How does inheritance tax work?
Inheritance tax, collected when assets are transferred to a third party beneficiary, is a cantonal tax burden that can significantly affect the heir.
The taxation of movable property is based on the last place of residence of the deceased, while real estate is taxed in the canton where it is located. It should therefore be taken into account that each canton imposes its own taxation upon succession.
Taxation follows a progressive scale, influenced by the value of the inheritance as well as by the relationship between the deceased and the heir.
What is the taxation when you inherit life insurance?
Regarding life insurance benefits received following a death, taxation varies. The services provided by linked individual pension (pillar 3a) are exempt from inheritance tax.
Regarding free individual pension provision (pillar 3b), which are counted as part of the assets, it is necessary to divide them into three categories:
- Pure risk insurance (in case of death): exempt from inheritance tax, they are however subject to a specific income tax at a reduced rate.
- Capitalization insurance (also called mixed life insurance): fully taxed as inheritances, but exempt from income tax.
- Life annuity insurance (capital paid out following death): 40% of the benefit is subject to a single and separate income tax, with a reduced tax rate. The remaining 60% is subject to inheritance tax.
Conclusion on the tax implications of life insurance
In short, life insurance taxation in Switzerland may seem complex, but it is an essential step in ensuring the protection of your loved ones. Whether you opt for a linked (pillar 3a) or free (pillar 3b) individual pension, each choice has its specific tax implications. Remember that these decisions reflect your desire to secure your family's future. It is therefore essential to approach them with care and consideration.
If all of this seems daunting, don't hesitate to seek professional advice. Careful planning today can make all the difference for your loved ones tomorrow. And remember, beyond numbers and rates, it's your desire to care for those you love that guides these choices. So, take the time to fully understand these nuances so you can make informed choices that resonate with your values and family aspirations. Also remember to consult our detailed article on life insurance and the 3rd pillar to find out more about this pension product.
