Early inheritance from parents (house)

Hello everyone

I find myself in the following situation:

My parents want to write over the house to my siblings and I (or potentially just me if sharing is not an option) in the not too distant future. The house has an official value for tax reasons of X, although if you were to sell it, you would probably get 50% more. There is no debt on the house.

Selling is not an option as my parents want to live in one of the appartments in the house until they’re no longer able to (without paying rent, I expect 20-30 years) and I’d also like to live there at some point.

Apart from completely throwing over my asset allocation ;-), I have a few things that I’d like to get your experience / view / advise on.

  1. As my parents wouldn’t pay any rent, as far as I understood it I’d only need to pay wealth tax on the house without their appartment. Is that assumption correct?

  2. Eventually when the rest of the inheritance is distributed, then it will be unlikely that as much money is around as the house is worth (x siblings) (unless my parents win the lottery). Therefore I’d need to pay out my siblings.
    a) Is that based on the a) tax value or b) the market value at the time of writting it over / when the rest of the inheritance is distributed. I read an article about it that said market value at time of inheritance distribution.
    b) This payout is only when inheritance is distributed and not at time of writting over the house?
    c) The rental income that will be generated during that time will be mine is not eligible to be paid out to siblings as the house would be mine?

  3. In terms of asset allocation, in my opinion it would then make sense to remortgage it straight away. If so for how much of its value?

  4. How much of the value would you include to the FI-money? Current tax value minus potential payout to siblings?

I’m looking forward to hopefully getting some great answers :wink:

All very interesting questions. I think that you should visit a fiscal expert. It would be lovely if you could then report back here to let us know what he said.

For having lived a similar situation (though with much less than a house at stake), under the guidance of a father who is a lawyer with experience in family conflicts resulting from inheritances, I would settle everything related to this part of the inheritance right now, in order to prevent potential resentment later, at the very emotional stage of early post parental death, so:

  • Make sure all siblings get an equivalent share of the inheritance at the time, get a mortgage on the house to compensate everybody if necessary.

  • Figure out a collectively accepted worth for the parents staying in the house without paying rent, take that into acount to figure out the shares that are distributed with the house.

  • Write down a “successoral pact” in which each sibling accepts that everything regarding the current distribution of inheritance is definitely settled and everything that remains should later be split without regard to the current distribution (which is fully settled by everybody getting a share they agree is worth the same).

  • Ideally, have that successoral pact signed in front of a notary: the cost is worth it in regards to the amount distributed (a house) and the accrued peace of mind coming from having everything legally settled and nobody having anything more than their emotions to stand on to potentially claim that their share was not equal to the others and they should have more. This can (should) be done at the same time that the house is passed down (which will require a notary anyway) and should be written in the act by which the house is passed down.

This takes away any financial evolution resulting from the current distribution, irrespective of market returns accrued by any asset, and is especially valuable when some children get land/real estate (which stays) and others get money (which has a tendency to get spent and leave the feeling that it didn’t cover as much as the hard assets did).

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As I was in a very similar situation just recently, I try to answer your questions…

Disclaimer: Everything below is based on my learning from my situation - for sure there are other options! And I’m no lawyer by any means, there may be errors or situation that suit my situation / canton of residence only!

  1. Tax
  • Tax values: There are at least two or three tax values / forms:
    A) tax value based on the “official value” of the house / property (“amtlicher Wert”) → wealth
    B) the “(imputed) rental value” (Mietertrag / Eigenmietwert) → income
    C) See below
  • Parents living in one apartment: There are different forms of setting this up:
    A) (gratuitous) right of residence ((unentgeltliches) Wohnrecht)
    B) “condominium apartment” (“Stockwerkeigentum”)
    → Both of them need to be addressed in the “Grundbuch” and result in different tax situations IMHO
    → Assumption: (gratuitous) right of residence: You pay the tax based of the official value of the whole property (wealth tax) and you pay the tax of any (imputed) income (income tax) - but not from your parents apartment when they live there gratuitously (I’m not sure about the latest)
  1. There are x options on how to address these questions! You have to find a solution that suits your parents and siblings. IMHO the best way is to arrange it today in a “testamentary contract” (“Erbvertrag”) in a fair and transparent way with equally distributed risk / earning chances with your siblings and to waive any future claims of re-distribution. Otherwise exactly this is going to happen! And it this can be sad, nasty and expensive…
    There are at least two ways for you to gain ownership:
    A) Buy the house from your parents e.g. at market value (or any other price). This makes the point above easier, to have everything arranged today ( → “Property gains tax” / “Grundstückgewinnsteuer” may apply!)
    B) Over a “cession contract” (“Abtretungsvertrag”), where you take over “as is” (house, mortgage etc.). This makes the point above more complex, to have everything arranged today.

