Right of residence or usufruct: the difference, the taxes and what applies when the house is sold
- Right of residence and usufruct: what each allows and what it does not
- Who pays what: maintenance, mortgage, insurance
- Taxes in Basel-Landschaft: imputed rental value, wealth, gift
- What a right of residence is worth: the calculation
- Care home, supplementary benefits and the case where the parents move out
- Selling a house with a right of residence: cancel, compensate or sell encumbered
- Decision guide and points for the contract
In Switzerland, the lifelong right of residence is a classic of succession planning: the parents pass the house on and continue to live there for as long as they can and want to. What is often overlooked: there are two different rights for this purpose, and the choice between right of residence and usufruct determines who pays for maintenance, who is taxed on the imputed rental value, whether the parents may let the property, how the house is valued and what happens if it is sold or someone moves into a care home. This guide puts the two rights side by side, shows the tax consequences in the canton of Basel-Landschaft, explains the valuation by age and tells you how a right of residence is cancelled again when the house is sold later.
In brief
- Right of residence: personal right to live in the house or part of it in person; not transferable, no letting; the beneficiaries bear ordinary maintenance and pay tax on the imputed rental value
- Usufruct: comprehensive right to live in the house or let it and keep the income; the usufructuaries bear maintenance, mortgage interest and insurance and pay tax on the imputed rental value or rental income as well as wealth tax
- Both rights are created by public deed and entry in the land register, usually apply for life and remain in place if the house is sold or the owner dies
- The value of the right is capitalised from the market rent and life expectancy and reduces the value of the gift; it counts for hotchpot (equalisation), compulsory portions and supplementary benefits
- When the house is sold, the right must be cancelled or compensated; on moving into a care home, a right of residence cannot be turned into money, whereas a usufruct can, by letting
Right of residence and usufruct: what each allows and what it does not
Both rights are easements that encumber the property and are recorded in the land register. The difference lies in their scope.
The right of residence gives the beneficiaries the right to live in the house or certain rooms themselves, together with their family and members of their household. It is tied to the person: the parents may neither sell it nor pass it on by inheritance nor let it. If they move out permanently, for example into a care home, the right of residence becomes worthless but remains in the land register until it is cancelled. It can cover the whole house or be limited to a flat or individual rooms, with or without shared use of the garden and garage.
The usufruct gives the beneficiaries full use of the house: living in it themselves, letting it, keeping the rental income. During the usufruct, the owner has practically only bare ownership; the house can be sold, but only encumbered with the usufruct, and hardly anyone buys on those terms. The usufruct is also personal and ends at the latest on the death of the beneficiaries, but unlike the right of residence it can be put to economic use if the parents move out.
Rule of thumb: Right of residence if the parents simply want to stay in the house and the child is to take it over economically. Usufruct if the parents want to keep control and the income, for example because their pension is tight or because they want to keep the option of letting later. How the transfer to a child works overall is explained in our guide Transferring your house to your children.
Who pays what: maintenance, mortgage, insurance
The allocation of costs is governed by law but can be adjusted in the contract. Anyone who does not settle it will end up arguing about the new heating system later.
With a right of residence the beneficiaries bear the costs of ordinary maintenance of the rooms they use: heating, electricity, water, small repairs, cleaning, garden upkeep. Larger repairs and renewals such as the roof, façade, heating replacement or windows are borne by the owner, i.e. the child. Mortgage interest and amortisation are paid by the owner, as is the building insurance. If the beneficiaries hold an exclusive right of residence over the whole house, they bear the ordinary maintenance in full.
With a usufruct the usufructuaries bear considerably more: ordinary maintenance, management, mortgage interest, insurance premiums and ongoing taxes and charges. Only extraordinary renewals, i.e. major investments in the fabric of the building, remain with the owner. In return, the rental income belongs to the usufructuaries if they let the property.
In practice, a clear list in the contract is advisable: who pays for the heating, who pays the gardener, what counts as major, who decides on investments, what happens if the parents can no longer bear the costs. Balancing this out with a small monthly payment by the child or the parents is permissible and often sensible.
Taxes in Basel-Landschaft: imputed rental value, wealth, gift
Taxes follow use: whoever uses the house largely pays the tax on it. The differences between the two rights are considerable.
