When an inheritance is divided between usufruct and bare ownership, the challenge is to determine who uses what, who decides, and how much each part is worth, especially in the case of property and cash.
Here we explain, using practical criteria, how usufruct is calculated and how ITP and capital gains fit into the equation for settling taxes.
What is usufruct in an inheritance?
When an inheritance is divided into usufruct and bare ownership, it is not enough to simply “divide it up”: rights, obligations and values are separated, and the home or cash are treated differently.
Definition of usufruct and bare ownership
In an inheritance, the usufructuary has the right to use and enjoy an asset (receive income, live in the property), while the bare owner holds title to the asset without that use or enjoyment. When the usufruct ends, ownership is consolidated: bare ownership becomes full ownership.
Differences between usufructuary and bare owner
Beneficial owner: use the property and reap its benefits; you must maintain it and bear certain costs of maintenance and ordinary use.
Landowner: is the “legal” owner; among other things, he assumes extraordinary expenses and bears the burden of the property being encumbered by the usufruct until its extinction.
Types of usufruct in inheritance (life interest, temporary, universal, partial)
- Life interest: lasts until the death of the usufructuary.
- Temporary usufruct: is limited to a specific period (e.g. 10 years).
- Universal usufruct: falls on the entire estate.
- Partial usufruct: affects only part of the estate (for example, the home or a percentage of the inheritance).
How inheritance distribution with usufruct works
The usufruct of the surviving spouse and the rights of the children
If there are children, the surviving spouse has the usufruct of one third of the estate (the children are compulsory heirs of the legitimate portion). If there are ascendants (but no children), the surviving spouse has the usufruct of half; if there are no descendants or ascendants, the surviving spouse has the usufruct of two thirds.
In addition, the widower may request that his usufruct be commuted for money or a lot of goods, at the children's choice, according to the Article 840 of the Civil Code.
Distribution of assets and money in an inheritance with usufruct
How are assets and money distributed in an inheritance with usufruct?
In the real estate (e.g. housing) are usually awarded in bare ownership to the heirs (children) and in usufruct to the widower.
In the case of money in accounts or funds: we are talking about quasi-usufruct. The widower may use that money, but when the usufruct expires, he must return the same amount (or its value) to the bare owners. It is a classic concept provided for by the Civil Code and mentioned by the Bank of Spain in its information notes.
Inheritance without a will: how usufruct applies
In intestate succession (without a will), the same rules of legitimate inheritance apply: the children inherit ownership and the surviving spouse holds the usufruct under the terms indicated (one-third of the estate if there are children; one-half if there are ascendants; two-thirds if there are no descendants or ascendants). Act 15/2005.
Special cases: primary residence, money in accounts or funds
What happens in special cases such as the primary residence, money in accounts or funds?
- Primary residence: It is common to assign bare ownership to the children and lifetime usufruct to the widower to ensure its use.
- Money in accounts/funds: quasi-usufruct applies (current use with obligation to return at the end of the usufruct).
How is the value of usufruct calculated in an inheritance?
Formula for calculating life interest based on the age of the beneficiary
What is the formula for calculating life interest based on the age of the beneficiary?
For life interests, the state regulation establishes: 70% of the value of the property when the beneficiary is under 20 years of age, decreasing by 1% for each additional year, with a minimum of 10% and a maximum of 70%.
In temporary usufructs, the value is 2% for each year of duration, with a limit of 70%.
In practice, for life annuities, it can be thought of as: percentage = 70% − (age − 20) (never below 10%). Inheritance and Gift Tax Regulations.
Practical example of calculating usufruct
Here you can see a practical example of calculating usufruct:
For a property valued at €300,000 and a 72-year-old widower with life interest.
Percentage of usufruct = 70% − (72 − 20) = 18%
Value of the usufruct = €300,000 × 18% = €54,000
Value of bare ownership = €300,000 − €54,000 = €246,000
Valuation of usufruct and bare ownership
How is usufruct valued and, consequently, bare ownership?
Bare ownership is obtained by subtracting the value of the usufruct calculated using the above rule from the full ownership. Regional administrations and tax manuals use exactly this reverse valuation criterion.
Taxation: taxes and obligations in an inheritance with usufruct
Inheritance and Gift Tax
How does inheritance and gift tax (ISD) affect you?
Acquisition mortis causa (both bare ownership and usufruct) is subject to inheritance tax.
If ownership is subsequently consolidated due to the death of the usufructuary (the bare owner then has full ownership), it is taxed again according to the title of the dismemberment and the criteria of each community: when the origin was inheritance/donation, the consolidation is declared in ISD for the outstanding portion (form 653/655 and specific deadlines are usually used).
Property Transfer Tax (ITP) on bare ownership
When does Property Transfer Tax (ITP) come into play in bare ownership?
