TAXATION
3 min
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The list of countries that have abolished the inheritance tax is growing, while tax competition is intensifying. But the measure does not guarantee that the heirs will not go to the cash register.
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The country of residence at the time of death is not always the only criterion.
Credit: Jitalia17 / Getty images
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In the 2000s, no less than six European countries (Portugal, Russia, Sweden, Austria, Norway and the Czech Republic) successively put an end to the tax which hitherto affected inheritance. And this, even though, for sometimes opposing reasons, states like France or Great Britain continue to appropriate more than 40% of the value during transmissions.
Effet domino internationally
At the origin of the wave, Portugal developed in 2004 an attractive arsenal for seniors: it includes, alongside the tax exemption for retirement pensions, the 0% inheritance tax. A tax competition to which several countries have responded, either in an offensive logic to attract foreign seniors, or in the defensive approach of limiting departures. This competition also finds an internal echo in Switzerland where the Confederation does not tax inheritance, but where the cantons remain free to do so. In the cantons of Lucerne, Friborg, Grisons and Vaud, municipalities can also tax. Thus from 3.5% tax collected by the canton of Vaud, the overall bill can rise to 7% depending on the municipality. This competition is seen on a daily basis by Pierre-Alain Guillaume, partner at Walder Wyss in Lausanne: “When an individual settles in Switzerland, there is always a tax issue that is closely watched. When we explain that Vaud often taxes at 6% when Geneva and Valais do not tax, older people in particular tend to exclude Vaud from their choice. ”
In addition to strategic reasons, there is a political factor, which makes inheritance tax (often experienced as a double penalty, capital and income being taxed throughout life) a very unpopular measure. As a reminder, the Swiss people refused it more than 70% at the federal level in 2015.
The nominal rate does not say everything
Expatriating to a zero-rate country does not, however, constitute a guarantee of passing on one’s assets as such to their heirs. Indeed, if the country of residence at the time of death remains the essential element of taxation, certain particularities must be considered on a case-by-case basis, according to Pierre-Alain Guillaume: “Buildings are often taxed in the country where they are located. . On the other hand, some states like France tax heirs where they reside. This can lead to double or triple taxation, knowing that tax treaties between countries are still too few. “
Justin Brodard, tax expert lawyer graduated in Lausanne, agrees with his colleague’s analysis: “The zero rate is intended to be attractive, but in fact, States are developing legal tools to safeguard public funds. Thus, Canada does not tax inheritances but makes taxable the latent capital gain on the last declaration (post mortem). Real estate, shares are then revalued, and capital gains taxed as income. ” Some countries tax when the capital is transferred to the country of the heirs. Others, like Hong Kong, do not impose inheritance, but force the newcomer to invest in the local economy.
It is therefore not so easy to change country in order to keep the heritage intact for its descendants. Especially since some countries are reluctant to see their taxpayers escape in the old days. “In Switzerland there is the principle of remanence,” recalls Justin Brodard. Clearly, you will have to prove and motivate the administration that your change of life is real, otherwise it will continue to tax you. It should also be taken into account that certain countries reserve an administrative reception which is sometimes quite heavy. Serious estate and tax planning is necessary, with the rate only constituting a third of the way. ”
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