Carlos Baos – Expert Legal Advice

Beware of the capital gains tax when the property sold is burdened by a lifetime usufruct

In this week’s article we want to analyse an interesting case, which many people are probably not aware of. The capital gains tax on the sale of a property, when one of the sellers is a usufructuary.

First of all: What is the capital gains tax?

Although there are some deductions that allow you not to pay this tax (for instance, the sale of the main residence by tax residents over 65 years old), the capital gains tax is a tax that all vendors (residents and non-residents) must pay when transferring a property. This tax is calculated on the difference between the purchase price and the sale price.

Secondly: What exactly is a usufructuary?

Often, the ownership of a property can be divided into two: the bare owner (nuda propiedad) and the usufruct (usufructo). The bare owner is the registered owner but cannot use the property. On the other hand, the usufructuary is the person who has the use and enjoyment of the property. In Spain this is very common in case of inheritances: when a spouse dies and the widower inherits the usufruct, and the children the bare ownership.

What happens with the capital gains tax when bare owner and usufructuary decide to sell the property?

The key is that the acquisition value and the transfer value of both the usufruct and the bare ownership must be individualised. This can be done by applying a simple formula, that consists of subtracting the age of the usufructuary from 89. For instance, if mother and son inherit a house worth €200,000 and the mother is 55 years old, the value of the usufruct will be 89 – 55 = 34%. That is, €68,000 (38% of €200,000). The value of the bare ownership will be the difference = €132,000. The same calculation must be done in the sale. Logically, as time goes by, the value of the usufruct will decrease, and the value of the bare property will increase. If mother and son decide to sell the house, 20 years later, for 280,000 euros, the calculation would be as follows. Value of the usufruct when selling = 89 – the age of the usufructuary. In this case 89 – 75 = 14%. The usufruct will be valued at 39.200€ (14% of €280,000). Accordingly, the bare ownership, at the moment of sale, has a value of €240,800.

As we can see, the capital gain of the bare owner will be very high (240.800 – 132.000 = 108,800). Even higher than the real difference between both global amounts of purchase and sale (280,000 – 200,000 = €80,000). Although it may seem strange, from a tax and legal point of view, this makes sense. As over time, the value of the usufruct decreases and the bare ownership increases.

At White-Baos Lawyers we are experts in conveyancing. If you are selling your property, and there is a lifetime usufruct registered in it, you can assist you. Do not hesitate to contact us. We will study your case and offer you expert legal advice on the matter.

You may be interested in the following services and articles:

Sale and reinvestment in main residence with mortgage. Personal income tax exemption. Capital gains. Supreme Court jurisprudence. Expert legal advice.

Expert legal advice. Capital Gains Tax in Spain. Main home exemptions.  Reinvestment in main residence or sale being over 65 years old.

Tips for selling a property in Spain. We explain how to avoid the most common mistakes: Land Registry. Cadastre. Capital Gains Tax. Plusvalía. Etc.

Carlos Baos (Lawyer)

White & Baos.

Tel: +34 966 426 185

E-mail: info@white-baos.com

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