Forget expensive perfume, forget PlayStations: this Christmas some lucky Swiss – even small children – received large houses in desirable areas, or fat share portfolios.
Notaries reported an upsurge in business in the last few months of the year, as wealthy families rushed to beat a possible tax on legacies and gifts which might affect all assets passed on after January 1, 2012.
Zurich’s chief notary public, Rene Biber, told Swiss public television that his office had handled about 5,300 requests for the transfer of assets between September and December, up from about 930 the previous year.
The television estimated the total value of the transfers to be about SFr10 billion ($10.6 billion) in canton Zurich alone.
A notary in Bern confirmed a similar trend there.
Commenting on the transfers, Heiner Studer of the Evangelical Party, one of those behind a people’s initiative to introduce an inheritance tax, told the television that nationwide the value of the recent transfers would be SFr40 or 50 billion.
“It shows a lot of people think only of themselves and not of the community,” he said.
Pros and cons
The initiative, backed by a coalition made up of the Social Democratic Party, the Greens, the Evangelical Party and trade unions, was launched in August and has so far collected nearly half of the 100,000 signatures it needs to be put to a popular vote. It has until February 2013 to reach the total.
It wants Swiss voters to approve a 20 per cent inheritance tax on sums of more than SFr2 million and the same on gifts of more than SFr20,000 a year. The initiative states explicitly that two-thirds of the money raised would go to finance the state pension fund, while the other third would go to the canton.
Supporters expect the tax to raise SFr3 billion a year.
Critics argue that the threshold is too low, and would hit not only multi-millionaires but also middle class householders, who have seen the values of their property rise in the past few years. However, the initiative says the government should review the sums periodically to take rising prices into account.
But critics also point out that many rented flats belong to private owners: tenants could be forced out if a new owner is forced to sell a building to pay the inheritance tax.
There are also fears that the adoption of the tax could drive rich individuals and families away from Switzerland, denying cantons much needed sources of income.
In the 1990s and early 2000s, many cantons in fact abolished the practice of taxing fortunes passed down to family members. Cantons have also slashed wealth and income taxes in a bid to attract more wealthy residents.
But the financial crisis has seen a backlash against this so-called race to the bottom with Zurich voting in 2009 to eradicate tax privileges for the rich, and other cantons threatening to follow suit.
At present, the federal authorities do not impose central inheritance or gift taxes when people pass their assets on to others.
At cantonal level the situation varies. In the majority of cases, an inheritance tax is levied on wealth passed on to anyone other than a spouse or son or daughter, although at different rates.
Three cantons – Vaud, Neuchâtel and Appenzell Inner-Rhodes – levy an inheritance tax on children too, while Schwyz, at the other end of the scale, has no inheritance tax at all.
The rates vary, but most cantons also tax financial gifts made while the owner of the assets is still alive.
In some case beneficiaries who are not direct descendants face a bill of around 50 per cent of the assets they receive.
The Social Democratic party says the changes proposed by the initiative would bring order to a chaotic system. Furthermore, the measures would bring more equality to Switzerland by ensuring that the rich do not go on becoming richer at the expense of others, the party argues.
“The richest one per cent of taxpayers possess the same wealth as the other 99 per cent,” the Social Democrats state in their campaign literature. “Since in Switzerland the largest fortunes can be passed on untaxed, this concentration of wealth becomes more pronounced.”
“An inheritance tax on the largest fortunes would counteract this socially harmful development.”
Beating the deadline
Even if the initiative appears to be well on the way to gathering the requisite number of signatures, and even if voters approve it when it goes to the ballot box, the law is unlikely to come into force before 2016. However, the wording says the tax will be levied retrospectively as of January 1, 2012 – hence the rush to beat the deadline.
Not all the gifts are quite what they seem, however. Many parents have included a clause giving themselves the right to live in their house until their death. Some have stipulated that the property will revert to its former owners if the initiative is not adopted.
The television website quoted warnings by legal experts that if the gift is hedged around with too many conditions it could still be liable for tax when the giver dies.
This could happen, for example, if someone surrenders their shares in a business, but ensures that they continue to have effective control over it.
The authorities could regard the fast-tracking of such settlements as an attempt at tax avoidance.
However, it seems clear that anyone who has received their inheritance in the normal way, but simply somewhat earlier than expected, will indeed be exempt from the tax – always presuming it comes into law at all.