Inheritance tax: what about the initiative to tax large wealth to finance the ecological transition?

This initiative is already triggering strong reactions from business circles on all sides and is attracting attention from abroad. Although the vote on this initiative, which went through in March 2024, is not imminent, it is worth looking at its objectives and the potential consequences it could have.

What it is about ?

The initiative proposes the introduction at federal level of an inheritance and gift tax at a rate of 50% for wealth of more than of CHF 50 million. There is currently no such tax at federal level. Only the cantons (with a few exceptions) levy it. The aim of this initiative is not to replace the current system, but to introduce an additional tax at federal level.

The tax revenues generated would be allocated for projects aiming at the ecological transformation of the entire economy and social system.

Contrary to certain interpretations, the text of the initiative does not provide for any specific exclusion, but only for a threshold of CHF 50 million, which applies to the entire wealth of a taxpayer, regardless of its distribution or composition. Similarly, no distinction is made between beneficiaries. It is therefore a single threshold which, once exceeded, triggers taxation of the excess at a rate of 50%.

This new rule, which is relatively simple in principle, would come into force the day after the voting if it is successful. In other words, even if it takes several years to implement, it would apply retroactively to donations and inheritances from the date of the vote.

The initiative could affect around 3,000 taxpayers in Switzerland, although no precise statistics are available.

What are the potential consequences for companies, entrepreneurs and their families?

As mentioned above, the initiative does not distinguish between the composition of the taxable assets or their beneficiaries. The principle remains strictly the same, whether the main asset is the family business or a portfolio of foreign securities.

For taxpayers whose main 'asset' is a company, paying this new tax could have significant consequences. In fact, this initiative is cumulative with the existing tax. In extreme cases, and depending on the canton, the tax could be as high as 100% of the wealth transferred. Without going into the details of such a case, financing the tax when the assets are illiquid, typically in the case of a company, would very likely mean having to sell all or part of the assets in question.

Of course, one might think that CHF 50 million is a considerable amount of money, and that only a limited number of Swiss entrepreneurs should be concerned. However, there are two main points to consider:

• First, it is crucial for the entrepreneurs concerned to determine the extent to which these assets reflect 'real' wealth. Family businesses are often not very liquid. They may be worth a great deal, but this value is only theoretical and is often not intended to be realised, but rather to be passed on from generation to generation.
• Secondly, the companies concerned are generally those that employ a large number of people or enjoy a certain degree of fame. The payment of the tax could have significant consequences not only for the heirs of the entrepreneurs, but also for the company itself and even for all the employees of these companies. Indeed, if the only way to finance the tax is to sell the company, this could lead to restructuring or even job cuts, depending on the nature of the buyer.

Should I move?

The initiative provides for its entry into force on the date of its approval. This kind of retroactive effect is unusual in Switzerland. The question therefore arises as to whether measures should be taken in advance. However, it should be remembered that this tax is levied on donations and inheritances at the time they are made. If no donation is made or no succession happens during the transitional period, the retroactive effect will have no implication. So there is nothing to stop you waiting for the vote and then, depending on the outcome, deciding whether or not to consider moving abroad or taking other steps.

Conclusion

In conclusion, while the initiative has laudable goals in terms of environmental and social transformation, it is crucial to consider the potential domino effect on companies, entrepreneurs, their families and jobs. While the CHF 50 million may seem high and targeted at the 'super-rich', let's not forget that the real wealth of our country lies in its companies. To see some of them sold off in a rush to pay inheritance tax could prove to be a risky gamble. To be continued...