Inheritance: How to deal with an inherited property?
Although the context in which an inheritance takes place can be a painful life stage, inheriting a property represents an opportunity to round out one's real estate assets. This type of inheritance also represents a heavy administrative burden with significant tax implications. Cardis Sotheby's International Realty accompanies you step by step in this endeavour.
If the property is well located and in good condition, the inherited object can represent a real opportunity, as far as the debt is not too high and the charges (heating, hot water, taxation) are under control. If the property is rented, it is necessary that the tenants pay their rent regularly.
If all these conditions are met, the heirs can effectively receive a valuable object, with promises of significant capital gains and returns that can ensure the well-being of the heirs for many years to come. Unless they decide to sell the object, in order to make an immediate profit. Cardis Sotheby's International Realty advises you to evaluate the advantages of the property obtained by inheritance or to detect possible weaknesses related to a need for too costly renovations, potential debts or a poor geographical location. In this case, a resale of the inherited property may produce a price that barely covers the expenses, it may even be lower! Before accepting or refusing a bequeathed property, you should contact an expert in order to verify its market value, its intrinsic state and the debt for which it serves as a guarantee.
In addition, an inheritance is subject to inheritance tax. This depends on the canton and municipality of residence of the deceased, the location of the property in question and the degree of kinship between the heir and the deceased. The tax may be nil in cases of direct line inheritance and when the value of the inheritance is low. But it can also represent amounts of several tens of thousands of francs when the degree of kinship between the deceased and the heir is tenuous. The tax is calculated on the basis of the tax value of the property. Finally, when the inheritance tax is settled, the heir must think about his own tax return for the years to come. As his or her estate has become rounded, he or she risks being taxed on wealth. If the property is rented, the rents he receives will increase his income and therefore the tax concerned.
Example of direct line inheritance:
Let's take the example of a dwelling in Lausanne belonging to a person living in the same commune who has just died and thus bequeaths the property to his daughter:
- Tax value of the property: CHF 1'000'000.
- Mortgage debt: CHF 400'000.
- Lump-sum deduction: 20% of the value of the property (CHF 200,000).
- Value of the property subject to tax: CHF 400'000.
- The cantonal tax rate is 1.848%, the communal rate is identical. This represents 3.696% in total.
- Amount of cantonal tax: CHF 7392. Communal tax: CHF 7392. Total tax: CHF 14,784.
There is a way to moderate the tax burden. Spread the transmission of the property in several stages over several years. The donor can thus bequeath his property in advance to his heirs while retaining the usufruct. In this case, the testator is no longer the owner, but retains the use of his home. The heir becomes the owner, but without the rights associated with it: he or she cannot kick the occupant out. If they want to undertake major work (repairs, embellishment), the owner and the usufructuary must agree beforehand. The tax authorities, for their part, will make expert calculations to determine the share of tax due to each party. Its basis of calculation is the life expectancy of the donor at the time of the donation. As the tax authorities apply a deductible amount (250,000 francs in the canton of Vaud), the tax burden is reduced. If the tax value of the property attributable to the owner or usufructuary falls below this deductible amount, the tax falls automatically..
The heir must ensure:
- that the object is in good condition;
- that it is not covered by debts;
- that he or she can bear the tax burden;
- that he or she will be able to meet the costs of operating and maintaining the property.
To moderate the tax bill, he can propose :
- an advance donation of the property, in order to share the tax burden.
In all cases, the experts at Cardis Sotheby's International Realty are at your disposal to evaluate your property received as an inheritance.