Right of residence and usufruct of parental property: tax and legal aspects

Many parents transfer their property to their children and secure a right of residence or usufruct in the process. In such cases, anyone who has a right of residence or usufruct to a property free of charge must pay tax on the imputed rental value – i.e. as if they owned the property themselves.

An alternative is to transfer the property with a rental agreement for the parents. In this case, the rental income is taxable for the descendants. If the rent is too low, the imputed rental value can still be taxed. As the regulations vary from canton to canton, it is advisable to clarify this with the tax authorities or a tax advisor.

A right of residence or usufruct remains in place even if the property is sold. Therefore, a restriction on sale is not usually necessary when selling the property to a third party. However, if the parents want the property to remain in the family, they can have a right of first refusal or right of repurchase entered in the land register. Without a special provision, the right of residence or usufruct remains in place until the death or voluntary renunciation of the beneficiary. However, if the person becomes incapable of judgement, e.g. due to dementia, they can no longer renounce it themselves.

One solution is to stipulate a condition subsequent in the contract – for example, that the right of residence expires if the property is no longer used or is vacant for more than a year. The owner can then apply for cancellation in the land register.