Gifts and taxes in Switzerland

Giving during one’s lifetime is one of the most effective ways to pass on wealth, support your children or organise your succession well in advance. But a gift has a tax dimension that needs to be understood beforehand, not afterwards. In Switzerland, gift tax is not governed at the federal level: it is a cantonal matter, and this radically changes the rules depending on where you live and who the beneficiary is. Let’s look at the principles that really count.

No federal tax: everything runs through the cantons

The Confederation does not levy a gift tax. Jurisdiction lies with the cantons (and in some cases the municipalities). It follows that there is no such thing as “the Swiss rate”: there are as many sets of rules as there are cantonal jurisdictions. The rates, exemptions, allowances and even the territorial connecting criteria all differ. Before making a gift, you therefore need to check the rules of the competent canton, which is normally the canton where the donor is domiciled (for real estate, the canton where the property is located applies).

The decisive factor: the degree of kinship

In almost every canton, the tax burden depends on the relationship between donor and beneficiary. The recurring pattern is this:

• spouse or registered partner: exempt practically everywhere;
• descendants (children, and often grandchildren): exempt in the vast majority of cantons;
• siblings and more distant relatives: taxed at increasing rates as the kinship becomes more remote;
• unrelated third parties: subject to the highest rates.

The logic is clear: the closer the family bond, the lighter (or nil) the levy. Be careful, though: the exemption for descendants is not universal, and some cantons treat it differently. It must always be checked on a case-by-case basis.

What is taxable

The tax targets the gratuitous transfer between living persons: money, securities, real estate, company shares, works of art. Mixed gifts (a sale at a favourable price) and certain indirect liberalities are also relevant. The gift of a property, in particular, can trigger several taxes at once: gift tax and, in several cantons, taxes linked to the transfer of land. This is a point to weigh carefully, because the cumulative burden can be heavy.

The link with succession

Gift and succession are two sides of the same design. On the tax side, in many cantons gift tax and inheritance tax are structured in parallel, with similar exemptions for spouses and descendants. This explains why, where there are direct heirs, giving during one’s lifetime or transferring through succession often produces a similar or nil burden, whereas towards third parties the choice of timing and instrument can make a significant difference.

On the civil side, gifts to descendants are as a rule subject to hotchpot (collation): at the time of succession, account is taken of what has already been received, in order to ensure equality between heirs and respect for the statutory shares. Tax and succession law must therefore be looked at together.

Gifts and income tax

A point that causes confusion: a gift is not taxable income for the recipient. The beneficiary does not pay income tax on the amount received; if anything, cantonal gift tax is due, according to the rules seen above. However, the asset received will enter the beneficiary’s wealth and will, in subsequent years, be subject to cantonal wealth tax.

Advance on inheritance and usufruct

Two recurring instruments in planning:

• the advance on inheritance (a gift to a child on account of their future share), which allows resources to be transferred when they are truly needed, with effects on hotchpot;
• the gift with reserved usufruct, whereby the bare ownership (typically of a property) is given away while retaining the right to use it and receive its fruits. It allows the asset to be transferred while continuing to live in it or collect its income.

Both have their own tax implications, on gifts as well as on wealth and income, which must be calculated in advance.

Watch out for domicile and cross-border aspects

Anyone with ties abroad (a donor or beneficiary resident outside Switzerland, assets abroad) must consider possible double taxation and the rules of the foreign country, which can be far stricter than the Swiss ones. This is terrain where improvisation costs dearly.

How we work at SIH ONE

We check the competent canton, quantify the burden according to the degree of kinship and the type of asset, and structure the gift (direct, with usufruct, as an advance on inheritance) coordinating the tax effects with the overall succession and wealth planning.

Want to give in a tax-efficient way and without surprises? Discover the services of our tax division and plan your liberalities on solid foundations.