Usufruct and dismemberment of property: concept and definitions

Full ownership : Article 348 of the Civil Code: "Property is the right to enjoy and dispose of something, with no limitations other than those established by law."

Domain dismemberment : The dismemberment of full ownership (ownership) entails the separation of the powers that comprise the right of ownership through the constitution of real rights of enjoyment over the property (right of usufruct, rights of use and habitation and easements) and the right of bare ownership.

Usufruct : The right of usufruct grants the right to use, enjoy and benefit from another's property without altering its form or substance (articles 467 to 522 of the Civil Code).

Bare ownership : Bare ownership constitutes the right to fully enjoy ownership of the property when the usufruct is extinguished. While the usufruct lasts, the bare owner only has the power to dispose of the property but not the use, enjoyment and utilization of it.

• The owner reserves the bare ownership and constitutes a right of usufruct in favor of a third party : The person in whose favor the usufruct is established as beneficiary must pay taxes for ITP or ISD (depending on whether the establishment of the usufruct in his/her favor was for a fee or for profit). The owner obtains in the IRPF for the constitution of the usufruct real estate capital returns.

• The owner transfers the bare ownership and reserves the usufruct : The purchaser of the bare ownership must pay taxes on the transfer by ITP or ISD (depending on whether the transfer is onerous or gratuitous) and the owner is subject to IRPF for the capital gain or loss generated by said transfer. However, no taxation or taxable event arises from the right of usufruct, which remains in the possession of its owner.

• The owner establishes the usufruct and transfers the bare ownership to different persons : Each of the purchasers must pay ITP or ISD (depending on whether it is onerous or gratuitous) for the constitution of usufruct, and for the transfer of bare ownership. The owner, except in cases of succession mortis causa, obtains in the IRPF for the constitution of the usufruct real estate capital gains and for the transfer of bare ownership in the IRPF a capital gain or loss.

Valuation of usufruct rights (Articles 49 and 51 of the ISD Regulations and articles 10 of the consolidated text of the ITPAJD Law )

• Temporary usufruct : It shall be deemed proportional to the total value of the assets to which it applies, at a rate of 2% for each one-year period, without exceeding 70%. Fractions of time less than a year will not be computed, although usufruct for a period of less than a year will be computed at 2% of the value of the assets.

• Lifetime usufruct : The value will be estimated to be equal to 70% of the total value of the assets when the usufructuary is less than twenty years old, reducing the percentage in the proportion of 1% for each additional year, with a minimum limit of 10%. (Practical rule for calculating usufruct: subtract the age of the usufructuary from the number 89. The result of this operation gives us the percentage of the value of the usufruct: [(89 - age of the usufructuary) / 100]).

• Other types of usufruct :

  • Lifetime usufructs which are also temporary (Article 49.c) Regulations of the ISD )

  • Usufruct in favor of a legal entity (Article 49.d) Regulations of the ISD )

  • Usufruct with a resolutory condition other than the life of the usufructuary (Article 51.7 Regulations of the ISD )

  • Successive usufruct (Article 51.5 Regulations of the ISD )

  • Usufruct established in favor of spouses (Article 51.5 Regulations of the ISD )

The value of the bare ownership will be calculated by the difference between the value of the usufruct and the total value of the assets.