Switzerland recently rejected a proposed 50 per cent wealth tax on inheritances above CHF 50 million, but advisers say that even the debate surrounding it briefly influenced private wealth decisions.
Peter Ferrigno, group tax director at investment-migration firm Henley & Partners, says the impact of such discussions often goes beyond their legislative outcome.
‘We have seen that countries that look to increase taxes significantly do suffer from a major backlash. In a modern, connected world, people really can base themselves anywhere, and so do look at somewhere which is nice to live and has a fair tax system,’ he says.
‘You will note I say “fair” and not “low”. Many of the wealthy are very conscious of the link between taxation and public services, and want to drive on decent roads or have good quality healthcare the same as everyone. Where they seek to move is when major changes happen quickly, such as with the UK’s abolition of its non-domicile rule.
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Ferrigno describes Switzerland’s inheritance tax proposal as a shock, both in its sudden appearance and its economic implications. ‘Levying a family business with a 50 per cent inheritance tax charge because the patriarch passes away means that shares would need to be sold, just at the time an unexpected succession may be happening, causing major uncertainty, potential job losses and a loss of economic might.’
He notes the broader social context. ‘As the first generation not to assume that they will be better off than their parents grows up, the lack of affordable housing and economic prospects for the squeezed middle means that it’s easy to think that asking the rich to pay more will solve it.
‘It’s unlikely this will be the last populist proposal that overlooks basic economic realities. Policymakers who don’t focus on enabling ordinary taxpayers to achieve a decent standard of living should be reminded of the risks of continuing down this path.’
Inheritance tax ‘a step too far’
For private wealth advisers, inheritance tax remains the red line for UHNWIs. Ben Rosen, partner and head of private wealth at Quastels, says Switzerland’s proposed tax triggered the same instinctive concerns that UK-based clients experienced during non-dom reforms.
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‘Any advisor in the private wealth space would make the same assertion: high net worth clients typically look for stability above all else. Stability may mean tax, lifestyle, political, rule of law or more likely a combination of the above,’ he explains.
‘For many clients, it is not necessarily a question of paying little to no tax. Our clients are driven by and to jurisdictions that provide both a business-friendly environment and one that recognises the importance of asset preservation. The opposite is also true as we have seen with the UK. However inheritance tax is the real killer – no pun intended. Clients will take drastic steps to prevent family businesses from being fragmented through tax. It is simply a non-negotiable for many clients and so mere speculation can trigger behavioural change, whether through structuring, gifting or changing residence.’
Rosen emphasises that Switzerland’s reputation for stability remains a key draw. ‘Switzerland, as a jurisdiction, thrives and fuels itself on its reputation for stability. Despite its tradition for people-led tax changes through referenda, inheritance tax is a step too far as shown by the referendum results. It is evident that the Swiss overwhelmingly recognise the role that tax plays in driving and preserving wealth in the jurisdiction. Ultimately, as is typical of the Swiss, common sense prevails once again.’
He adds that the referendum result should now provide reassurance. ‘I would expect that the referendum result, at such a striking majority, will silence this debate for many years to come and now give much needed certainty to HNW individuals and their families that Switzerland is as welcoming a jurisdiction as it always has been.’
Switzerland remains a low-tax, stable jurisdiction, but the episode demonstrates how closely ultra-wealthy individuals monitor political signals and policy proposals when making long-term decisions about residency, asset structuring and succession.
