Inherited shares? What you need to know

Around two thirds of all Swiss people inherit money, material assets or real estate at some time in their lives – and often shares and other assets too. Whereas cash can be distributed fairly easily among heirs, there are a few legal and tax-related factors to bear in mind with inherited shares and other financial assets. Have you inherited securities, but don’t have much experience with financial assets? No problem. The following article should give you an overview of how to get started. We recommend consulting an expert for specific transactions.

What to do first after inheriting shares

If you are inheriting shares but are unsure what to do, first thing’s first: stay calm. You should avoid making rash financial decisions, especially during an emotionally challenging time following the death of a loved one. A professional investment consultation can help you get a clear idea of what to do next.

How is a custody account transferred after an inheritance?

The investment custody account of someone who’s passed away is just as much part of their estate as any other asset. To transfer inherited assets to a personal custody account, you should consult an expert or the financial institution that manages this part of the estate. To prove your legitimacy as heir, you require an heir’s certificate. You can request the heir’s certificate from the relevant cantonal authority, along with a copy of the death certificate and certification you are entitled as heir. Once the evidence of inheritance is provided, the bank will make the investment custody account available to the sole heir or community of heirs as a whole so that the assets can be transferred to the individual heirs under the relevant conditions. 

A sole heir can decide what to do with the custody account themselves, whereas a community of heirs must agree beforehand what to do with it, and, provided there are no division provisions, how to divide the securities among themselves. When it comes to the division of shares, the heirs must decide on their distribution themselves and potentially compensate each other.

Everything at a glance

When you are made aware of the inherited financial assets, you should find out about the risks and potential they come with. An investment consultation can help you to better appraise the opportunities and risks of your inherited shares and to come up with a suitable strategy. Hold onto shares or sell them? How do you want to manage your custody account in future? Shares tend to be among the riskier securities, as their value can fluctuate substantially in line with market trends. Shares do not offer guaranteed investment earnings, but rather a potential return in the form of dividends and price gains. Good planning can help you to choose suitable times to sell and take advantage of potential tax benefits. If you have little or no experience with financial assets, we recommend a consultation. This is especially true for inherited portfolios with several different securities and assets.

What obligations regarding inherited shares do I have as an heir?

If you are inheriting shares but are unsure what to do, first thing’s first: stay calm. You should avoid making rash financial decisions, especially during an emotionally challenging time following the death of a loved one. A professional investment consultation can help you get a clear idea of what to do next.

In brief: the four most important tips for heirs of a securities custody account

Find out about the financial assets you’ve inherited

Get a general idea of the facts and look into the company whose shares you have inherited. Find out about its prior development and forecasts. 

Open your own custody account

Once the financial assets you’ve inherited are in your own custody account, you can manage them yourself. The next thing to do is assess the risks of each asset. What assets do you want to sell or hold onto? Is there a potential cluster risk? 

Investment strategy

Define your own personal investment strategy. This depends on aspects such as your own disposable wealth and income, your plans for the future, your investment horizon, your investment goals, as well as your knowledge of the money/asset market. It also depends on the type of investor you are.

Get professional advice

A financial advisor or tax specialist can help you optimize the way you manage the financial assets you’ve inherited and to avoid tax pitfalls.

What tax do I need to pay on the securities I’ve inherited?

Like so many things in Switzerland, inheritance tax varies from canton to canton. You should bear the following tax information in mind:

Nature of relationship

The closer the relationship, the lower the tax rate generally is. In most cantons, spouses, partners in registered partnerships and direct descendants do not pay any inheritance tax. Unrelated heirs pay much higher tax than related heirs.

Wealth tax

The value of inherited shares is counted as assets. This means that heirs must state the value of these assets in their tax return and potentially pay wealth tax on it. In most cantons, taxation is based on the market value at the end of the year. Listed shares have a public market price that can be tracked. This is not the case for non-listed shares. This makes their assessment more complex and often requires the assistance of an independent assessor or auditor. The value of these shares can be estimated based on the financial key figures of the company and market environment.

Income tax

Dividends earned from inherited shares are classified as income and must be detailed accordingly in the tax return. The amount of tax payable depends on the tax rate in the heir’s place/canton of residence.

Tax-free allowance or exemption limit

Depending on the canton, inheritance tax may be subject to a tax-free allowance or exemption limit. While tax-free allowance never needs to be paid, an exemption limit only remains tax-exempt as long as it is not exceeded. For example, the canton of Bern has a tax-free allowance of 12,000 francs. This means only sums exceeding 12,000 francs are subject to taxation there. In the canton of Jura, there is an exemption limit of 10,000 francs If someone inherits assets in excess of 10,000 francs there, tax must be paid on the whole amount. 

Private or commercial securities trading

Exchange gains, and consequently any income made when selling off inherited shares, are also essentially tax-exempt for private individuals. This applies to a private portfolio that is not commercially managed. Asset management is generally considered private and non-commercial when an individual occasionally buys shares and holds them over a long period of time. It’s different if the person trades in shares very often and when a lot of borrowing is involved: in this scenario, the distinction between this and commercial securities trading is not quite so clear-cut. The Federal Tax Administration (FTA) has certain criteria determining the point at which trading in shares is classified as private or commercial. If the share trading is classified as commercial, exchange gains are also taxed.

Gift tax

As is the case with sums of money, valuables and advances against inheritance, inherited securities are also subject to gift tax, for instance if they are transferred to another person after the inheritance. Most cantons, and various municipalities too, levy a tax on gifts. Gift tax must be paid by whoever has received a gift. As with inheritance, the tax rate for gifts also varies from canton to canton, and depends on the nature of the relationship. At federal level, there is no gift tax.

What if heir and testator live in different cantons or countries?

Different canton

If the heir and testator live in different cantons, the inheritance tax provisions on moveable assets in the canton in which the deceased person lived at the time of death apply. This is different for land and real estate, where the provisions of the canton in which they are located apply (this is where “tax reconciliation” comes into play). 

Different countries

As a rule, inheritance tax is due where the testator lived. If the deceased person’s place of residence was abroad, or the heir resides abroad, there is a risk that tax may need to be paid for an inheritance in multiple countries. To avoid double taxation of this kind, Switzerland has reached agreements with various countries. In complex scenarios, it is advisable to consult an expert in inheritance law.

When should I consult a financial advisor or tax advisor?

In the event of inheritance, the first port of call is the bank that held the securities custody account of the deceased person. Your own bank can advise you on your own (potentially new) custody account, as can a third-party bank or independent financial service provider. In terms of whether you wish to manage the inherited securities yourself, or you’d prefer to delegate this to a financial service provider, this will all come down to your own knowledge, the complexity of the portfolio you have inherited, and your willingness to take on the matter. A professional consultation is recommended if you are unsure as to your ability to make an accurate assessment of the risks of these financial assets. A focused investment consultation can help you manage your portfolio, and also help with tax optimization.

Be careful: the terms “financial advisor” and “investment advisor” are not registered professions in Switzerland. In other words, anyone can claim to be one. You should therefore make sure that whoever you consult is respectable and that they have the relevant experience and expertise. 

In Switzerland, inheritance tax differs by canton. Generally speaking, married couples and people living in a registered partnership , and their descendants (children, grandchildren), are exempt from this tax. This tax exemption also applies to stepchildren and foster children, albeit only in cantons in which they have the same legal status as biological children. By contrast, distant relatives and unrelated people, such as cohabiting couples, are usually subject to inheritance tax. At federal level, there is no inheritance tax.