The lifelong right of usufruct – the foundations

The registration of a lifelong usufruct right in the land registry is a capital protection strategy quite often chosen in practice by property owners in Ibiza to reduce the high tax burden.

A classic case study provides for the parents to acquire the property directly in their children’s name or to transfer the property to them and grant themselves a lifelong usufructuary right.

Whether the creation of a usufructuary right makes sense must be examined in each individual case. Here the basics of the lifelong usufruct right in Spain should be explained.

The lifelong usufruct right is called “usufructo vitalicio” in Spanish and it is a right of use in rem, which is regulated in the Spanish Código Civil. The usufruct embodies the right secured in the land register to be able to use a foreign object permanently. Even if the usufructo can be limited in time, the practical meaning is lifelong usufruct. Through proper order, the children become “naked or bare owners” (“nuda propiedad”) of the property. The parents are the usufructuaries (“usufructuario”) and receive lifelong ownership and use of the property.

For this reason, the lifelong usufructuary right makes sense above all in a family context, where there is a clear difference in age between the “naked” owner and the usufructuary.  The parents as usufructuaries know that they can use the property until the end of their lives. At the same time, however, the children already own the property now and will only take over the use of the property themselves after the death of their parents. At the death of the parents, the property does not fall into de estate and a notarial acceptance of inheritance in Spain will then usually not be necessary (unless there are other assets). One should know, however, that even a usufruct right is seizable (the right of residence, “derecho de habitación”, however, not) and the nießbrauchsberechtigte parents who have transferred the “bare property” to their children before, can no longer sell freely, and they are thus dependent on their own children.

Because the usufructuary holds a position similar to that of owner, the legislator imposed on him the full cost of the property. He must keep the property in good condition, pay all running costs (electricity, water, owner’s charges) including taxes (property taxes, garbage fees), but conversely he can also rent out the property at any time and collect the rents, in contrast to a pure right of abode (“derecho de habitación”), which only entitles to own use. The “naked” owner (“nuda propiedad”) has the obligation to pay the investments which preserve the substance of the property:
For example, if the roof needs to be renovated due to water permeability.

The order of usufruct is taxable, but reduces the tax burden. The lifelong usufruct can have a maximum value of 70% and no less than 10% of the property. The highest value of 70% is for usufructuaries under 20 years of age and the lowest of 10% for usufructuaries over 79 years of age. This means that from the age of 20 the value of the usufruct decreases by one percentage point every year. It can therefore be calculated using the formula: usufruct = 89 minus age of the usufructuary.

The value of the usufruct for a usufructuary of 64 years of age is thus, for example, 25% of the total value of the property (89 – 64 = 25). Consequently, this means that in this case the property has a value of 75%.