How many times have we thought that we could have done something better from the beginning?
When we are buying a property it’s not different. There are many factors to take into account when buying, for example, if you buy alone or with a partner. But today I want to talk about the options that exist when you have children and the concern that all parents have about what will happen when they pass away. Although it is true that to date, in the Canary Islands, Inheritance and Gift Taxes are very low for first-degree relatives (for more detailed information I recommend asking your tax advisor), the truth is that no one knows how long he will live and how much inheritance taxes he will one day leave to his descendants, especially considering that the tax regulations change almost every year.
That is why I want to inform you today about something that many people do not think about when buying: the possibility of dividing the purchase into usufruct and bare ownership. Lifetime usufruct (there are others of a temporary nature as well) is the right to use and dispose of the home with basically no other limit than not selling or encumbering it, while bare ownership is a kind of ownership that is "stand by" while the usufructuary lives, but becomes full property at the moment of his death.
When buying, nothing prevents one from simply acquiring the usufruct and buying the bare ownership in the name of another person or persons. If the acquisition of the bare ownership by, for example, the children is paid with money from the parents, this entails making a donation of said money to the children, whose taxation may vary depending on the country in which the donation is made.
Considering the purchase of usufruct and bare ownership from the beginning can be economically advantageous. If a full owner decides at a later moment to donate the bare ownership to his children, he would have paid at the beginning not only an extra Property Transfer Tax, but also - even in the event that the donation of the bare ownership could benefit from a low taxation - the Spanish Treasury will impose personal income tax on a fictitious profit calculated between the acquisition value and the (Treasury estimated) value at the time of donation. This fictitious income tax has already led to a multitude of scary and unpleasant surprises due to ignorance, as it is difficult to imagine that donating a real estate property makes a taxable profit. If the operation is considered at the beginning one can save a lot of money.
In addition to the economic benefits, this split ownership is an excellent option to make it clear to your heirs what they will receive and avoids fights between them when one is passed away. At Mi Paraiso Real Estate we want you to manage your real estate in the most advantageous way possible.