Today, everyone knows that Spain has an increasingly aging population, with a the less uncertain future of pensions and with about a 84% of the general population as owners of a habitual residence.
These circumstances mean that many of our elders have certain problems when it comes to enjoying their retirement, so it is normal to consider looking for financial solutions that offer a supplement to the pension.
From Mas Vida, we want to show you the different options that older people have to obtain extra capital through their homes, in order to be able to face possible pending payments or simply with the aim of having a greater economic cushion than be able to enjoy
These can be classified into 2 large groups, those that involve a transfer of property and those that do not.
Modalities involving a transfer of ownership
- Bare Property
- Real Estate Life Annuity
- Sale with Guaranteed Rent (Sale & Leaseback)
Modalities that do NOT involve a transfer of ownership
- Reverse Mortgage
Within the modalities that involve a transfer of property, we are going to talk mainly about three options: the sale of the bare property, the real estate life annuity and the sale with guaranteed rent.
Although they seem similar, each one has its characteristics and it is key to understand and understand them so that, when the time comes, the option that best meets the particular needs of each person is chosen.
Sale of the bare ownership
Sell ownership of the property in exchange for a single payment
The sale of bare property it is an operation carried out before a notary, through which the elderly person sells the right of bare ownership of the home in exchange for a single initial payment or a deferred payment over time. This implies that the older person cease to be the owner of it, but still maintains the usufruct.
Two modes of usufruct:
- Sale of bare property with lifetime usufruct: With this option, the retired person receives a one time payment whilst continuing to use and enjoy the home for life.
- Sale of bare property with temporary usufruct: With this option, the beneficiary reserves the usufruct of the home for a certain period of time previously agreed with the buyer.
Purchase price
It depends on the age of the owners. The older you are, the greater the total amount to be received. The final price of the bare ownership It is conditioned by factors such as the appraisal of the home, the comparison of the market values of the homes found in the area, estimates of the possible revaluation of the area in the future, a review of the legal situation of the property. , the calculation of the ordinary and extraordinary costs of the property, the Real Estate Tax, etc.
Conditions of use
The owner sells the ownership of the house, although you will always have the Usufruct for life of the property. The operation can be completed by two people ( e.g. spouses), as long as they are both the homeowners.
The usufruct holder has the right to rent the property or sell the usufruct.
El buyer You will only take actual possession of the house when the usufruct has ended.
The heirs lose any right on the property subject to bare ownership.
Warranty
The operation is carried out by Public deed notarized and registered in the Land Registry.
Tax advantages (for people over 64 years of age and habitual residence)
Those over 64 do NOT have to pay the increase in wealth (IRPF), one of the advantages for which this type of operation is much more attractive for this age range.
Formalization expenses
- Tax:Municipal Capital Gains Tax (a local tax whose amount depends on the number of years that have elapsed since the acquisition of the home and the cadastral value of the land).
- company fees
Shared maintenance expenses
El seller will be responsible for the ordinary community fee, supplies, urban waste rate and content insurance, while the buyer-investor is the one who pays Impuesto sobre bienes inmuebles (IBI), the extraordinary spills and the insurance of the continent.
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Real estate annuity
Supplement the pension with an additional income each month
With a real estate annuity the older person receives a monthly pension in exchange for selling the bare ownership of his home, so he also maintains the right to use and enjoy Of the same. It is an operation that cannot be canceled and, upon the death of the owner, the heirs will not be able to take possession of the property. It can be contracted at any age, although the best offers are aimed at those over 70 years of age.
Three modalities:
- Classic temporary rent: The seller maintains the usufruct for life; however, the monthly payments will be received for a previously determined period of time.
- Classic life annuity: A lifetime monthly income is received in exchange for the sale of the bare ownership of the home, reserving in turn the right of usufruct over it throughout its life. This is the most common mode.
- Life annuity outside the home: The Elderly Person renounces the right to use the home, but in exchange receives a monthly payment greater than that of the classic life annuity. This modality is aimed at those people who wish to leave their home to move to a residence, for example.
Purchase price
It depends on the age of the owners. The older you are, the higher the total amount to be received. The value of the rent is conditioned by factors such as the appraisal of the house, the comparison of the market values of the houses that are in the area, estimates of the possible revaluation of the area in the future, a review of the legal situation of the property, the calculation of the ordinary and extraordinary costs of the property, the Property Tax, etc.
Conditions of use
The owner sells the ownership of the house, although you will always have the Usufruct for life of the property. The operation can be completed by two people ( e.g. spouses), as long as they are both the homeowners.
The usufruct holder has the right to rent the property or sell the usufruct.
El buyer You will only take actual possession of the house when the usufruct has ended.
