
Please note that this summary is not deemed to be comprehensive and should not be used as a substitute.
Private Client and Family Wealth
Who and what is taxed under Swiss Inheritance Tax Law?
In Switzerland inheritance law is regulated by the Civil Code which applies when there is no will or successional settlement. Under Swiss law gift taxes obey similar rules to inheritance taxes. Inheritance and gifts tax are regulated by Cantonal tax laws only. Swiss civil law regulates the inheritance organization and distribution of assets while Swiss cantonal tax laws determine the details of the inheritance’s taxation.
Gift and inheritance taxes are due if the donor has his residence in Switzerland or if the deceased has his residence in Switzerland at the time of his death. According to Swiss case law someone is considering having his residence in Switzerland when he lives and intends to live on a long-term in Switzerland. The tax must be paid to the canton of residence of the donor or the deceased. All the assets are generally taxed except for business assets which are taxed in the canton where the business or partnership/individual entity is located; real estate which are taxed in the canton where the property is located; foreign real estate are not subject to Swiss inheritance tax according to cantonal laws.
Switzerland is divided into 26 cantons with 26 different cantonal tax regimes;
Rates depend on the personal link with the deceased (from 0% to 50%);
Double tax residency may occur resulting in two countries settling the inheritance and taxing the movable assets twice when they have different definitions of the tax residence, especially when there is no double tax treaty on inheritance tax in place.
Tax classes and rates for the Swiss IHT and Gift Law
Full exemption for the spouse regarding gift and inheritance taxes in all the cantons.
Full exemption for biological and adopted children regarding gift and inheritance taxes except for the cantons of Appenzell-Innerrhoden, Waadt and Neuchâtel:
Appenzell-Innerrhoden: first CHF 300’000 are exempt for each child then flat tax rate of 1%;
Exemption of CHF 250’000 regarding inheritance tax for each child then tax rate varies between 0.1% to 7% over CHF 1.302 millions;
Up to CHF 50’000 exemption regarding gift tax for each child per year then rate varies between 0.1% to 7% over CHF 1.302 millions
Neuchâtel: flat tax rate of 3%
Full exemption for the parents in the cantons of Uri, Fribourg, Ticino, Wallis Nidwalden, Zug, Basel-City, Aargau, Appenzell-Innerrhoden and Geneva;
Range of tax rates from the lowest to the highest ones:
Parents (including the grandparents in most of the cantons) between 2% in Zürich, Thurgau and Schaffhausen to 15% in Bern;
Siblings: between 4% in Schaffhausen, Zug or Solothurn to 25% in Waadt;
Non relatives: between 12% in Solothurn or Aargau to 50% in Waadt;
Other heirs: various tax rates varying from one canton to another.
Public utility foundation: 0% but subject to some cantonal differences
Tax free allowance
Tax-free amounts Swiss IHT and Gift Law
The inheritance/gift tax is normally levied on each heir. This system allows computation of the tax regarding:
The value of the part received;
The degree of kinship between the deceased person and his/her heir(s).
all the Swiss Cantons levy an inheritance tax apart from Schwyz and Obwald;
all the Swiss Cantons levy a gift tax apart from Schwyz, Obwald ad Luzern.
Some important cantonal specificities:
The Canton of Luzern does not levy a gift tax but it taxes as inheritance the gifts made during the five last years preceding the death;
The Canton of Graubünden taxes the inherited assets as an entity without
consideration of the heirs;
The Canton of Waadt taxes half of the inheritance (taxable in Waadt) of a foreigner who has never worked in Switzerland unless an inheritance double tax treaty applies.
Assessment, Valuation and Trust
Taxation of business assets
The market value on the date of death or transfer is key;
Depending on the canton the business assets or participation is assessed at only 50 % of their value. However, it is then also required either that the heir or the donee plays a key role in the business or that he owns a part of the business prior to the death.
Taxation of real estate
The tax value or the fair market value is determining for the building;
Note that tax value is usually below the fair market one;
Specific rules apply for agricultural properties based on the profits earned.
In Switzerland trusts are not recognized as an individual entity but their effects are.
Types of trusts:
Revocable trust: the settlor is still considered the owner of the trust assets;
if the trust (whatever form it has) is set up when the settlor is already living in Switzerland;
if the settlor can still control the allocation of the wealth/income or amend the deed of trust;
The trust will become an irrevocable discretionary trust the moment the settlor passes away.
Irrevocable trust: the settlor has no power and is not a beneficiary;
Irrevocable discretionary trust: the trustee can determine the part of the income/wealth that they distribute to the beneficiaries;
Irrevocable fixed interest trust: the distributions of income/wealth are clearly set in the deed of trust.
The trust’s assets are considered as being part of the wealth of the settlor without consideration of the trust;
Gift/inheritance taxes arise at the death of the settlor;
The applicable tax rate has to negotiated with the tax administration on a case by case basis depending on the beneficiary of the trust;
Irrevocable discretionary trust and irrevocable fixed interest trust: no gift or inheritance taxes applicable in such case.
Switzerland has entered into double taxation treaties (DTT) for inheritance tax with the following jurisdictions:
The United States.
Real estate is always taxed in Switzerland by the canton of location of the property.
Business assets are always taxed in Switzerland by the canton of location of the business of a partnership/sale proprietorship.
The exemption method applies to avoid double taxation in Switzerland.
Where no DTT is in place and the death occurs in Switzerland all the worldwide movable assets are taxable in Switzerland except for real estate located abroad which are never taxed in Switzerland. Double taxation may happen in case of:
double tax residency;
over-taxation due to the allocation method of debts.
In case of a death abroad
All the worldwide movable assets are taxable abroad as Switzerland levies a taxation only when the deceased was a Swiss resident.
If the deceased owned a property in Switzerland it will be taxed in the canton of location:
Maximum rate will apply (same as for income tax);
Possibility to request the application of the effective rate by providing full information regarding the estate;
Same application regarding business assets.
Switzerland allocates debts in proportion to the allocation of the worldwide assets. In this case over taxation may happen when debts are allocated by another country using a different method.
Who is liable under Swiss Inheritance Tax?
Who is liable for IHT depends upon the circumstances under which it is due. Indeed, on death, heirs are liable.
With regards to gifts, the donee is liable but the donor can be held jointly liable in some cantons if the donee does not pay the gift tax.
Any gift or inheritance tax return must be sent to the competent authority between 30 days and 6 months following the gift/inheritance. The time frame varies significantly from one Canton to another as well as if gift tax or inheritance tax is to be returned.
Generally within 30 days following the issuance of the invoice subject to certain cantonal variations.
RSM can work with you to manage your IHT position and to undertake estate and succession planning as needed. We can work in partnership with you to plan ahead: to include reviewing your will(s) and, where appropriate, preparing replacement wills to ensure that these are drafted to reflect your wishes as tax-efficiently as possible. We can also assist if you own assets abroad or are a Swiss resident non-domiciled individual, where it might also be necessary to take advice in foreign countries. We can ensure that the wills drafted in each country do not contradict one another and that you can make the most of the advantages provided by double taxation treaties. We can also help you with lifetime planning, which might include considering alternative structures for holding assets to reduce possible IHT liabilities.
We are part of the RSM’s private client technical group with a global membership working closely together to create a multi-jurisdiction strategy to meet your specific objectives.