Donations and inheritances in the Canton of Vaud: Key legislative changes

The legal framework for donations and inheritances in Switzerland is governed by federal law, but the related taxes fall under the jurisdiction of the cantons. In the canton of Vaud, these aspects are specifically regulated by the Law on Transfer Duties for Real Estate Transfers and the Tax on Inheritances and Donations (LMSD). This law defines the tax brackets and applicable rates, which vary depending on the degree of kinship and the value of the assets transferred.

Recent legislative changes

On December 11, 2024, the Grand Council of Vaud adopted significant amendments to the LMSD, aimed at reducing the tax burden on wealth transfers. In the absence of a referendum, which could have been requested until February 27, 2025, of this year, these changes take effect retroactively as of January 1, 2025.

Among the key changes:

Direct-line donations:
Increase in the tax threshold from CHF 50’000 to CHF 300’000 for donations between parents and children, per child and per calendar year. As a result, from January 1, 2025, each parent will be able to transfer up to CHF 300’000 per year to each of his or her children, tax-free. Once this threshold is exceeded, taxation will follow the cantonal tax scale and the corresponding rate for such donations.
Direct-line inheritances:
Increase in the tax threshold for direct descendants from CHF 250’000 to CHF 1’000’000 per line of descent. This means that for each inheritance opened on or after January 1, 2025, each child heir will benefit from a tax exemption of up to CHF 1’000’000 on his or her share of the inheritance. Any amount exceeding this limit will be subject to taxation according to the cantonal inheritance tax scale.
Direct-line transfers of family businesses:
The reform also introduces a major improvement for the transfer of family businesses to direct descendants. Previously, the conditions for benefiting from a 50% tax reduction varied depending on the type of business. For partnerships, the beneficiary had to hold at least 33% of the capital, whereas for corporations, the threshold was set at 40%. These relatively high thresholds could create obstacles to the transfer of businesses within families. With the reform, these thresholds have been lowered and standardized. Now, a 50% tax reduction is granted as long as the beneficiary holds at least 25% of the company, regardless of its legal structure. This simplification and relaxation of the conditions make the tax relief more accessible and significantly facilitate the transfer of family-owned SMEs, helping to preserve business continuity.

Conclusion

These reforms represent a significant evolution in the Vaud tax regime for donations and inheritances. Vaud is one of the few cantons that still taxes direct line inheritance, so these changes are welcome. The increase in tax-exempt thresholds and the enhanced tax relief for business transfers aim to ease the transfer of family wealth and support the continuity of local businesses.

It is crucial for taxpayers to take these changes into account in their estate planning to optimize the transfer of their assets under the best possible conditions.

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