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Many property owners ask themselves whether they are allowed to let their property to relatives. Whether it’s for studying or to help with a financial bottleneck – the generosity of many landlords is exemplary. In principle, you can decide for yourself who you rent to and at what price. Please note, however, that a preferential rent could result in higher taxes. Here you can find out everything you need to know about tenancies with relatives.
What needs to be considered when renting to relatives?
When renting to relatives or friends, you as the landlord normally set a so-called preferential rent. This can be as little as a few francs and you are basically free to choose the amount. Free rental to relatives is therefore permitted, but not recommended.
The so-called imputed rental value is important. If you set a rent that is less than 50% of the imputed rental value, the cantons in Switzerland consider this to be tax avoidance. Although this is not a criminal offense, it does carry severe penalties.
In this case, you must expect that you will still have to pay tax on the difference between the rent and the imputed rental value – even if you do not earn it at all. This means that renting to family members and other related parties is often a tax trap that can be expensive.
Please note that different rules apply in different cantons. While in some cantons a preferential rent of at least 50% of the imputed rental value is sufficient to avoid additional tax payments, other cantons (e.g. Bern) always add the difference between the rent charged and the imputed rental value to the taxes. In addition, further payments apply in some cantons that do not have an exemption from gift tax.
Measures to secure the rental to relatives:
- Always conclude a proper rental agreement instead of just granting a right of use – renting without a rental agreement is not recommended under any circumstances.
- Calculate the preferential rent so that it corresponds to the cantonal regulations, but is at least 50% of the imputed rental value.
- Observe the cantonal regulations, also with regard to gift tax.
Who is considered a relative when renting?
Who is considered a relative when renting?
The following persons are close relatives to whom you may rent at a lower rent under certain conditions:
- Spouse
- Life partners
- Children
- Grandchildren
- Parents
- Parents with a new partner
- Grandparents
- Siblings
It is also possible to rent to friends and acquaintances. However, as there are usually no special regulations on rent here, you should refrain from taking advantage of major rent concessions and from renting free of charge. If in doubt, ask your canton for advice.
What taxes are payable on preferential rents?
If you set a preferential rent, you must pay tax on all income as usual. In addition, depending on the canton, the difference between the preferential rent and the imputed rental value may be subject to gift tax, which can be quite high.
At the same time, when renting to relatives, you as the owner can deduct costs such as interest and expenses for building maintenance from this income in order to save on taxation. This also applies if you live in the apartment yourself. In this case, the imputed rental value is assumed, which, depending on the canton, is around 70% of the usual local rent.
Tip: In this article you can read more about the taxes incurred when renting out real estate.
How cheaply can I rent to relatives?
The question of the minimum rent for relatives or friends cannot be answered across the board in Switzerland. It is clear that the rent should be at least 50% of the imputed rental value. You should also find out from your canton what other rules and limits apply. You should refrain from giving up your living space rent-free.
For example, if you own an apartment in Zurich, the canton assumes that you can earn rental income of around CHF 2,000 (depending on the location and size of the apartment). In this case, the imputed rental value of the apartment is 70% of CHF 2,000, i.e. CHF 1,400 per month.
Assuming you rent out this apartment for just CHF 650 a month, you are falling into a tax trap. However, if the preferential rent is CHF 700 or more, you are on the safe side in Zurich and do not have to worry about additional taxes. However, the CHF 700 are subject to income tax as usual.
Can I rent an apartment for another person?
Renting an apartment for another person is not legally sound. Although you have the right not to be present in the rented apartment yourself, you may not allow another person to live in the apartment exclusively. In doing so, you are violating the Registration Act, among other things.
It is your duty as a tenant to inform the landlord of both extended visits by other people and any subletting. This is because the landlord has a right to know who is living in his rented apartment.
The landlord may not prohibit a family member from staying for a longer period of time. However, depending on the tenancy agreement and at your discretion, at a certain point the “visit” is over and you will have to find another arrangement. If close family members or partners move in, the landlord may not issue a ban, but you must inform him.
It is also important that you yourself spend most of your time in the rented apartment if another person who is not listed as a tenant in the rental agreement lives there. Otherwise, it is not possible to include them in the household and it is an “unauthorized transfer of space to third parties”, which is prohibited in the rental agreement.
Can I be liable for another person’s rent?
Another common question when it comes to renting with relatives is liability. Especially when younger family members without a fixed income want to rent an apartment, landlords often demand additional security. This can take the form of a guarantee or joint and several liability:
Guarantee: With a guarantee, you as the guarantor conclude a contract with the landlord and agree to assume liability up to a defined maximum amount. This way, the landlord knows that he can demand payment from you if the tenant is unable to pay. Ideally, the guarantee agreement should be notarized.
Joint liability: With joint liability, you co-sign the tenancy agreement of the family member without moving into the apartment yourself. This option is less complicated than a guarantee and is also popular with landlords. You can demand the outstanding amount from any signatory to the rental agreement and, if they are unable to pay, you can turn to another signatory.
With this information, you are well equipped to let your property to relatives in a secure and tax-optimized manner.
All data are without guarantee. The information on these Internet pages has been carefully researched. Nevertheless, no liability can be assumed for the accuracy of the information provided.