What happens if I sell the bare ownership?

Question

José Manuel Alburquerque · Accepted Answer

If you sell the bare ownership of your home and keep the usufruct, the buyer becomes the owner as soon as the deed is signed, but you can go on living in it or let it out, normally for the rest of your life. When you die, the buyer will have full ownership without paying anything more. Your heirs will receive nothing from that home, although they will receive whatever is left of the money you were paid. The price is considerably lower than that of the whole home, because the buyer has to wait without knowing for how long. In general, you declare the gain for the “IRPF” (Spain's personal income tax) and pay the “plusvalía municipal” (the municipal capital gains tax), while the buyer pays the “impuesto de transmisiones patrimoniales” (the property transfer tax). What changes for each party The buyer is the owner from the date of the deed and can register the bare ownership in their name at the “Registro de la Propiedad”, the Land Registry, subject to the usufruct you keep, which is recorded as a charge. They can sell the bare ownership, give it away, mortgage it or leave it to their heirs. What they cannot do is use the home or collect any rent from it while the usufruct lasts, or make you leave. You keep the usufruct, which under the “Código Civil de Cataluña”, the Catalan Civil Code, lasts for life unless the deed says otherwise. You can live in the home or let it out and keep the rent. In the meantime, you pay the ordinary expenses, such as the IBI (the local property tax), the ordinary service charges of the owners' association (the “comunidad de propietarios”) and the repairs needed because of normal use. The buyer pays for extraordinary repairs. The deed may allocate these costs differently. If you later want to sell your usufruct, the buyer has a preferential right to buy it at the same price, unless the deed says otherwise. If the home belongs to a couple and they both keep the usufruct, the share of whichever of them dies first normally passes to the other. The buyer then has to wait until both have died. The price The buyer and the seller set the price freely. As the buyer will not be able to use the home until you die, they pay considerably less than for the whole home. In addition, few buyers are interested in bare ownership. For tax purposes, the tax authorities value a lifetime usufruct at a percentage of the home's value equal to 89 minus the usufructuary's age, with a minimum of 10 % and a maximum of 70 %. The bare ownership is worth the rest. For example, if you are 75, the bare ownership is worth 86 % of the value of the home in the eyes of the tax authorities. If the buyer is one of your children, be careful with the price. If it is well below that value, the difference may be taxed as a gift and be taken into account for the forced share (“legítima”) of your other children. Taxes They depend on the case and it is advisable to work them out before signing. In general, they are as follows: You declare the gain for income tax purposes. The gain is the difference between what you are paid and the part of what the home cost you that corresponds to the bare ownership, after deducting expenses. If you are over 65 and it is your principal residence, the gain is exempt, including when you sell the bare ownership and keep the usufruct for life. You also pay municipal capital gains tax, the town council's tax on the increase in the value of the land, on the part you sell. The buyer pays property transfer tax on the value of the bare ownership, at the rate that applies in Catalonia to the purchase of a second-hand home. When you die, the buyer does not generally have to pay any further tax on receiving the usufruct, because they bought the bare ownership rather than inheriting it. It is different when the bare ownership is received through an inheritance or a gift, because something more may then have to be paid when the usufruct ends. Under the Spanish Civil Code (“Código civil”), which applies in most of the rest of Spain, the civil-law effect is the same, although the bare owner has no preferential right to buy the usufruct. As for taxes, the rate of property transfer tax differs, as it is set by each autonomous community.