When buying a property under the Spanish sun, it is interesting to consider how you are going to buy. After all, this can avoid unpleasant or pricey surprises afterwards.
PURCHASING AS AN INDIVIDUAL UNDER USUFRUCT / BARE OWNERSHIP: WHAT YOU NEED TO KNOW
As a Belgian citizen, if you own a Spanish property in full ownership and you pass away, inheritance tax in Belgium can be substantial.
Therefore, in many cases, it can be advantageous to purchase your new gem under a split purchase.
When you decide to make a split purchase, it means you won't be buying full ownership in this case.
In this scenario, typically your children would purchase the bare ownership and the parents the usufruct.
This technique essentially divides full ownership into two: bare ownership - usufruct, and is also very common in Spain.
In summary:
- Usufructuaries have the enjoyment of the Spanish property. They can live there or rent it out and collect income from it.
- Bare owners own the Spanish property itself, but cannot derive any enjoyment or income from it.
The Spanish Notarial Purchase Deed
You can perfectly purchase your Spanish gem under bare ownership / usufruct. However, it's important to know that the value of bare ownership and usufruct is determined by the Spanish distribution key and not by Belgium.
What happens upon the death of the usufructuaries?
When an owner in full ownership passes away, their heirs will pay inheritance tax in Belgium.
However, if the purchase was made with a split usufruct / bare ownership, these inheritance taxes are waived when the usufructuary dies. However, the bare owner will have to pay Spanish transfer tax on the value represented by the usufruct.
What to watch out for
Each person pays their own share. Suppose you, as a parent, pay the full amount (including the bare ownership portion), you could quickly run into trouble.
The tax authorities consider this a "covered benefit" and will impose inheritance tax upon death.
Therefore, it's important that the bare ownership is actually paid by the bare owners themselves.
Solutions:
If your children have the means to finance the value of the bare ownership themselves, it's important that they also personally pay for it.
The bank statements of payments are in this case an ideal proof to avoid future discussions. They are also added to the notarial deed in Spain.
However, often children do not have the means to purchase the bare ownership. In this case, parents can donate the value of the bare ownership to the children.
Ways to donate to your children
There are two ways to make a donation.
- Notarial donation: in this case, you pay 3%* donation tax. (*parents - children). By paying the donation tax, inheritance tax is automatically waived.
- Non-registered manual gift: you transfer the amount to your children's account and keep proof of it. No notary is involved and there is therefore no donation tax to pay. However, if you choose option 2, there is still a condition you must meet to definitively avoid the taxman. You must remain alive for three years after the donation. If the donor dies within three years of making the donation, the donated amount will be subject to inheritance tax, which is more expensive than donation tax.