Wealthy people fear consequences of inheritance tax

When an event is unlikely but the consequences are serious, most people plan carefully. This is exactly the case with the inheritance tax initiative of the Swiss Young Socialists.

“Many are worried,” explains Natalie Dini, partner at Tax Partner. This is not surprising, as the initiative is intended to take effect from the day the referendum is passed. This is a kind of exit tax that will prevent rich people from waiting for the vote in peace and only packing their bags when the worst happens.

Some go, others don’t come

The Federal Council recommended rejecting the initiative in May without a counter-proposal. It also has hardly any supporters outside of the Juso circles. However, this is no guarantee that the Swiss electorate will reject the initiative.

With a tax rate of 50 percent on assets that exceed the tax-free allowance of 50 million francs, those potentially affected ultimately do not want to take any residual risk.

The explosiveness of the issue is also demonstrated by the fact that entrepreneurs such as the former FDP Council of States member Ruedi Noser from Zurich are now openly showing their colors and openly expressing their displeasure with the initiative. Noser wants Parliament to declare the Juso initiative partially invalid by removing the retroactive clause, as the “Tages-Anzeiger” reported. Those potentially affected could then wait for the vote to take place instead of emigrating as a precaution.

“If you want to be safe, you have to act beforehand,” says Natalie Dini. Tax advisors therefore encourage their clients to familiarize themselves with their options without falling into premature activism.

Dini hopes that the Federal Council’s message will bring more clarity in the coming months, as many things are still open at the moment. “One measure is certainly to move away,” says Dini. For rich foreigners, this is an obvious option. In the past two years, a number of rich Norwegians have moved their tax domicile to Switzerland following the increase in wealth tax in 2022. They are unlikely to be inclined to pay a Swiss inheritance tax of 50 percent instead of Norwegian wealth tax.

Wealthy pensioners who have moved here from abroad are also likely to move. Others, however, will not come at all. This applies, for example, to wealthy international families who live in London.

Is Switzerland losing its role as a magnet for the rich?

Richard Wuermli, Managing Partner of Tax Expert, points out the importance of planning security in the tax area in Switzerland. “Stability is the magic word,” says the tax expert. However, the Juso initiative has led to planning uncertainty. This is preventing many wealthy people from moving here now.

In 2025, the UK will abolish the so-called “non-domiciled” status. This 225-year-old tax regime allowed wealthy foreigners (“non-domiciled”) to live in the UK without their foreign assets being taxed there. It contributed a lot to the country – or London in particular – being one of the top destinations for mobile millionaires for many years.

Henley & Partners, the world’s leading citizenship broker, expects 9,500 millionaires to leave the UK in 2024, more than twice as many as last year. Switzerland would be a natural alternative as a place of residence and tax domicile. With inheritance tax on the political agenda, however, other countries are becoming more attractive for this clientele. These include Italy, where the government introduced a flat tax of 100,000 euros for rich foreigners in 2017, and Portugal, Spain, Greece and Malta, which are trying to attract wealthy taxpayers with investment and visa programs.

Swiss people could also consider moving away

However, tax expert Dini from Tax Partner does not believe that only foreigners will react. Swiss people are more deeply rooted than mobile millionaires. But if a family business is worth 100 million francs and the heirs have to pay 50 percent tax on 50 million, they would probably be forced in most cases to sell at least part of the company.

Traditional Swiss companies such as the elevator manufacturer Schindler, Amag, the medical technology company Ypsomed, the Hayek family’s Swatch Group and Stadler Rail are likely to fall into this league.

What is offensive to Swiss entrepreneurs is that there would be unequal treatment between family businesses and listed companies. The latter do not pay wealth tax. For family businesses, however, the inheritance tax initiative does not provide for any exceptions. Dini therefore does not rule out the possibility that long-established Swiss business families will also leave the country in the run-up to the vote, which will take place either in 2025 or, more likely, in 2026.

This step would be primarily to be taken by the testator, since according to Swiss law, movable assets are taxed in the place where the deceased lived. The heirs themselves could stay for the time being, which would push the problem down a generation.

This is different from the Norwegians, where the older generation sometimes passed on their assets to their children and then the younger generation came to Switzerland.

Regardless of the reactions, one thing is clear from Dini’s point of view: “The initiative has already caused economic damage. Many of those affected will move away, whether the tax is introduced or not.” In her opinion, Switzerland will not only not receive an inheritance tax, but will also lose tax base in the area of ​​income and wealth taxes. Tax expert Richard Wuermli from Tax Experts points out that 1 percent of private individuals pay a third of all taxes.

Christian H. Kälin, Chairman of Henley & Partners, is somewhat more optimistic. He sees the possibility that the inheritance tax initiative could be accepted as only a theoretical possibility. “Switzerland is moving in the wrong direction. But things are getting worse even faster all around.” That is why Switzerland is and will remain relatively attractive – for Swiss nationals and foreigners alike.