I for me would want to have everything settled today and not to be exposed on any future development or uncertainties (market values, valuations, rents, risks, …) especially If I plan to live in the house with a family…

The way we did it in short:

  • Have an agreement of all parties involved ( → needed after each step)
  • Have the current value of the property determined
  • Have the (gratuitous) right of residence determined (e.g. discount(“rent” * life expectancy))
  • Determine the price of the property: Difference of both values above
  • Calculate the share of all siblings (and have it distributed right after everything is settled)
  • Have an testamentary contract signed from all sibling and waive any future claims of re-distribution
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Brilliant answer, helps a lot @clon. We‘ll obviously get some professionals in to sort out the contracts and their details. I just like to have a plan on how to approach the situation.

You mean this would be taken of the amount I‘d have to pay out to my siblings? How is a yearly value determined, just the „Eigenmietwert“?

Correct. And there are different methods to determime the value of the (gratuitous) right of residency. To just take the ‘Eigenmietwert’ is one of them. Another would be to take the ‘ortsübliche Miete’, … you then discount the value with the years of life expectancy (see e.g. ‘Barwerttafel Stauffer/Schätzle’).

… the most important thing: Have an agreement with all parties involved.

A simplified example:

  • Market value of the property: 1’000 kCHF
  • Siblings: 4 (incl. you)
  • Value of the discounted (gratuitous) right of residency: 200 kCHF

→ ‘Adjusted value’: 800 kCHF
→ Share per sibling: 200 kCHF
→ Your ‘buying price’: 600 kCHF

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FWIW, I have a house abroad shared with my siblings, one of them living there. According to the Zurich tax office, my share of the house still counts for the computation of my tax rate and I need to pay eiegenmietwert on it, the fact that is occupied for free by a sibling does not change anything.

I think it might be different if a house is split in multiple appartments. In your case you should be entitled the Eigenmietwert, or at least the amount of taxesyou pay, from your sibling. Otherwise you pay taxes on what they use which does not sound fair

I pay taxes only on the fraction of the house that belongs to me.

That‘s clear, but why pay Eigenmietwert if you don‘t live in it and there‘s no income for you either

Doesn’t make sense, right? Still the Zurich Tax office corrected the declaration for me. I’d be happy to somehow prove them wrong :slight_smile:

Did you try to call them and ask for clarification? In TI al least they are quite open to that.

Very interesting topic as I am in a similar situation. In risk of highjacking the topic, my parents want to transfer their house (in Greece) to my brother and I as currently the transfer tax between parents and kids has been waived in Greece (while inheritance tax not, so it makes sense to do the transfer before they pass away). They will still keep usufruct of the house while alive.

Question (which might also be applicable to @MUFC_OK ): wouldn’t this qualify as a Gift tax as I am a Swiss resident? (In BS where I reside appears to be between 5% and 11% from parents to kids). Or because the house is abroad transfer taxes are only calculated at the country of the house?

In Switzerland inheritance/gift taxes have to be paid in the canton where the house is. No idea about foreign properties.

Being a small amount I didn’t bother, but for someone with a more valuable property, it might make a difference.

You have to check the Swiss Greek DTA. Mostly yes with maybe a Tax credit for what you have paid in Greece… But again, that is a DTA question.

(one of the reasons I do not want to own property abroad, it just makes everything complicated)

Yes, seams odd to me as well. E.g. canton Bern is clear regarding income and wealth: “Wer eine Liegenschaft aufgrund einer Nutzniessung, eines Wohnrechts oder eines Nutzungsrechts (im Grundbuch eingetragene dingliche Rechte) nutzt, versteuert den Eigenmietwert.” and “Die Deklaration des amtlichen Wertes im Vermögen erfolgt bei Nutzniessung durch den Nutzniesser, bei Nutzungsrecht durch den Nutzungsberechtigten und bei Wohnrecht durch den Eigentümer.”

https://www.taxinfo.sv.fin.be.ch/taxinfo/display/taxinfo/Liegenschaftsnutzung+durch+Dritte

Canton ZH: I guess, most of the “Nutzniessung” applies for the “Wohnrecht”: “Sofern der Berechtigte keine periodischen Entschädigungen für die Nutzniessung an einem GS leistet, liegt ein unentgeltliches Nutzungsrecht vor und der Berechtigte hat den Eigenmietwert zu versteuern (Praktikabilitätsmodell; § 21 Abs. 1 lit. b StG)”

In BS as in most other (all?) Swiss cantons there is no Schenkungssteuer for Schenkung from parents to kids.

I recommend also to deduct the deferred real estate gains tax for calculating the net value of the real estate. Depending on Canton, initial buy price and holding period, this amount can be significant.

Ok thanks, I was referring to this guide from CS where it mentioned the tax rate under “parents” but was not very clear to me if parents are mentioned as the donor or the donee…Apparently is tax if you gift your parentsand not for gifts from your parents. Thanks again!

https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.credit-suisse.com/media/assets/private-banking/docs/ch/privatkunden/finanzplanung/erbrecht-steuertabelle-en.pdf&ved=2ahUKEwjcyKu5w4v0AhUOhv0HHdaaC0AQFnoECAoQAQ&usg=AOvVaw06raQJ_gcrn5FOU9eGlWW1

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