Life annuity: a new solution for real estate in Switzerland!
In the collective unconscious, life annuities have a negative or even immoral connotation. However, the opposite is true. In fact, this type of sale allows the seller to guarantee financial security for life, while remaining in his property and manage his inheritance plan.
For the buyer, it is a way to invest in real estate under advantageous conditions.
Nevertheless, life transactions need to be well supervised, both for the seller and the buyer. With Salmon Immobilier, we have developed solutions which provide you with the best possible support in all your dealings. We go beyond the conventional real estate agency business, thanks to a selection of specialised partners who can find the answers to all your needs.
Life annuity, how does it work?
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The life annuity is an act of sale between :
– The seller (creditor): continues to live in his property thanks to a « droit d’habitation » (or a « usufruit »), he receives a lump sum and/or an annuity until his death.
– The buyer (debirentier): pays the bouquet and/or the annuity until the seller’s death, then acquires the property.
The different types of life annuity :
Occupied life annuity
This is the vast majority of cases. The seller retains the right to use and live in the property until his death. The buyer owns the property but does not have free use of it.
Free life annuity
This is a rarer case. The buyer has free disposal of the property. As in the case of an occupied life annuity, the buyer must pay the seller a bouquet at the signing of the deed, as well as an annuity for life, which is generally higher than in an occupied life annuity.
Partially occupied life annuity
The seller retains a right of habitation only over part of the property. The buyer has the possibility to use the other part of the property as he wishes.
Life annuity or forward sale :
A time limit is set for the payment of the annuity and the usufruct. This is a possibility for younger sellers (e.g. between 65 and 70). If the seller dies before the agreed date, the annuity payment will be due to the heirs.
This type of sale is a notarial act.
The 4 elements of a life annuity sale :
The market value of the property – This is the market value of the property. It is used as a basis for determining the amount of the usufruct (or right of habitation), then the bouquet and the annuity.
The « droit d’habitation » and « usufruit ») – The seller’s right to live in the property.
The bouquet – This amount is fixed between the seller and the buyer. This percentage generally varies between 20% and 30% of the market value of the property.
Annuity – The payment of a lifetime annuity to the seller by the buyer.
The advantages of life annuity
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For the seller
Longer life expectancy, better medical care and home services make it possible to stay in your home longer. In this context, life annuities can meet real and immediate needs that no other solution can offer:
- Solve a financial problem: have the guarantee of staying in your property and avoid a forced sale, when it is sometimes complicated to repay or renegotiate your mortgage.
- Manage your inheritance plan serenely : be able to manage your estate while you are still alive and ensure that your assets are passed on so that all your loved ones are protected.
- Enjoy life: enjoy additional income to carry out dream projects, without compromising your financial or asset balance.
With Salmon Immobilier, you will be accompanied in the best conditions in your property sale process. The company’s values are based on ethics, trust and proximity to its clients, in order to best meet your needs.
For the buyer
In the current economic climate, the insecurity of the markets and the low return on assets (negative interest rates), life annuities are the most suitable solution for people or institutions wishing to invest intelligently and securely with a guaranteed return. It is also a way of ensuring a return that surpasses the more traditional investment alternatives (rental property, life insurance, etc.).
In summary, buying a life annuity is :
- A safe investment with many tax advantages.
- Access to property in a market where prices are often high.
- A solution where both parties benefit financially.
Salmon Immobilier has made agreements with financing organisations to facilitate access to mortgage package for buyers.
We offer you several possibilities depending on your situation and your needs via institutional banks or private financing.
We will accompany you through this process, which can often be very complex and time-consuming.
A favourable socio-economic context for life annuities
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The ageing of society has important consequences on:
- The purchasing power of senior citizens
- Renegotiation of mortgages
- Financing of health expenses
- The reorganisation of housing
Senior citizens often find themselves with a nice property but with too little income to live their retirement fully or to contribute to the needs of their loved ones.
All surveys of senior citizens show that they want to “age well”, including two major points:
- Stay at home as long as possible;
- Have sufficient financial resources for current expenses, such as health, leisure, loss of autonomy and possible contribution to the needs of their children.
The life annuity is therefore the optimal solution for those who need additional income during their retirement.
- The guarantee of an annuity for the rest of your life
- A potential support at home
- Allows you to monetise your real estate assets in order to improve your comfort of living
- Preserve financial autonomy
The ageing population in Switzerland
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Life annuity financing in broad terms:
As with any property purchase, the buyer will have to meet certain conditions to obtain financing. The seller will need to ensure that the initial capital payment (the bouquet) covers, among other things, the repayment of any mortgage and penalty for early termination of the commitment, as well as the property gains tax and the broker’s commission. To pay the bouquet, the buyer will generally need to have his own funds, as banks will be reluctant to advance the sum through a loan. They will not be able to have a 1st rank guarantee on the property in question, but only a 2nd rank, as the seller’s « droit d’habitation or Usufruit » has priority. As a result, the banks cannot seize the property and ask the seller to vacate his home if, for example, the buyer does not repay his mortgage. However, if the property is already subject to a mortgage, the initial deposit paid by the buyer will be used to repay the mortgage. Nevertheless, Salmon Immobilier is a pioneer in finding solutions for obtaining a mortgage with the help of banking and insurance partners for private individuals.
Example of a life annuity sale :
Mr. Dunand, 70 years old, owns a villa.
The market value of his villa is CHF 900,000.
Value of the bouquet: CHF 250,000 (28%)
Value of the right of habitation for life: CHF 370,000
Value of the life annuity: CHF 1’900/month
The buyer is obliged to pay CHF 250,000 in cash to the notary at the time of the property transaction.
In addition, the buyer must pay CHF 1,900 per month to Mr Dunand until his death.
Taxation and succession
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With Salmon Immobilier, whether you’re a buyer or a seller, we’re with you every step of the way, including from a tax point of view. In order to meet our clients’ most technical requirements, Salmon Immobilier has set up a partnership with Brodard Avocats SA, a law firm specialising in family law and taxation.
Brodard Avocats SA assists and advises its clients in all areas of taxation and has also developed expertise in life annuities. Whatever your questions or your personal situation, we have the answers to accompany you in the best conditions in all the cantons of French-speaking Switzerland (romandie).