When buying property in Spain, many families look for ways to transfer their property in a tax-efficient and beneficial way. A popular strategy is the split purchase, where the property is divided between usufruct (usufructo) and bare ownership (nuda propiedad). This method offers numerous advantages in terms of inheritance tax, estate planning and rights of use. In this article, we explain how a split purchase works and why it can be so advantageous.
Split Purchase of Real Estate in Spain
What is a split purchase?
A split purchase is a legal arrangement in which the ownership of a property is divided between different parties. In practice, this means that bare ownership and usufruct are separated. The bare owner holds the property, while the usufructuary has the right to use it or generate income from it for a specific period, usually for life.
In Spain, it is common for parents to retain the usufruct while their children acquire the bare ownership. This is formalized through a notarial deed and is a widely used strategy within families. The funds for the purchase of the bare ownership can be gifted by the parents to the children in advance, but gift tax must be paid on this amount.
The Spanish notarial purchase deed
It is entirely possible to purchase a property in Spain in the form of bare ownership and usufruct. However, it is important to note that the value of the bare ownership and usufruct is determined according to Spanish regulations, not those of Belgium.
Why is a split purchase beneficial in Spain?
- Tax advantages
One of the main reasons why a split purchase is attractive is the potential savings on inheritance and gift taxes. Upon the death of the usufructuary (e.g., the parents), the usufruct automatically transfers to the bare owner (the children). This means they obtain full ownership without being taxed under inheritance law, although a Spanish transfer tax must be paid on the property's value. The tax regulations vary by autonomous region in Spain, but in many cases, significant savings can be achieved.
- Protection of usage rights
Parents retain the right to use or rent out the property for as long as they live. This ensures that they can continue to benefit from the property without any restrictions from the children as bare owners. This prevents potential conflicts and ensures continuity within the family.
- Estate planning
A split purchase is part of a broader estate planning strategy. Parents can transfer their wealth to their children in a timely and efficient manner without incurring high immediate tax burdens. This approach also helps manage and distribute family wealth more effectively, reducing potential disputes and uncertainties after the parents' passing.
Key considerations
Each party must pay their share. If parents cover the full cost of the purchase, including the bare ownership, tax authorities may consider this a "hidden donation," leading to inheritance tax being applied upon the parents’ death. It is therefore essential that the bare ownership is genuinely paid for by the bare owners.
Conclusion
The split purchase of real estate in Spain is a smart strategy for families looking to transfer ownership in a tax-efficient manner while preserving usage rights. It offers benefits in terms of inheritance tax, estate planning, and succession. Since tax regulations vary by region, it is highly recommended to seek professional advice from a specialized notary or legal expert in Spain.