House transfer – what to consider during your lifetime

When the kids grow up and move out, many parents not only feel an emotional loss, but also a sense of emptiness on a more practical level: rooms that no one lives in anymore and a large garden that is no longer played in. Many property owners harbor the hope that one of their children will take over their house or condominium. To ensure a successful transfer during their lifetimes, it is important to lay out clear conditions early on.

The reasons for transferring a house to offspring during lifetime are varied and differ from family to family. Size and space are usually the deciding factors. Two people simply need less space than a large family. A house, often with a garden, is a lot of work and needs to be maintained and looked after.

A smaller, more central or more conveniently located property may be more suitable at this stage of life, possibly one that is already more age-appropriate and close to children and grandchildren. You may also be tempted to move abroad, where you were planning to live when you retire or even before.

Maybe one of your children, who may already has children of their own, is unable to find a suitable house or cannot afford the mortgage. Or you want to stay in your own home for as long as possible and ensure at an early stage that the property remains in the family.

If you transfer a property to your children during your lifetime, there are a number of factors to consider that can have legal, tax and, not least, financial implications. It is important to discuss things openly and plan together as a family, especially if there are several children but only one of them is taking over the house.

There are essentially three ways in which you can transfer your property to heirs, depending on your needs and the value of the asset. The following is only an initial overview and does not claim to be exhaustive. We recommend you get specialist advice with regard to inheritance and tax law from experts.

Sale at fair market value

The least problematic type of transfer is when a child acquires the property from the parents at the current market value. In this case, the parents receive the full proceeds of the sale. These proceeds become part of the parents’ assets, which will later be divided among the beneficiaries in accordance with the law, inheritance contract or will. In terms of inheritance law, the child taking over the property enjoys no special standing in the subsequent division of the estate.

It is advisable to have the market value of the property estimated by an independent expert. Existing mortgages are usually taken over by the child and the remaining amount is paid to the parents.

Tax consequences:

All cantons require parents to pay tax if they make a profit on the sale of their house or apartment. The amount of this property gains tax varies from canton to canton. If a property changes hands, a transfer tax is also levied in some cantons. We recommend you seek the advice of a tax advisor before selling.

Transfer below fair market value, advance inheritance and mixed gift

An advance inheritance is probably the most common form of asset transfer during a person’s lifetime. If a child has been granted an advance inheritance, they must compensate for this after the death of their parents when the estate is divided, i.e., the value of the advance is added to the existing estate assets and then offset against their inheritance entitlement. We recommend that you contractually fix the amount of the advance inheritance to be paid later.

The consideration, i.e., payment in return, calculated when transferring a property may be below the market value or the transfer may be made without any consideration at all. When parents transfer their property to a child at a price that is substantially below fair market value, this is referred to as a mixed gift. The gift amount results from the difference between the market value and the sum of all considerations. The consideration also includes the mortgage that is taken on and the capital value of a usufruct or right of residence.

Cash assets are credited at their nominal value at the time of the advance inheritance, which means without interest and without taking inflation and the associated loss of purchasing power into account. In contrast, for real estate, the market value at the time of the testator’s death is taken as the basis. Any increase in the value of the property is therefore taken into account and is also subject to equalization in the division of the estate.

The transferred property is again taxable as an asset by the child, as is the imputed rental value or rent obtained from it as income. The only exception is usufruct, where this is not the case. A cantonal gift tax may also be payable at the time of transfer, from which the direct descendants are exempt in almost all cantons.

Transfer by gift

By making a partial or complete gift, the residential property can be transferred to a child without them having to take the free share into account when the estate is divided.

The transfer of property without financial consideration is considered a pure gift. Otherwise, if only the existing mortgage is taken over, for example, this is referred to as a mixed gift. This is a common practice when each child is given a property at the same time. No property gains tax is payable on the free transfer of real estate, but gift tax may be payable.

The gift tax is based on the degree of kinship between the donor and the recipient and is payable by the latter. In almost all cantons, the gift tax is identical to the inheritance tax that would otherwise be payable if the asset were bequeathed at a later date.

Homeowners often fear that they will have to sell their home in old age in order to pay for the costs of a nursing home. To get around this risk and preserve the assets for their heirs, they make plans to transfer the house to their offspring, because they assume that without the home they would be entitled to state supplementary benefits if needed.

This is not correct. When calculating the entitlement to supplementary benefits, the authorities also take into account any voluntarily transferred assets, deducting CHF 10,000 per year since the gift was made. A gift thus has a negative impact on any entitlement to supplementary benefits. Since the 2021 supplementary benefits reform, the following also applies: after the death of a person entitled to supplementary benefits, the heirs must reimburse any supplementary benefits received in the last ten years of the beneficiary’s life. However, this only applies if the estate exceeds CHF 40,000.

Granting a right of residence or usufruct

You have two options if you want to transfer your house to your offspring but want to continue living in it yourself: usufruct and right of residence. Both result in the house or apartment becoming the property of your heirs. However, the rights and obligations are regulated differently in each case.

If you own a property that you would like to pass on to your children, you should think about it early on and approach the issue carefully and calmly.

The following aspects should be considered:

If you want to transfer your property to your children, you have a lot to think about and need to carefully weigh up the pros and cons. What is important is that you feel comfortable with your decision and do what is best for you in old age.

Whatever you decide to do, be sure to seek expert advice and support so as to find a satisfactory, amicable and transparent solution for all parties involved.