Signing over your house to the children: what you need to know
Many homeowners want their house or apartment to remain in the family. Passing a home on to your children while you are still alive can make sense, but it is complex. Tax, legal and emotional issues are all intertwined. In this guide, you’ll find out the best way to sign over your property and what pitfalls you should avoid.
Author: Bernhard Bircher-Suits, FundCom AG
Planning sooner saves arguments later
Many parents want their house or apartment to remain in the family in the future. Transferring a house too late, or without clear rules, risks family feuds, tax surprises or financial difficulties in older age. If you plan ahead, things are sorted out. The sooner you work out the transfer, the more options will be open to you.
If you give something as a gift during your lifetime, you can settle your estate, save taxes and avoid conflicts between your heirs. It is important to speak openly with everyone involved. This is especially true if you have more than one child.
Banking experts or financial advisers recommend getting a professional valuation of the property’s market value in advance, and realistically assessing your own housing and financial needs. It is important to distinguish between the market value, the official tax value and the family price. When it comes to tax issues, authorities often base their assessments on the property’s market value (fair value). If the transfer price is significantly below this market value, the difference can be considered a gift.
There are three models: sale, advance inheritance or gift
In principle, there are three options in Switzerland for passing on a property to children:
- A sale at market or family price
- An advance inheritance that is subsequently deducted from the inheritance
- A gift, i.e. a transfer made free of charge
Selling and advance inheritance have different tax consequences. An advance inheritance is legally considered to be an anticipated inheritance and must be offset in the subsequent division of the estate, unless otherwise stipulated.
If there are still mortgages on the property, it is necessary to clarify at an early stage whether the children can take them over. To do so, banks reassess income, affordability and loan-to-value ratios. If the descendants’ income is insufficient, a transfer may fail or require additional security. Especially if someone retires or if real estate prices climb steeply, it is worth clarifying this with the financing bank early on.
Gift tax: regulated by the cantons, often underestimated
In Switzerland, there is no gift tax at the federal level – it is levied by the cantons. The good news is that in most cantons, direct descendants such as children and grandchildren are exempt from gift tax. There are exceptions, including the cantons of Appenzell Innerrhoden, Neuchâtel and Vaud.
Attention
Tax-free gifts also have to be declared in your tax return. Depending on the canton and type of transfer, additional taxes such as property transfer tax or property gains tax may also apply to real estate. In many cantons, property gains tax is deferred but not waived in the event of a gift or an advance inheritance. The tax is due later, when the children sell the property.
Remaining in the home despite the transfer: right of residence or usufruct
Many parents would like to transfer ownership of their house to their children, but carry on living in it. Two models have been established for this purpose:
- Right of residence: Parents can live in the property for life, but cannot rent it out. The right of residence is personal, non-transferable and ends upon death.
- Usufruct: Parents can use or rent out the property themselves and keep the proceeds. But the parents then have more expenses, e.g. for maintenance, taxes and mortgage interest.
Both rights must be officially notarised and entered in the land register. They reduce the value of the property and can thus reduce the tax burden when it is transferred. A usufruct usually has greater tax and financial implications than a right of residence, as the usufructuary is still deemed to be the beneficial owner.
Statutory entitlements and equal treatment of children
A common stumbling block is the statutory entitlement to a share. Gifts and inheritance advances to one child may violate the other children’s statutory entitlement to a share. These can be asserted in the event of an inheritance – even years later. Legal heirs must compensate for advances received, unless you explicitly exempt them in the will or inheritance contract (within the exempt portion).
A written inheritance contract with all the children is often the best way to clarify matters and avoid disputes. Following the revision of the law of succession in 2023, the portion of freely disposable assets has increased. As a result, there is now slightly more scope to differentiate between individual children – provided that statutory entitlements are complied with.
Typical pitfalls – and how to avoid them
- Unclear contracts: Verbal agreements often lead to problems of proof in inheritance cases and should therefore always be recorded in writing.
- Incorrect valuation: Excessive consideration (e.g. taking on a mortgage) can lead the authorities to treat the gift as a sale – with tax consequences.
- Care home risk: Without clear provisions, a right of residence may remain in place even after moving into a care home, and can prevent the property from being sold.
In summary: tailored planning, professional support
Passing on a property to your children is not a case of “one size fits all”. It depends on your family situation, your financial security and cantonal tax laws. Get advice early on – from a notary, an inheritance specialist or an investment adviser, for example. This is how you make sure your wish becomes reality: a home that stays in the family – without any nasty surprises.
