City of Lucerne Sticks with Inheritance Tax on Descendants!

Neither the federal government nor the Canton of Lucerne imposes inheritance tax on descendants. However, it is within the jurisdiction of the municipalities in Lucerne to levy an inheritance tax on descendants and utilize it for their own purposes. In the Lucerne region, only the City of Lucerne, Meggen, Schwarzenberg, and Malters still impose an inheritance tax on descendants. In the City of Lucerne, the basis for this tax is an agreement that dates back one hundred years (from February 8, 1920). Approximately half of all municipalities in Lucerne have already abolished the inheritance tax on descendants.

In May 2019, the SVP (Swiss People's Party) faction submitted Motion 289 (for the second time) demanding the abolition of the inheritance tax on descendants in the City of Lucerne, arguing that it is outdated, unjust, and hostile to business. They stated that descendants who had cared for and supported their parents for many years would be penalized with an additional tax on what their parents had already paid taxes on as income and assets over the years. They noted that in cases of business inheritances, the inheritance tax often forces heirs to take out a bank loan to pay the tax due to a lack of liquid assets. Additionally, wealthier individuals might leave the City of Lucerne in search of tax-favorable alternatives in nearby areas.

On September 24, 2020, the Lucerne City Council rejected Motion 289 and decided to retain the inheritance tax on descendants. Their reasoning included the following points:

• The majority of OECD industrialized countries have some form of inheritance tax.
• An heir receives an increase in net assets with an inheritance without any consideration, leading to increased financial capability.
• The inheritance tax includes a redistribution function, channeling financial resources for social purposes at the expense of the wealthy.
• The fact that certain municipalities (42 out of 82) forgo the inheritance tax on descendants is not a convincing argument.
• More than two-thirds of the inheritance tax is paid by individuals who do not reside in the City of Lucerne.
• The tax exemption threshold of CHF 100,000 per descendant frees small or medium-sized estates from tax liability.
• The City of Lucerne cannot afford to forgo the average revenue of around CHF 3.69 million per year generated from the inheritance tax for various, including very current, reasons.
• There are practically no known cases where the inheritance tax has prevented business succession through descendants. Moreover, early planning allows for the prevention or reduction of the inheritance tax on descendants.

Would you like to arrange your estate, address business succession, and/or optimize the inheritance tax on descendants? We are happy to assist you!

Lucerne, October 16, 2020

Reto Marbacher