The heirs lose any right on the property subject to bare ownership.
Warranty
The operation is carried out by Public deed notarized and registered in the Land Registry.
In addition, the Deed of Sale includes a Resolutory Condition that represents the maximum legal guarantee for a hypothetical case of non-payment of two of the rents, based on which the Elderly Person recovers full ownership of the home without having to return the monthly rents. already perceived.
Tax advantages (for people over 64 years of age and habitual residence)
If the operation is carried out on a property declared as a habitual residence, the usufruct holder is exempt from paying taxes for the increase of the patrimony in the IRPF.
Formalization expenses
NONE. The seller will not have to pay any kind of expenses related to the Notary's Office and the Land Registry. All the taxes derived from the operation will be assumed by the buyer, except for the Municipal Capital Gains Tax, which will be assumed by the seller.
Shared maintenance expenses
El seller will be responsible for the ordinary community fee, supplies, urban waste rate and content insurance, while the buyer-investor who pays the Real Estate Tax (IBI), the extraordinary spills and the insurance of the continent.
Would you like to know the Life Annuity you would obtain?
Sale with Guaranteed Rent (Sale & Lease Back)
Sell full ownership and remain in the property as a tenant
La sale with guaranteed rent It is a service through which the owner of a home sells full ownership of it, but without ceasing to use it, since at the time of formalizing the sale before a notary, a contract of ownership is signed simultaneously. lease with the buyer for the term determined by the seller. The lease contract is also registered in the property registry, thus providing the new tenants with all the legal guarantees so that they can remain in the property for the time that has been agreed.
The seller and buyer become tenant and landlord, respectively at the time the transaction is completed.
Three modalities:
- Sale with life rent: This type of sale with guaranteed rent is characterized by the sale of the dwelling in question receiving the entire agreed price and at the same time guaranteeing the life rent to the seller of the property until death.
- Sale with agreed rental time: the home is sold and the seller collects the full agreed price. At the same time, a lease contract is specified and formalized for a specific period, after which period the dwelling will no longer be used. This type of sale usually occurs when you plan to change your address or when it is a second residence that is not used regularly.
- Sale with deferred price and rent for life or agreed time: It consists of a mixture of the two previous types of sale. It consists in that the sale price is not received in its entirety at the signature before a notary, but rather it is received over several installments and during a certain period of time. This period of time will be agreed by both parties before formalizing the sale of the property.
Purchase price
The amount received for this service It is greater than what is received with the sale of the bare property. The purchase price ranges between 70 and 75 percent of the value of the home (in some cases even 80% and 85% of the value), this being determined by factors such as the appraisal of the home, the comparison of market values of the houses that are in the area, estimates of the possible revaluation of the area in the future, a review of the legal situation of the property, the calculation of the ordinary and extraordinary costs of the property, the Property Tax real estate etc
Rental price
The monthly rent that has to be paid is fixed after expert analysts carry out different studies on the rents that exist in the market for houses similar to the one that is offered.
Many factors intervene, from the location of the property, the surface, its age, the state, the possible reforms made in it, etc.
Conditions of use
100% of the property is sold to the buyer, so the sale price is received at the time the Public Deed is formalized before a notary. The sale of the property is a conventional sale, which is usually carried out with a discount compared to the market price.
The buyer of the property will immediately become the landlord, and the seller will become the tenant of the property, for which he will have to pay a monthly rent. This amount is determined based on the current market conditions at the time of the transaction for a property with similar characteristics and location.
There is no prerequisite to be able to complete a sale with guaranteed rent, other than owning a property. Therefore, the value of the property or the age of the current owners does not matter. It is valid even if the property has an outstanding mortgage, as long as the amount received from the sale is enough to pay it off.
El buyer You will only take actual possession of the house when the stipulated time of the rental has ended.
The heirs lose any right on the property once the rental contract is terminated.
Warranty
The operation is carried out by Public deed notarized and registered in the Land Registry.
Tax advantages (for people over 64 years of age and habitual residence)
If the transaction is carried out on a property declared as a habitual residence, the seller is exempt from paying taxes for the increase of wealth in the IRPF.
Formalization expenses
- Tax: Municipal Capital Gains Tax
- company fees
Shared maintenance expenses
El seller will be responsible for the ordinary community fee (sometimes it will be the buyer), the supplies, the urban waste rate and the content insurance, while the buyer-investor who pays the Real Estate Tax (IBI), the extraordinary spills and the insurance of the continent
How much would you get for the Sale with Guaranteed Rent?
