Many people who own their own home would like their property to stay in the family in future, which is why they consider whether to pass it on to their children today. But they want to continue living in their home for as long as possible.
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Created on 06.12.2023
Continue living in your home thanks to right of use and right of residence easements
Many older homeowners are considering whether they want to sell their home before they die or to pass it on to their heirs. Right of use and right of residence easements are often the best way to achieve this.
Advantages and disadvantages of selling, gifting or transferring as an advance against inheritance
There are three basic options: selling, gifting or transferring as an advance against inheritance. In all of these cases, ownership of the house passes to the children – with all the attendant advantages and disadvantages. In future, the parents would no longer have to pay tax on the rental value as income nor on the value of the home as an asset. On the other hand, they would no longer be able to increase their mortgage, even if they needed money later on. Above all, there would be no guarantee that they would be able to stay in their home for the rest of their lives.
Why a contract makes sense
In this situation, a rental agreement, a right of use agreement or a right of residence agreement can offer a way out. In legal terms, right of use and right of residence are easements.
Where there is a rental agreement, the parents have to pay only the rent. In return, their children are responsible for maintenance and renovation costs, as well as for the taxes on the house.
Right of use: no change in tax situation
The situation is completely different in the case of right of use. Unpaid right of use gives the previous owner the right of possession and use of the home (see the table for the main differences between right of use and right of residence). Unless otherwise agreed, according to the law: the parents, as users of the property, must pay the maintenance costs for the house as well as the costs for the mortgage, insurance and official fees.
However, they are no longer responsible for renovations. In terms of taxation, everything remains the same: the law on direct federal taxes and the cantonal state tax laws provide that the beneficiaries pay tax on the rental value or the rental income as income and the tax value of the house as an asset. In return, they may make the corresponding deductions for maintenance and mortgage interest.
The new owners are theoretically allowed to sell the home even against the will of the previous owners. However, the right of use remains in place even in the event of a sale; the beneficiaries therefore do not have to move out and may also sublet the property. For the new owners, it would therefore be very difficult in practice to find buyers for the property.
Right of use: joint voting rights in condominiums
Unless otherwise agreed, beneficiaries of the right of use and the owners of a condominium exercise equal voting rights. Beneficiaries of right of use are entitled to vote on all administrative matters. For example, they may have a say in the choice of administration or distribution of costs between the individual condominium units.
When it comes to necessary structural measures, the beneficiaries of right of use also have a vote. For construction measures that are merely utilitarian or cosmetic in nature and in all other cases, however, the owners have decision-making authority.
The advantages of right of residence
As a homeowner, you could also transfer your house to your children and require lifelong right of residence in return, for example. Right of residence would have several advantages for you:
By law, from then on you would have to pay only for the costs of ordinary maintenance, i.e. for minor repairs to the house, usually up to about 150 francs. The remaining costs such as mortgage interest, extraordinary repairs, renovations, insurance, fees and utility costs for water, electricity, gas, heating costs or telephone connection, etc. would be the responsibility of the new owners. However, it is often agreed that the utility costs will not be borne by the owners, but by the residents.
In this case, the parents who are beneficiaries of right of residence must pay tax on the rental value as before and can deduct maintenance expenses in return. The tax value of the property will be charged to the children as the new owners.
The requirements and conditions that apply to right of residence
Beneficiaries of right of residence may occupy the property or parts thereof themselves and may allow family members, life partners and domestic and nursing staff to live in the property. However, the right of residence is neither transferable nor can it be inherited. (Sub)letting is also not permitted without the consent of the new owners. In general, the beneficiary lives in the property for free. However, a right of residence fee or a one-off payment can be agreed.
Right of residence reduces inheritance tax
In other cases, granting a right of residence may also be useful – if you want to reduce the inheritance taxes incurred later on by your life partner, for example. When your partner receives a lifelong right of residence, gift taxes will be due in the short term, but there will be less inheritance tax to pay later on. This is because the value of the home is massively reduced by granting the right of residence. As this breaks the progression, there is usually significantly less tax to pay at the end of the day.
When the right of residence expires
The right of residence expires if the beneficiary renounces it or in the event of their death. Even a lifelong right of residence loses its validity as soon as the beneficiary gives up the home or moves away. This also applies if the person in question moves permanently to a retirement or nursing home.
Right of residence can also be granted only for a limited period of time or subject to conditions. So it is permissible, for example, to agree on a right of residence that will be annulled in the event of a divorce or permanent separation of the partners.
Right of use and right of residence must be registered in the land register, for which fees vary depending on the canton and notary’s office.
Enter the right of residence or right of use after the mortgage certificates
Important tip: the right of residence or right of use should be registered in the land register only when the mortgage certificates have been issued. The calculated market value of the property and thus the loan-to-value ratio remain unchanged from the bank’s perspective. If the right of residence or right of use is registered before the mortgage certificates, the market value is calculated taking into account the relevant easement. This can have a negative impact on financing.
Rights of residence and rights of use are sophisticated instruments in retirement and succession planning. We recommend consulting an expert.
