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Cuts in income tax have been approved in the Cantons of Geneva and Vaud
Reform of the ‘rental value’ rules requires a referendum, and is expected to come into effect in 2027 at the earliest
The initiative on large inheritances has been rejected by the main parties
Tax on retirement savings is being tackled at the federal level.
2025 may turn out to be a year of change for how people are taxed in Switzerland. Cantonal reforms, federal debates, popular initiatives – we give an overview of the measures already in place, the proposals under discussion and the potential changes to look out for.
January 2025: tax cuts in French-speaking Switzerland
Taking effect from 1 January 2025, cuts in income tax have been approved in the Cantons of Geneva and Vaud. In Geneva the reform is part of efforts to ensure tax competitiveness, seeking to stop wealthy taxpayers from moving away. The Canton of Vaud has also reduced its rates, especially for those in the average income category.
Vaud has also introduced relief on inheritance and gift taxes for direct descendants, reducing the burden of passing on family wealth. The reform aims to facilitate intergenerational wealth transfer, and was welcomed by some notaries and tax specialists.
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Reforms to be decided by referendum
Abolishing rental value
The debate over abolishing ‘rental value’, a hypothetical mechanism for taxing home-owners, has continued for several years. In 2024, the federal parliament’s changes to the draft proposal removed the benefits many observers had originally expected.
Abolishing the rental value of main residences and second homes would do away with the deduction of maintenance costs and investments in energy savings (at the federal level), and lead to a steep drop in the deductibility of interest on borrowings. By way of partially making up for the drop in tax revenue, a new tax on second homes would be brought in.
The rental value reform requires a referendum and, even should the referendum pass, is anticipated to take effect in 2027 at the earliest.
Large inheritances initiative
The large inheritances initiative, launched by the Jeunes Socialistes (Young Socialists), proposes the introduction of a federal tax on inheritances and gifts, to be levied on amounts exceeding CHF 50 million. If accepted, the initiative would come into effect the day after the vote, meaning the tax would be due from that date onward.
However, the Federal Council has rejected the initiative, convinced that it would make Switzerland less attractive to wealthy individuals. It would also present major difficulties for entrepreneurs as there is no specific measure covering tools of work. In line with the Federal Council, most parties are calling for a ‘no’ vote on the initiative. It is anticipated that the initiative will be rejected by voters who consider it too extreme.
Taxation of lump-sum withdrawals from retirement savings
At the start of the year the Federal Council announced it was sticking to its plan to increase federal taxation on lump-sum benefits under pillars 2 and 3a. To achieve this it proposed the introduction of a special new, progressive taxation scale.
Under the new scale minor lump-sum withdrawals would continue to be taxed at modest rates. Larger lump sums, however, would be taxed more heavily than at present. As of today, lump-sum benefits under pillars 2 and 3a are taxed separately, at a reduced rate of one-fifth (maximum direct federal tax rate: 2.3%); if the changes are accepted, the maximum tax charge could rise to around 10% at the federal level.
During the consultation process, which is now over, considerable opposition emerged. The ball now lies in the Federal Council’s court, which may, over the coming months, attempt to persuade the parliament of the merits of its plan. Should the plan stay on track, the parliament may have their opportunity to examine the draft in the winter 2025/2026 session.
A complex, fast-evolving landscape
A combination of local tax cuts, structural reforms, and popular initiatives with the potential to bring about significant change, are creating a complex and fast-evolving Swiss tax landscape in 2025. Some measures are already in place, but others will have to get through the various parliamentary and democratic stages. With the results likely to be varied depending on the taxpayer’s canton of residence and personal situation, acting with foresight and seeking personalised tax advice is more essential than ever.
At Lombard Odier, we understand the importance of navigating a tax environment that is constantly changing. Whether you’re a family looking to optimise the transmission of your wealth or an entrepreneur dealing with complex tax reforms, our experts are available to support you. Together we design personalised solutions to meet your specific needs and anticipate tomorrow’s challenges.
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