Several clients buy Spanish property together with the children. One avenue is then to buy the usufruct in the parents' name and the bare ownership in the children's name. Other clients have inherited the usufruct on a property in Spain. Therefore, this article will discuss how the end of usufruct in Spain is taxed.
What is usufruct and bare ownership?
With usufruct, you have the right to use the property temporarily (in practice for life) and rent it out as the owner. However, you are also responsible for day-to-day burdens. Think maintenance costs and taxes.
The bare owner is not allowed to use the property, but regains full ownership after the usufruct extinguishes. In practice, this is when the usufructuary dies.
In Spain, the tax at the end of usufruct depends on how the usufructuary acquired his rights.
The usufructuary bought the usufruct
As part of succession planning, split purchase is often considered. This means that the parents buy the usufruct and the children buy the bare ownership. When the parents later die, the children obtain full ownership.
In that case, the children will incur registration fees (ITP) pay on the initial share the usufruct in the new value of full ownership. Registration fees depend on the autonomous region. In the Comunidad Valenciana (Costa Blanca), for example, the rate is 10%. In Andalusia, the rate is 7%. The rates at the time the usufruct is extinguished apply.
An example. You buy a 100,000 euro property in Costa Blanca. The usufruct is valued at 35%, i.e. 35,000 euros. The bare ownership is 65% or 65,000 euros. Your death 20 years after purchase extinguishes the usufruct. The property is valued at EUR 200,000. The bare owners then pay 10% on 70,000 euros, 7,000 euros.
Note: there are some legal presumptions. For example, if the usufructuary dies within 3 years of split purchase, inheritance tax will apply.
Read more about split purchase in Spain.
The usufructuary has inherited the usufruct
Usually, the surviving partner inherits the usufruct on all real estate. The children inherit bare ownership. When the surviving partner dies, the usufruct extinguishes.
The children then pay Spanish inheritance tax on the value of the usufruct. The inheritance tax also depends on the autonomous region.