Right of residence and right of use: table with the main differences
| Aspect | Right of use | Right of residence |
|---|---|---|
| Aspect Duration |
Right of use Until the expiry of the time limit or the death of the authorized person. |
Right of residence Until the expiry of the time limit or the death of the authorized person. |
| Aspect Expiry |
Right of use In the event of the death of the beneficiary or by mutual consent or unilateral waiver, in the event of expropriation, the complete loss of the property, by court decision and enforcement proceedings. |
Right of residence In the event of the death of the beneficiary or by mutual consent or unilateral waiver, in the event of impossibility of exercise, expropriation, the complete loss of the property, by court decision and enforcement proceedings. |
| Aspect Contents |
Right of use The beneficiary may use the property, manage it and receive income. The right of use can be granted for a fee (periodic payments or one-off payment) or free of charge. |
Right of residence The right of residence consists of the right to live in a building or part of it. It is neither transferable nor hereditary. The right of residence can be granted for a fee (periodic payments or one-off payment) or free of charge. |
| Aspect Rights |
Right of use The beneficiary of right of use may live in the property themselves or rent it out. The beneficiary of right of use has the right to the rental income. |
Right of residence The beneficiary of right of residence is the only person entitled to live in the property – only family members and housemates are permitted in addition, unless otherwise agreed. Subletting of the property is not permitted. |
| Aspect Obligations |
Right of use The beneficiary is responsible for normal maintenance, additional costs, mortgage interest, insurance premiums and periodic taxes and duties. |
Right of residence The beneficiary of right of residence is responsible for the usual maintenance and additional costs. |
| Aspect Taxes |
Right of use The beneficiary of right of use pays tax on the official value of the property as an asset. They must pay tax on the rental value as income from the property. If rented, the rental income is taxed as the beneficiary’s income. When it comes to wealth tax, the beneficiary can deduct (the owner’s) debts on the property. Income tax deductions are possible for ordinary maintenance, mortgage interest, insurance premiums, and fees and duties. |
Right of residence The person with right of residence must pay tax on the rental value as income. The owner must pay tax on the official value of the property as an asset. When it comes to wealth tax, the owner can deduct the mortgages on the property. The person with right of residence can deduct maintenance costs they have paid from their income. |
How the value of a right of residence is calculated
The value of the right of residence is calculated using the following formula:
Value of right of residence = net annual rental value x capitalization factor
Example
Calculation of net annual rental value
- Market rental value per year: CHF 24,000
- Minus maintenance costs :CHF 4,800
- Net annual rental value: CHF 19,200
Calculation of capitalization factor
Annual pension CHF 56.29 per CHF 1,000 : 17.76
Calculation of right of residence value
CHF 19,200 x 17.76 = CHF 344,992
There are many other easements
The right of residence and right of use are easements and must be registered in the land register (for a fee) in order for them to come into effect. However, there are many other easements. Typical easements are rights of way, transit rights and building rights (building restrictions, proximity building rights, etc.).
A property can be encumbered for the benefit of another property (easement) or a specific person (personal easement). In this case, the owners must accept certain interventions by the authorized person (= tolerate; positive easement), or they may exercise the property right only to a limited extent (= refrain from; negative easement).
Questions and answers
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Anyone who has the right of use for a flat or house can live there themselves or rent out the property and keep the rent. In return, the beneficiaries must pay tax on the rental value and the official value of the flat or house. The costs of the mortgage and all additional costs are also borne by the beneficiaries. However, only the owners are allowed to take out a new mortgage. A right of use must be registered in the land register.
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Anyone with a right of residence can live in the flat or house in question. Life partners or domestic workers may also live in the property. However, they may not rent out the apartment. The right of residence can be agreed for a limited period or until the end of life. It expires as soon as the authorized person no longer uses the apartment – for example, if they move into a retirement home or die. The person with the right of residence must pay tax on the rental value as income and pay for minor maintenance. The owner must pay tax on the official value as an asset and also pay for most of the utility costs. However, the parties are free to agree on a different division of costs. A right of residence must be registered in the land register.
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With right of use, you are not only allowed to live in a house or flat yourself, you can also rent out the property. Right of residence, on the other hand, applies only to the authorized person. As soon as the authorized person is no longer living there, the right of residence expires (for example, if the person in question moves to a retirement home or dies). Beneficiaries must bear most of the costs incurred, such as the mortgage, utility expenses and additional costs. They must also pay tax on the rental value and the official value of the home. Beneficiaries of right of residence, meanwhile, have to pay only for part of the additional costs and minor maintenance. They must also pay tax on the rental value. The owner, however, pays tax on the official value.
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A right of use can be useful if you want to ensure that ownership of a property remains in the family. For example, you can transfer your home to your children at an early stage, but in return you can be granted right of use. In this case, the children are registered as the new owners, while you still have the right to live there or rent out the property.
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You are entitled to grant your partner the right of residence. This means they will be protected if your heirs make claims on the flat or house when you die. This right is particularly useful to protect unmarried life partners. Such a right of residence may also be linked to conditions. For example, it can apply only as long as the marriage or partnership continues (i.e. until divorce or separation).
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Easements are rights or obligations that are associated with property ownership. These include right of way, transit rights and building rights (building restrictions, proximity building rights, etc.). Right of use and right of residence are also easements. To be valid, easements must be registered in the land register.
