Inheritance in the Tax Return

Almost anyone who receives an inheritance has to pay the inheritance tax. Which cantons levy the inheritance tax, how high said tax is and how an inheritance must be declared in the tax return varies from canton to canton. Have you made an inheritance? Inform yourself now about the inheritance tax.

kelly-sikkema-wgcUx0kR1ps-unsplash (1).jpg

What is the inheritance tax?

The inheritance tax is a Swiss tax levied on inheritances. Liable for the tax are the heirs. It is noteworthy that it is the estate and not a family relationship between the deceased and the heirs that gives rise to the tax liability. For this reason, cohabiting partners, for example, are liable for the inheritance tax as well.

How much is the inheritance tax?

The inheritance tax is levied in almost all Swiss cantons. Only in the cantons of Schwyz and Obwalden are inheritances not taxed. The amount of the tax varies from canton to canton. There are two reasons for this: the type of taxation and the amount of the permissible allowances.

Although some cantons (e.g. Solothurn and Graubünden) use a fixed tax rate, the inheritance tax rates in most cantons are designed as progressive tax rates. Spouses and, in most cantons, direct descendants (children) are exempt from the inheritance tax.

The answer to the question how high the tax rate is depends on the relationship between the deceased and the heirs. As a general rule it can be said that the closer the family relationship, the lower the tax rate. Accordingly, parents generally have to pay less than siblings, siblings less than cohabiting partners and cohabiting partners less than non-relatives.

In addition to the tax rates, the amount of the tax-free allowance varies from canton to canton as well. The tax-free amount is the amount that can be deducted when calculating inheritance tax and is therefore tax-free.

Where is an inheritance visible in the tax return?

The taxation of an inheritance is a complex matter. Errors in the tax return occur especially often when there are a plurality of heirs and the inheritance is not distributed immediately after the decedent's death.

Tax Return of the Heirs: How exactly an inheritance must be declared in the tax return depends on the canton in which the tax must be paid. Both individual inheritances or clearly allocated inheritance shares and undistributed shares in communities of heirs must generally be entered as income on the appropriate form in the tax return (e.g. inheritances or communities of heirs and co-owners)

Tax Return of the Decendant: When someone passes away, their heirs must complete a tax return for that person one last time. It is important to note that the inheritance gets taxed at this point, even if the heirs have not yet received it. For example, if a husband dies, the surviving wife must file a joint tax return up to her husbands date of death and a separate tax return for the rest of the year.

How can you save on the inheritance tax?

In addition to the tax-free allowances, there are various ways to save on the inheritance tax.

By making a staggered inheritance advance, i.e. withdrawing the inheritance over several years, the progressive taxation may be avoided. In addition, the heirs can benefit from any increases in value.

Since the gift tax may be lower than the inheritance tax, it can be worthwhile to gift part of the potential inheritance during the testator's lifetime.

Furthermore, the appointment of a reversionary heir may have a tax-reducing effect. A reversionary heir is a person who receives an inheritance after someone else has already inherited it. Accordingly, a reversionary heir is a kind of second or substitute heir. Because, depending on how the relationship is structured, the previous heir may only be able to dispose of an inheritance to a limited extent, the tax burden may be lower if a reversionary heir is appointed.

As a last solution heirs may take advantage ot the option of transferring domicile. Because the inheritance tax is levied on a cantonal basis, in the case of a large inheritance it may be worthwhile to move in order to save taxes. But beware: this trick is useless in the case of real estate inheritances. In this case, the tax is levied in the canton where the property is located.

Do you have questions about inheritance in the tax return? The specialists at taxea are happy to assist you with their comprehensive expertise.