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Practical Heritage Manual 2021.

7. Temporary or life annuities

Regulations: Art. 17.Two Wealth Tax Law

We must distinguish:

  • As a general rule , the valuation of temporary or life annuities established as a result of the delivery of capital, whether in money, movable or immovable property, the ownership of which corresponds to the declarant must be carried out by the result of capitalizing the annuity at the legal interest rate of money in force on the date of accrual of this tax (December 31) and taking from the resulting capital that part that, according to the rules established to value usufructs, corresponds to the age of the annuitant, if the annuity is for life, or to the duration of the annuity, if it is temporary.

    The rules for assessing usufructs can be consulted in section "Real rights of use and enjoyment (excluding those that, where applicable, fall on the taxpayer's habitual residence)", which is discussed in Chapter 3 of this Manual.

    For the 2021 financial year, the legal interest rate on money has been set at 3%. 

    When the amount of income is not quantified in monetary units, the valuation will be obtained by capitalizing the amount of 7,908.60 euros, the amount of the public indicator of multiple-purpose income (IPREM) for the year 2021.

  • As an exception , when temporary or lifelong income is received from life insurance, these will be computed at the value established in the valuation rule provided for life insurance in the taxable base of the recipient. That is, they will be computed at their redemption value at the time of the tax accrual and, from July 11, 2021, in cases where the policyholder does not have the power to exercise the right of total redemption on the tax accrual date, by the value of the mathematical provision on the aforementioned date in the policyholder's tax base.

Example

Mr. MPS, aged 60 as of 31 December 2021, transferred the apartment in which he resided in exchange for a life annuity of 12,000 euros per year. The legal interest rate on money in 2021 was 3%. 

Determine the value for which said life annuity must be declared in the Wealth Tax.

Solution

Capitalization of the income received:

12,000 x (100 ÷ 3) = 400,000 euros

The percentage corresponding to the life usufruct is applied based on the age of the annuitant:

(89 – 60) = 29%

Value of the life annuity:

29% of 400,000 = 116,000 euros