Transferring the house to your children: advance on inheritance, gift or sale, the 10-year rule and long-term care

Three routes: gift, advance on inheritance or sale

Legally, there are three ways of transferring a house to a child during your lifetime. They differ in whether money changes hands and in how the transfer is later treated on succession.

Gift: The child receives the house without giving anything in return. Between descendants, a gift is treated by law as an advance on inheritance and must be brought into hotchpot with the siblings on the later succession, unless the parents expressly state that the child is exempt from hotchpot.

Advance on inheritance: The same as a gift, except that the purpose is named explicitly: the child receives part of their inheritance in advance. The advance is credited on succession, at the value the house has at the time of the parents’ death, not its value at the handover. Anyone wishing to avoid this sets the value to be credited in an inheritance contract.

Sale: The child pays a price, often by taking over the mortgage. If the price is well below market value, this is called a mixed donation: the difference from the market value counts as a gift, with all the consequences for hotchpot, compulsory portions and supplementary benefits.

What all three routes have in common: transferring ownership of real estate requires a public deed drawn up by the notary’s office and entry in the land register. A handshake or a private contract is not enough. In the canton of Basel-Landschaft, the notary’s office is organised at cantonal level; we prepare the contract together with you, and the notary executes the public deed.

Long-term care and supplementary benefits: what the transfer achieves and what it does not

A place in a care home in the Baselbiet can easily cost more than CHF 10,000 a month. If pension and assets are not enough, supplementary benefits step in. This is exactly where the hope of giving the house to the children beforehand comes in. The sums rarely add up.

Supplementary benefits take assets into account. Since 2021 there has been no entitlement if the net assets of a single person exceed CHF 100,000 or those of a married couple CHF 200,000; an owner-occupied property does not count towards this threshold. For the actual calculation, assets above an allowance are partly counted as income. Assets given away are treated as if they were still there, less CHF 10,000 for each year since the gift. So if you sign the house over at 70 and go into a care home at 82, only around CHF 120,000 is deducted from the value at the time of the gift; the rest counts in full. Supplementary benefits are correspondingly lower or not paid at all, and the care home costs have to be borne by the family or, as a last resort, by social assistance.

The transfer therefore makes sense for other reasons: the child who lives in the house or wants to live there gains security; the succession is settled while the parents still have mental capacity; maintenance and investment are borne by the generation that benefits from them. As protection against care home costs, it only works if it happens so early that the renunciation actually melts away over the years, and that cannot be planned.

Two points matter in practice: first, the transfer must take place while the parents still have mental capacity; in the case of dementia, the child and adult protection authority has to be involved, and it generally does not approve a gift. Second, after the transfer the parents need a right of residence or a usufruct so that they can stay in the house, even if the child runs into difficulties or dies.

Taxes and fees in the canton of Basel-Landschaft

In tax terms, the Baselbiet is a favourable canton for transfers to children. Three taxes need to be checked, plus the notary and land register fees.

Gift and inheritance tax: Spouses and direct descendants are exempt in the canton of Basel-Landschaft. A gift or an advance on inheritance to your own child does not trigger gift tax. It is different for transfers to stepchildren, sons- and daughters-in-law or cohabiting partners; there, tax is due depending on the degree of kinship.

Property transfer tax: Normally 2.5 % of the purchase price, borne half each by buyer and seller. Transfers between parents and children as well as gifts and advances on inheritance are exempt, including a sale to the child. Details in the guide Property transfer tax Basel-Landschaft.

Property gains tax: For a gift, an advance on inheritance or a succession, the tax is deferred, not waived. The child takes over the parents’ investment costs and holding period; if the child later sells the house, the entire gain since the parents’ original purchase is taxed, with the holding period reduction for the whole period. If the house is sold to the child at the full price, however, the tax falls due immediately for the parents. The calculation is shown in the guide Property gains tax Basel-Landschaft.

Ongoing taxes: After the transfer, the child pays tax on the imputed rental value and on the house’s value as wealth and deducts maintenance and debt interest. If the parents keep the usufruct, the imputed rental value, maintenance and debt interest stay with them; with a mere right of residence, the parents pay tax on the imputed rental value and the child pays wealth tax.

Fees: The notary’s office and the land registry charge according to the cantonal tariff; for a single-family house, the public deed, the land register entry and any adjustment of the mortgage note together usually come to a few thousand francs. On top of that come the costs of the valuation and the inheritance contract. An overview of the additional costs is given in the guide Notary fees and additional costs when selling a house.

Procedure, worked example and when you should not do it

A transfer to a child usually takes two to four months from the first meeting to the entry in the land register. The order of the steps determines both the costs and the peace in the family.

1. Valuation: A neutral appraisal of the market value, so that all the children start from the same figure.
2. Family discussion: Who takes over, who is paid out, when and with what. Parents decide, but siblings who were given a say do not go to court later.
3. Bank: Check the child’s affordability, clarify the takeover of the mortgage and any increase for equalisation payments.
4. Contracts: Transfer contract with right of residence or usufruct and inheritance contract with the value to be credited and hotchpot, both executed as public deeds at the notary’s office.
5. Land register and taxes: Entry, notification to the tax administration for the deferral of property gains tax, adjustment of both generations’ tax returns.

Worked example from Pratteln: Single-family house, market value CHF 900,000, mortgage CHF 300,000, two children. The daughter takes over the house together with the mortgage and pays her brother CHF 300,000, financed by increasing the mortgage to CHF 600,000; with a household income of around CHF 150,000, this is affordable. The daughter’s advance on inheritance amounts to CHF 300,000 (value less mortgage and payout), fixed at this value in the inheritance contract. The parents receive a lifelong right of residence in the self-contained flat in the house. Taxes in Basel-Landschaft: no gift tax, no property transfer tax, property gains tax deferred; fees for notary, land register, inheritance contract and valuation together in the low five-figure range.

When you should not do it: If the only reason is protection against care home costs; if the child cannot carry the mortgage; if the siblings do not agree and no inheritance contract can be reached; if the parents intend to sell the house in the foreseeable future anyway, because selling on the market with the tax exemptions for owner-occupiers is then usually the simpler solution. Whether to sell, let or transfer, we will gladly work it out with you.