Right of residence: The beneficiaries pay income tax on the imputed rental value of the rooms they use and deduct the maintenance they bear. The owner pays wealth tax on the house, i.e. on its tax value, and deducts the mortgage debt and the debt interest, but is not taxed on the imputed rental value, which the owner does not receive anyway. This remains the case until the imputed rental value is abolished at the end of 2028; after that, the imputed rental value and the maintenance deduction will no longer apply to owner-occupied homes, which also affects holders of a right of residence. Details in our guide Imputed rental value and maintenance deductions.
Usufruct: For tax purposes, the usufructuaries are treated like owners: they pay income tax on the imputed rental value or the rental income and wealth tax on the house, and deduct maintenance, mortgage debt and debt interest. As long as the usufruct lasts, the owner has nothing to declare for tax.
Gift tax and property transfer tax: In the canton of Basel-Landschaft, transfers to spouses and direct descendants are exempt from both, even if a right of residence or a usufruct is established at the same time. For transfers to other persons, the capitalised value of the right reduces the taxable value of the gift. Property gains tax is deferred in the case of a gift or an advance on inheritance; on a sale to the child it becomes due, although the value of the reserved right of residence reduces the sale price. More in our guide Property gains tax Basel-Landschaft.
What a right of residence is worth: the calculation
For equalisation, compulsory portions, supplementary benefits and sometimes for tax purposes, a figure is needed: the capitalised value of the right. It depends on two variables, the market rent and life expectancy.
The starting point is the rent that could be obtained on the market for the house or flat, less the costs the beneficiaries bear themselves. This annual benefit is multiplied by a factor that depends on the age and sex of the beneficiaries; the factors come from the usual present value tables and are used by tax administrations, courts and banks. The younger the beneficiaries, the higher the factor and the more valuable the right.
Worked example from Liestal: Single-family house, market value CHF 950,000, market rent around CHF 2,800 a month, i.e. CHF 33,600 a year. The couple are 72 and 70 years old; the right of residence applies until the death of the surviving spouse. With a factor of around 14, this gives a capitalised value of about CHF 470,000. If the parents transfer the house to their daughter and keep the right of residence, the value of the gift is not CHF 950,000 but around CHF 480,000. This figure is decisive for equalisation with the brother and for what is counted for supplementary benefits. Ten years later, when the parents are 82 and 80, the factor is much lower and the right of residence is worth correspondingly less; the divestment counted for supplementary benefits is then recalculated.
The exact figure depends on the interest rate used and the current tables; for the tax return, the factors are set by the cantonal tax administration. What matters most for the family: the value is not arbitrary, and it should be recorded in the transfer and inheritance contract. The basis is a valuation of the house of the kind that our guide Having your house valued describes.
Care home, supplementary benefits and the case where the parents move out
The difference between the two rights becomes most apparent when the parents have to leave the house.
Right of residence: It can neither be let nor turned into money. If the parents move into a care home, the house stands empty or the child moves in; the parents have no income with which to pay the care home costs. For supplementary benefits, the right of residence counts as an asset at its capitalised value, and the renunciation of ownership on transfer is taken into account. Compensation paid by the child to the parents for waiving the right of residence is permissible and often the cleanest solution: the right of residence is cancelled, the parents receive the capitalised value and use it to pay for the care home.
Usufruct: The parents may let the house and receive the rental income, which counts as income for supplementary benefits but also helps cover the care home costs. The usufruct remains in place as long as the parents are alive. For families who want to keep their options open in case long-term care is needed, this is the most important advantage over the right of residence.
What applies in both cases: for supplementary benefits, the transfer of the house itself is counted as a divestment of assets, less CHF 10,000 per year. So the right of residence does not protect against care home costs; it only secures the home. The rules in detail are set out in our guide Selling your house when moving into a care home.
Selling a house with a right of residence: cancel, compensate or sell encumbered
If a house encumbered with a right of residence or a usufruct is to be sold, there are three ways, and only one achieves the full price.
Cancellation with consent: The beneficiaries waive their right, it is deleted from the land register and the house is sold unencumbered. In return, the beneficiaries usually receive compensation from the sale proceeds equal to the capitalised value or an agreed amount. The waiver requires a public deed if it is linked to something in return, and the beneficiaries must be capable of judgement; in the case of dementia, the child and adult protection authority has a say in the decision.
