What does bare ownership consist of in Switzerland?

For property owners and investors, the division of ownership is an ideal tool for estate planning and tax optimization. In practical terms, full ownership of a property is divided into two distinct rights: usufruct and bare ownership.

• Bare ownership is a legal concept whereby a person owns a property without having the immediate right to use it or to receive income from it (which belong to the usufructuary).
  
• At the end of the usufruct most commonly upon the usufructuary’s deaththe bare owner automatically recovers full ownership, without additional costs.
  
• This separation is a key strategy for tax optimization (wealth tax) and estate transmission in Switzerland.

What is bare ownership under Swiss law?

Under Swiss law, bare ownership corresponds to holding the right to dispose of a property, while its use and income are attributed to another person, the usufructuary. This separation, known as the division of ownership, creates a structured legal balance governed by Articles 745 et seq. of the Swiss Civil Code.

The role of the bare owner (SCC Art. 745 et seq.)

The division of ownership is based on a classical distinction between three prerogatives:

• abusus: the right to dispose of the property, to sell it, mortgage it, or transfer it;

• usus: the right to use the property, for example by living in it;

• fructus: the right to receive income from the property, notably rental income.

Throughout the entire duration of the division, the usufructuary exercises usus and fructus, while the bare owner retains abusus.

This allocation requires limited but clearly regulated cooperation: the usufructuary must preserve the substance of the property and ensure its routine maintenance, while the bare owner safeguards its long-term patrimonial value.

How is bare ownership established in Switzerland?

Bare ownership most commonly results from a gift with reservation of usufruct, when a parent wishes to transfer a property while continuing to occupy it or collect rental income.

It may also arise from a will, a marriage contract, or an estate settlement. Regardless of its origin, the division of ownership must be formalized by a notarial deed and registered in the land register an essential condition to secure the parties’ legal positions.

Reversion and extinction of usufruct: becoming full owner

Usufruct ends automatically on the agreed date, or upon the usufructuary’s death in the case of a lifetime usufruct.

At that moment, the three attributes of ownership are reunited in the hands of the bare owner, who becomes full owner without any additional formalities and without further taxation linked to this reunification. This automatic effect is one of the major strengths of the structure, as it ensures a smooth and dispute-free transfer.

Use case no. 1: bare ownership as an estate planning tool

Bare ownership perfectly addresses family-related concerns: maintaining intergenerational balance, anticipating estate settlement, and limiting patrimonial friction. It allows parents to transfer assets while retaining control over their living environment or income.

Gift with reservation of usufruct: transferring without giving up

In Switzerland, gifting the bare ownership of a property is a common practice to organize a smooth transition between parents and children.

Parents transfer the bare ownership while retaining usufruct, allowing them to continue living in the property or collecting rental income to supplement their resources. This strategy offers several advantages:

• Locking in the property’s value on the date of the gift for the calculation of forced heirship shares;

• Avoiding conflicts at the time of estate division;

• Ensuring financial continuity for the donors.

Children, as bare owners, know they will ultimately receive full ownership without additional duties or taxes.

Optimization of cantonal inheritance taxes

In many cantons, transfers between parents and children are exempt from inheritance tax or subject to very low taxation. Gifting bare ownership therefore takes place within a favorable tax environment, especially when anticipating a significant transfer.

Moreover, tax authorities consider only the value of bare ownership for taxation purposes a value that is discounted compared to full ownership.

The longer the usufruct lasts, the greater the tax relief, since a higher discount significantly reduces the taxable base.

Use case no. 2: bare ownership as an acquisition and investment strategy

Beyond estate transmission, bare ownership has become an increasingly attractive financial tool for investors seeking to diversify acquisitions while maintaining control over their tax exposure.

Benefiting from the discount for long-term returns

Acquiring bare ownership allows investors to purchase a property at a discounted price. In other words, the investor benefits from a substantial reduction in the acquisition cost by renouncing use and rental income during the usufruct period.

This discount can amount to several tens of percent, particularly when the usufruct is established for a long duration (for example, when the usufructuary is young).

Upon extinction of the usufruct, the investor automatically and without additional cost recovers full ownership of the property, with a deferred but highly attractive capital gain.

The bare owner’s wealth tax advantage

Throughout the duration of the division, the bare owner’s taxable base is significantly reduced, as the usufructuary bears the wealth tax on the economic value of the property. The bare owner is taxed only on the value of bare ownership, which is substantially lower than the value of full ownership.

This reduction in the tax base can significantly lower wealth tax, particularly in cantons with high marginal rates (Geneva, Vaud, Zurich, Neuchâtel, etc.).

Managing operations and risks: key obligations of the bare owner in Switzerland

Allocation of expenses and major works

Swiss law clearly distinguishes between the responsibilities of the usufructuary and those of the bare owner. The usufructuary is responsible for routine maintenance and ordinary repairs (heating, interior painting, etc.). The bare owner, on the other hand, bears the cost of major repairs (SCC Art. 764), including:

• major structural works such as roof renovation, façade restoration, or foundation repairs;

• replacement of essential installations (elevators, boilers) when wear threatens the structure of the property;

• financing investments intended to maintain or sustainably increase the property’s long-term value.

This allocation clarifies obligations, minimizes disputes, and secures the preservation of the asset for the bare owner.

Financing: obtaining a mortgage for bare ownership

Financing bare ownership is possible in Switzerland, but it is subject to strict criteria. Banks consider that their collateral is temporarily deprived of usage. To obtain financing, borrowers must anticipate the following points:

Key banking considerations:

• Reduced collateral value: banks assess the property based on its divided value, not on full ownership.

• Higher equity requirement: loan-to-value ratios are generally lower than for a standard purchase, requiring higher personal contributions.

• Duration of the usufruct: the usufructuary’s age is a decisive factor (the longer the usufruct, the more cautious the bank).

How can a financial institution be reassured?

• Emphasize the coherence of the long-term strategy.

• Highlight the robustness of the Swiss legal framework and the certainty of recovering full ownership without additional costs.

• Demonstrate a very strong personal financial position (ability to service the loan without rental income).