Exemption from inheritance tax and gift taxes in Switzerland

Tax exemption and tax relief in the cantons

The first basic rule of Swiss tax law is the universality of taxation. This means that all taxpayers must be treated equally according to their circumstances. Consequently, the authorities must tax all taxable entities according to the same legal rules. It prohibits exceptions (or additional taxation) without an objective reason when taxing individual people or groups.

Tax exemptions for inheritance and gifts

In some cases, particularly for inheritance and gift taxes, it is reasonable or even advisable to grant a tax exemption or relief to certain people or in certain circumstances. This applies in particular to inheritances, legacies or gifts to spouses, life partners and close family members. They have a particularly close relationship with the testator or donor, and shifts of assets in their favour should therefore not be as heavily burdened as those to third parties.

Thus, many cantons classify the beneficiaries into various tax brackets, usually between one and five, based on their relationship with the testator or donor: The closer the relationship, the less tax is paid on the bequest. Certain groups of people (spouses, registered partners as well as descendants) are exempt from inheritance tax and gift tax almost everywhere, others are usually exempt (ancestors, particularly parents) or in individual cases (life partners).

Benefiting from different tax brackets

Unless exempt from tax, close family members are usually placed in a more favourable tax bracket than distant relatives, who, in turn, are in a more favourable tax bracket than third parties. A more favourable tax bracket can involve higher allowances, lower tax rates or both, which, combined, would result in twice the tax benefits. You can find a detailed overview in our Inheritance tax table.

Allowances and progressive tax rates

You do not have to pay the same tax rate on every franc that you bequeath or donate. This is to satisfy the ability-to-pay principle.

Most cantons first grant an allowance,which is deducted from the value of the recipient’s benefit depending on his or her tax bracket. Or there is a tax-free limit. These limits tend to be higher the closer the relationship is between the parties. With inheritance tax, this allowance only takes effect once for each heir, specifically when they inherit after the testator dies.

Gift tax

Gift taxes are slightly different because, in this case,assets are transferred between living people. Therefore, there is a tax-free limit, usually per recipient and per assessment period (often the calendar year). For tax purposes, it may make sense to make smaller payments over several years instead of one large gift (or inheritance). However, many cantons look at the total amount gifted over a longer period of time for gift tax, which may result in adjustments and back payments. So-called ‘customary occasional gifts’ (Christmas, birthdays, etc.) below a value of CHF 5,000 are usually tax exempt.

The tax to be paid varies depending on the tax bracket.

You only have to pay taxes once you have exceeded a general allowance or the tax-free limit. But how much? This usually depends on the total transferred assets as well as the recipient’s tax bracket, as mentioned above. Inheritance and gift tax rates are predominantly progressive. This means thatthey increase with the value of the assessment basis. The highest tax rate can be up to 49.5% (Canton BS, highest tax bracket, above CHF 3 million). Therefore, tax planning and dividing the benefit into smaller amounts early on can help save money.

How are taxes calculated?

And how can you determine the assessment basis used by authorities to collect taxes? According to the principle of uniformity of taxation, assessment regulations and tariff provisions apply equally to comparable circumstances throughout Switzerland. While this sounds ideal, there are limitations in reality.

The tax usually becomes due for payment at the time the heirs receive their inheritance or the gift is transferred. It comprises the market value of the transferred assets. In order to calculate it, a tax inventory or assessment is performed. The tax authorities can also request information from the taxpayer or require them to report taxable transfers of assets without being prompted to do so. Still, the prohibition of double taxation between cantons [Art. 127 (3) of the Swiss Federal Constitution (BV)] ensures that taxes already paid elsewhere are taken into account. This is important, as properties are taxed at the location, whereas moveable assets are taxed at the last place of residence of the testator or donor.

Other deductible expenses

As if the system wasn’t confusing enough, many cantons make further exceptions and particular considerations depending on the person or circumstances. For people (subjectively), this may include allowances or tax reductions for those who are unable to work, domestic staff, foster and god children or other recipients in certain situations. Furthermore, charitable trusts can also expect tax benefits as legal entities. In certain circumstances (objectively), debts associated with the inheritance, funeral and grave maintenance costs as well as expenses relating to the handling of the inheritance can be deducted. These deductions vary from canton to canton, so it is difficult to make general statements. We recommend getting advice from a local expert for inheritance and tax law and would be happy to help you find one during our consultation hours at: +41 44 500 52 37.

Related Articles

• The most important facts about inheritance and gift taxes
• Legacy – gift after death?
• Gifts – an alternative to inheritance?
• Where I can inherit and which canton decides what?
• Comparison of inheritance tax in Switzerland
• Inheritance advances and gifts during the testator’s lifetime
• Setting up a charitable organisation