Inheritance tax initiative: introduction of inheritance & gift tax on assets of CHF 50 million or more

This news article provides an overview of the main aspects and questions in connection with inheritance taxinitiative and an update after the issuance of the dispatch by the Federal Council.

Daniel Bader Partner, Bär & Karrer SA

Hanna Brozzo Partner, Bär & Karrer SA

Frédéric Ney  Senior Associate, Bär & Karrer SA

JUSO, the young socialist party, has launched a federal popular initiative with the title "for a social climate policy –financed fairly through taxation" (the "initiative"). It proposes taxing donations and inheritances in excess of CHF 50 million at a rate of 50%. A one-off exemption threshold of CHF 50 million would apply to each person on the sum of all their lifetime gifts combined with their estate. The cantons would retain the power to levy cantonal inheritance and gift taxes.

Any revenue raised would be used to combat the climate crisis in a "socially just" manner and therefore to "restructure the economy as a whole". The goal is a "change of system, departing from capitalism towards climate-friendly life".

The initiative requires the adoption of implementing provisions on "tax avoidance", in particular regarding moving away from Switzerland, the obligation to record gifts, and a comprehensive taxation. The initiative does not provide for any exemptions, in particular for (family) businesses or contributions to charitable institutions. The text of the initiative does not answer the question of how the initiative should be implemented if adopted. Many questions remain unanswered.

The date of the vote is still pending. Currently, the voting recommendation of the Parliament is expected in 2025 and the vote at the earliest in November 2025, otherwise in 2026.

The Federal Council rejected the initiative already in May 2024 and has confirmed his position in its response to an interpellation in August 2024. On 13 December 2024, the Federal Council adopted the dispatch on the initiative. In it, the Federal Council recommends that the Federal Assembly, the people and the cantons reject the initiative without a direct or indirect counterproposal.

The main points of the dispatch are:

• From the Federal Council's point of view, the initiative fulfils the constitutional requirements and is valid despite a politically questionable pre-emptive effect.
   
• According to the Federal Council, the initiative would apply to all inheritances and gifts made after the adoption date of the initiative. In this case, the implementing provisions, which would be enacted at a later date, would apply retroactively to inheritances and gifts made after the adoption date due to the explicit wording of the initiative in this respect.
   
• The transitional provisions on tax avoidance and the use of the gross profit from revenues could only be applied after their enactment since the text of the initiative does not contain a provision on retroactivity in this regard. Therefore, even if the initiative was accepted, it would still be possible to move abroad after the date of the vote without incurring any tax consequences.
   
• The Federal Council confirms that tax avoidance measures must comply with existing constitutional requirements. Moving abroad should not automatically be classified as tax avoidance and be sanctioned with tax consequences. Rather, for tax avoidance to be assumed, in addition to the move, a specific action aimed at avoiding tax, such as a timely gift, would be required.
   
• The Federal Council reaffirms its opposition to an exit tax, as expressed in August. In its view, instead, a conceivable measure against tax avoidance would be a temporary non-recognition of the corresponding move abroad. This would presuppose that an assumed domicile remains in Switzerland for federal inheritance and gift tax purposes for a certain period, for example for five years. However, the Federal Council points out the lack of international enforceability.
   
• Regarding the implementation of comprehensive taxation, the Federal Council notes that an obligation to keep records for private individuals would be unavoida-ble, although it would be subject to a de minimis rule. Keeping records of occasional gifts, for example, would be disproportionate and unreasonable.
   

The statements made by the Federal Council in the dispatch are important. They are likely to influence the drafting of the implementing provisions should the initiative be accepted. Ultimately, however, it is the legislator who, in the event of the initiative being accepted, will issue the implementing provisions and he is not bound by the Federal Council's dispatch.

Advance planning measures for potentially affected parties are possible to prepare for the eventuality of the initiative coming into force on the voting day, as the initiative would have no retroactive effect prior to the voting date. If the initiative was adopted, options to reduce its impact would be limited thereafter.

Potential planning options especially include (i) the transfer of assets to the next generation (advanced inheritance with or without usufruct), (ii) utilization of dispositions under matrimonial property law (marriage contract) for optimal utilization of the tax-free amount by both spouses, (iii) making planned donations and gifts prior to the voting date, as well as (iv) transferring assets to structures or companies that are independent for legal and tax purposes.

According to current knowledge, moving abroad as the most radical measure would be possible without tax consequences even after the initiative has been accepted, at least until the transitional or implementing provisions come into force.

The unclear situation and the open form of the initiative create great uncertainty. Relocations and asset transfers abroad were at least examined as an option. Since the Federal Council's important statement in August 2024, confirmed and clarified by the dispatch in December 2024, those potentially affected by the initiative seem to have calmed down somewhat and are awaiting further developments. Statistically speaking, the chances of the initiative being accepted are slim. Ultimately, the political and social climate at the time of the vote will be a decisive factor. Over a long-term average, the Swiss electorate has declared itself in favor of sustainable and constructive solutions, which should also be the case here.

Biographies

Daniel Bader is a partner at Bär & Karrer, co-head of the tax department and of the St. Moritz office. He advises Swiss and international clients on tax law and planning, asset, succession and estate planning, trusts and asset structuring. He regularly publishes in his areas of expertise and is a board member of Family Offices as well as a member of the Supervisory Board of IFA and a Fellow of ACTEC.

Hanna Brozzo is a partner at Bär & Karrer and advises Swiss and international private clients in all in all areas of tax law and represents clients she represents clients in contentious tax matters. Her tax expertise also includes real estate, athletes, residency issues and charitable institutions. She regularly publishes and speaks in her areas of practice.

Frédéric Ney is a senior associate at Bär & Karrer. He is a Swiss and New York State admitted attorney-at-law, a Swiss Certified Tax Expert (STEX), and a Registered Trust and Estate Practitioner (TEP). He also holds an LL.M. in U.S. Taxation from Georgetown University Law Center and specializes in taxation and estate planning for both Swiss and international private clients.