If there is a costly transfer (sale) of bare ownership or usufruct between individuals, it is subject to ITP (TPO) and the base is the value of what is acquired:
Bare ownership = full ownership − value of the usufruct.
Temporary usufruct = 2% × years (max. 70%); life usufruct = age rule (min. 10%, max. 70%).
The rates and allowances depend on each Autonomous Community. (For example, Madrid).
Who pays the municipal capital gains tax?
Who pays the municipal capital gains tax (IIVTNU) in these cases?
Municipal capital gains tax is a local tax levied on the increase in value of urban land and, following the 2021 reform, is not payable if there is no increase (you can choose the most favourable calculation method between objective and actual). (Extinction of usufruct Tax Agency). In transfers mortis causa, taxpayers are those who acquire the property or real right (heirs/legatees). If it is separated into usufruct and bare ownership, each acquirer may be liable for tax on their share according to the distribution and municipal ordinance.
Taxation in the event of the sale of usufruct or bare ownership
How is the sale of usufruct or bare ownership taxed?
Seller (personal income tax): when selling usufruct or bare ownership, the seller declares the gain or loss on their personal income tax return (difference between the transfer value and the acquisition value). Tax Agency
Buyer (ITP/VAT): in the case of a second transfer between private individuals, it is usually subject to ITP; if it is a first delivery subject to VAT, the scheme changes.
Consolidation by purchase (the bare owner purchases the usufruct, or vice versa): taxation according to the transaction (usually transfer tax if it is onerous).
Sale, renunciation or termination of usufruct
Can the usufruct of an inheritance be sold or renounced?
Can the usufruct of an inheritance be sold or renounced?
Yes. Usufruct is a transferable right (unless prohibited by the title). It can be sold, donated or renounced. Renunciation may have tax implications (e.g. donation) and should be analysed on a case-by-case basis.
Cancellation of usufruct and consolidation of ownership
How is usufruct cancelled and ownership consolidated?
Usufruct is extinguished upon the death of the usufructuary (lifetime), upon expiry of the term (temporary), upon renunciation, upon loss of the property, etc.
With extinction, the owner consolidates ownership and must pay the corresponding tax according to the original title (ISD if the dismemberment was lucrative; ITP if it was onerous) and the applicable regional rules.
Effects on capital gains and property valuation
What effects does this have on capital gains and property valuations?
Consolidation due to the death of the usufructuary does not always trigger municipal capital gains tax (according to current doctrine and the 2021 reform, the key point is whether there is a transfer and whether there is a real increase). Check local regulations and regional criteria in each case. BOE+1
For valuation purposes, the key amount is the value of the usufruct according to the valuation rule on the date of the division, with regional variations in models and deadlines.
Conclusion: the importance of a professional valuation in inheritances with usufruct
In inheritances with usufruct, calculating the value of the usufruct and the bare property correctly, choosing the best way to commute the usufruct and correctly settling ISD, ITP and capital gains avoid tax errors, delays and, above all, family disputes. The general regulations are state regulations, but the final figures depend on valuations and regional and municipal rules. For this reason, a valoration of assets in inheritance professional and independent makes the difference.
At Gesvalt, we help you assess the usufruct or bare ownership of your inheritance to avoid family disputes: the settlement is well-founded, understandable and without surprises with the tax authorities.
Frequently asked questions and answers about usufruct and inheritance
What is usufruct in an inheritance?
It is the right to use and enjoy inherited property without being its owner. Heirs who receive bare ownership are the “legal” owners of the property, which becomes full ownership when the usufruct ends.
How is the value of a life interest calculated?
With the legal rule: 70% of the value of the property if the usufructuary is under 20 years of age, subtracting 1% for each additional year, with a minimum of 10% and a maximum of 70%. For temporary usufructuaries, 2% per year (maximum 70%).
What rights does the surviving spouse have in an inheritance with usufruct?
The usufruct of one third of the estate if there are children; half if there are ascendants; two thirds if there are no descendants or ascendants. You may request conversion into money or a share of the estate (Art. 840 CC).
Who pays capital gains tax on an inheritance with usufruct and bare ownership?
In mortis causa, taxpayers are those who acquire the property or right (heirs/legatees). If it is separated into usufruct and bare ownership, each acquirer may be taxed separately, and no tax is payable if there is no increase in value following the 2021 reform. Check the municipal by-law.
Can the usufruct of an inheritance be sold or renounced?
Yes. Selling or relinquishing ownership has tax implications: the seller declares the gain/loss on their income tax return and the buyer pays transfer tax (except in cases where VAT applies). If there is consolidation (the bare owner acquires the usufruct), tax is paid according to the transaction and the origin of the division.