Sale with the encumbrance: The house is sold with the right, and the buyer takes on the beneficiaries as occupants. This happens with investors who speculate on the period after the right of residence, and it depresses the price by the capitalised value plus a risk discount. For a single-family house in the Baselbiet, a buyer at a fair price is rarely found for this.
Sale to the beneficiaries or their family: If the child or a grandchild buys, the right of residence remains in place and is settled within the family. This is the most common case when one sibling takes over the house from another.
For tax purposes, compensation for waiving a right of residence is generally a tax-free capital gain for the beneficiaries, whereas for a usufruct it is income, depending on how it is structured; we clarify this case by case with the tax administration. On a sale, the compensation counts among the costs that can reduce the property gain. The process of a sale in the Baselbiet is described in our guide Selling a house: the process in 8 steps.
Decision guide and points for the contract
Which right is suitable depends on the parents’ situation and on the child who is taking over. These questions usually settle it:
- Is the parents’ pension enough without rental income? Yes: a right of residence is sufficient. No or only just: usufruct, so that the property can be let later.
- Should the child manage the house economically, invest, carry out conversions? Yes: right of residence, ideally limited to one flat. No: usufruct, the parents stay at the helm.
- Who bears the mortgage? With a right of residence the child does; with a usufruct the parents pay the interest; the bank wants to know this beforehand and assesses affordability accordingly, see our guide Calculating affordability.
- Are there siblings? Then the capitalised value of the right belongs in the inheritance contract, so that equalisation does not lead to a dispute.
- Is a later sale conceivable? Then write a compensation rule into the contract from the outset: who decides, how the valuation is done, what the beneficiaries receive.
What belongs in the contract: Scope of the right (whole house, flat, rooms, garden, garage), duration (lifelong, until the death of the surviving spouse), allocation of costs, rules for moving out or moving into a care home, compensation on cancellation, handling of conversions and investments, equalisation between siblings. The deed is executed at the notary’s office and entered in the land register; the fees are based on the cantonal tariff. We prepare the valuation, the calculation of the capitalised value and the basis for the contract with you and accompany you to the appointment at the notary’s office.
Questions on this topic.
What is the difference between a right of residence and a usufruct?
A right of residence only allows the beneficiaries to live in the property themselves, with no letting; the beneficiaries bear the ordinary maintenance and pay tax on the imputed rental value. A usufruct allows the property to be lived in and let, with entitlement to the income; the usufructuaries bear maintenance, mortgage interest and insurance and pay tax on income and wealth like owners.
Who pays for repairs with a lifelong right of residence?
The holders of the right of residence pay the ordinary maintenance of the rooms they use: heating, electricity, water, small repairs, garden upkeep. Major renewals such as the roof, façade, heating or windows are borne by the owner. The contract can provide for a different allocation.
How is a lifelong right of residence calculated in Switzerland?
From the market rent of the rooms used, less the costs borne by the beneficiaries, multiplied by a factor based on age and sex taken from the present value tables. For a married couple around 70 with an annual rent of CHF 33,600, this gives around CHF 470,000. The cantonal tax administration sets the factors for the tax return.
Who pays tax on the imputed rental value with a right of residence?
The holders of the right of residence pay income tax on the imputed rental value of the rooms they use and deduct their maintenance costs. The owner pays wealth tax and deducts the mortgage and debt interest. With a usufruct, the usufructuaries pay tax on everything, income and wealth alike.
Can a house with a right of residence be sold?
Yes, but the right remains in place and depresses the price considerably. The usual approach is for the beneficiaries to waive the right in return for compensation, for the right to be deleted from the land register and for the house to be sold unencumbered. For this, the beneficiaries must consent and be capable of judgement.
What happens to the right of residence when the parents move into a care home?
The right of residence can neither be let nor sold; it becomes effectively worthless but remains in the land register until it is cancelled. The child often pays compensation for the waiver, which the parents use to help finance the care home. With a usufruct, on the other hand, the parents can let the property and keep the income.
Right of residence or usufruct for your house?
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