Calculation of the value of the bare property
At Mas Vida we consider the following factors to determine the amount that corresponds to the usufructuary for the sale of the bare property:
- Market value of the house
- House rental value
- Seller's gender and age
Knowing this data, we quantify the rent that the usufructuary would have to pay (up to his life expectancy) if he were a tenant, and finally we discount it from the market value of the house to determine the amount that corresponds to him.
Fiscal value of the Bare Property
Freehold value = Bare ownership value + usufruct value
State tax legislation establishes the following rules:
- Temporary Usufruct: 2% of the total value for each year, without exceeding 70%.
- Life Usufruct: 89 – age of usufructuary = % to apply, with a maximum of 70% and a minimum of 10%.
Once the value of the usufruct has been obtained, the value of the bare property right will be computed by the difference between the value of the usufruct and the total value of the property.
Municipal Capital Gains Tax
The municipal capital gains tax is collected by each of the municipalities in Spanish territory. This rate or tax is not levied on the price obtained from the sale of the home, but on the value of the land.
Calculation:
Update coefficient of the cadastral value of the property
X Years elapsed since the property was acquired (max. 20 years)
X Cadastral value of the land
X City tax rate
X % of Bare Ownership (calculated in the previous section; Fiscal Value of the Bare Property)
= Municipal Capital Gains Tax
Reverse mortgage
Receive a mortgage loan in exchange for the home guarantee, while living in it
La reverse mortgage It is a type of mortgage loan, aimed at people over 65 years of age who own a home.
Contrary to the conventional mortgage, in this case it is the owner who receives an amount from the bank in exchange for the home guarantee (normally in the form of a single payment, monthly rent or a combination of both). The advantage is that he can continue to use it until his death and at no time does he lose ownership of it.
This financial product is regulated by Law 41/2007. In addition to those over 65 years of age, dependent people and those who have been recognized with a degree of disability equal to or greater than 33% can hire it.
Reverse Mortgage Modalities
The loan can be received as:
- Single amount at the beginning
- In the form of lifetime monthly installments
- Combination of initial capital plus lifelong monthly installments.
Purchase price
The amount to receive in a lifetime reverse mortgage will depend mainly on:
- The value resulting from the appraisal of the house, flat, …
- The age of the applicant, so that as the subscriber ages, the monthly rent that will be received for the operation will increase, since the entity estimates that it will have to pay money for less time.
- The gender. Women have a longer life expectancy and therefore generally have a lower quota.
- The interest rate applied by the bank.
- The type of home to be mortgaged.
Conditions of use
The holders must be older than or equal to 65 years or be affected by any situation of dependency or disability.
The entity may only demand the debt and execute the mortgage when the borrower dies or, if so stipulated in the contract, when the last of the beneficiaries dies.
The house must have been appraised and must be insured against damage in accordance with current regulations.
The user may take out the reverse mortgage to pay off a mortgage that you have in force.
The debtor must dispose of the amount of the loan or credit through regular or single provisions.
The credit holder retains ownership and use of the mortgaged home.
With the reverse mortgage, heirs do not lose their rights on the home object of the loan.
The heirs pay: when the holder of the credit dies, it is the heirs who take charge of the debt (loan and interest); a debt that, logically, becomes greater over the years. The heirs have a period of 12 months to settle the debt. If there are no heirs, or they do not want or cannot pay off the debt, the financial institution forecloses on the house.
Tax advantages
The amounts received from the reverse mortgage are not considered income for tax purposes. IRPF because they are dispositions of a credit, which makes them exempt from taxes. The amounts received and that are subject to life annuity insurance if they are subject to taxation with significant tax advantages.
Formalization expenses
The user will only have to bear the costs of the official appraisal prior to granting the reverse mortgage. The rest of the associated expenses will be included in the amount of the loan itself (opening commission, notary, property registry, etc.).
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Conclusions and contact
As you have seen, there are different products to find your additional economic complement for retirement, each one with its advantages and peculiarities.
At Mas Vida we always want to offer you the service that best suits your needs. Don't hesitate to write to us at info@aunmasvida.es or call us at 910 413 840. You can also leave a comment with any questions you have.
I NEED TO KNOW PPTO FOR SALE WITH RENT
Hello Mercedes, thank you for contacting us.
No problem. If it's okay with you, you can contact us through the following ways so that we can take note of the data we need:
Phone: 910 413 840
Email: info@aunmasvida.es
Hello,
I am interested in one of your senior modalities.
First of all, I am interested in how much my property is valued.
We live on the farm in Icod de los Vinos.
I ask you to contact me via email. mag.e.scharl@gmx.com,
since I don't speak Spanish and I can easily translate the received text.
Unless you speak German or English, you can also call +34 699906665
Attentively
Mag. Ernst Scharl