In recent years, many of our clients have decided to purchase their home in Spain using the formula in which the parents receive the usufruct and the children the bare ownership — thus avoiding inheritance taxes for passing on property from parents to children-. But is it always worth buying a property with usufruct? In the following article, we will give you an overview of what usufruct is and what it entails.
What is the usufruct of someone else’s property?
Usufruct is a real right of enjoyment of another person’s property, whereby someone can use another person’s property and enjoy its benefits, with the obligation to conserve and care for it as if it were their own.
There are different types of usufructs: temporary usufruct, which is for a specific period, and life usufruct.
What are the advantages of inheriting a house in usufruct?
When you inherit a property in usufruct, you acquire the right to use it, but not the ownership, which falls to the figure of the bare owner. Thus, it is possible to inherit a property in usufruct, but not to inherit a usufruct, as this is extinguished with the death of the person.
How is the economic value of the usufruct for life calculated when acquiring a property?
The question arises as to how the usufruct is taxed when acquiring a property. The tax to be paid will be the Transfer Tax, which varies depending on the Community in which the property is located. That tax will be applied on a given value which shall be established by the following formula, which is used to calculate the economic value of the usufruct for life: Usufruct = 89 — age.
The minimum value of the usufruct for life will be of 10 % of the total value of the property and the maximum value will be of 70 % of the total value of the property.
Who pays the costs of a house in usufruct?
The bare owner will have to pay the expenses of the property (Local Property Tax), while the usufructuary will pay those related to the use and enjoyment (utilities, community, rubbish tax).
Usufructuary vs. bare owner
The bare owner of a property has limited power over it, as he cannot sell it in its entirety or enjoy it (he can sell his bare property). On the other hand, the usufructuary has to bear limited expenses, as most of these are borne by the bare owner.
Another option for the usufructuary is to rent the property. By having the right of use, the usufructuary can earn rent for the property.
Is it always profitable to establish a usufruct?
In order to know whether a life usufruct is profitable, there are several factors to take into account, such as the age of the usufructuary(s), the years of duration of the usufruct and the monthly rent that could be obtained by renting out the property.
For these and other questions regarding the usufruct of a property, our team of lawyers specialised in Real Estate Law have an in-depth knowledge of these issues and can advise the client on them.