After the article on the Split purchase in Spain we received a question about gifting with reservation of usufruct. Is this an interesting way to gift a holiday home in Spain?
What is a gift with reservation of usufruct?
You gift the bare ownership of the Spanish holiday home is given away to your beneficiary. However, as donor, you retain the usufruct. This way, you can continue to use and rent out the holiday home. When you die, the bare owner automatically acquires full ownership.
What taxes do I pay in Spain?
If you donate with reservation of usufruct, you are liable to tax in Spain. Not only will the donor then pay capital gains tax, also, the donee will pay Spanish gift tax and plusvalia muncipal pay on bare property.
So unlike the split purchase, you do not pay registration fees when you donate bare ownership.
Later on when the usufruct is extinguished, the bare owner will also pay a transfer tax. This tax depends on how the usufruct was obtained at the time.
Do I pay gift tax in Belgium?
As long as you do not register the gift deed in Belgium, the donee will not pay any gift tax on the Spanish property. The advantage of such a gift is that you then avoid inheritance tax and gift tax in Belgium on your Spanish property. This without losing control over your property.
A married couple wishes to gift the bare ownership of their Torrevieja flat worth 200,000 euros to their two children. The married couple will each pay capital gains tax on the proportionate share of the bare property. The children will then pay gift tax and plusvalia muncipal.
The ownership of the flat in Torrevieja will no longer be in the estate upon the death of one of the parents. As a result, the children will not pay inheritance tax in Spain and Belgium on the Spanish flat.
Donating with reservation of usufruct in Spain can be a cheap way to avoid inheritance tax in Belgium. In some situations, however, inheriting is cheaper than gifting. It is therefore recommended that you have your options studied and seek advice on succession planning.