All about Equity Release

In recent years in Spain, various concepts are being implemented in the real estate market that are worth learning about.

There are many property owners who are not aware of the different alternatives that exist to sell their house and continue living in it.

There is a right, usufruct, that allows a person to enjoy and live in their house without being the owner of its property (what is known as Bare Property), an option that since 2018 has been gaining more followers in Spain. and? Since 2022, these types of operations have skyrocketed.

But what is the Bare Property? Next, we will explain in detail the characteristics that encompass this operation, although first, it is essential to understand the concept.

Full domain

Full ownership means having the full ownership of a certain property. That is, when carrying out a normal sale of a property, full ownership of it is being sold. But what is not usually known is that this full property is divided into two parts:

  • Bare property
  • Usufruct

Bare ownership and usufruct are different rights, they can belong to different people, even if they fall on the same asset. So, full ownership of an asset will be held when usufruct and bare ownership coincide in the same person.

The bare property

The bare owner is the owner of a property but another person has a right of Usufruct – owns the right to use the property.

Although they are the bare owner, their property right is “empty” since the right to use and take advantage of the property belongs to the usufructuary and not to the bare owner.

What the bare owner can do is transfer ownership of the property (we will talk about real estate later) or even use it as a mortgage guarantee in some cases.

And, of course, once the usufruct rights of the other person come to their conclusion, then the bare owner becomes the full owner and therefore can begin to use and enjoy the property.

The Usufruct

According to Article 467 of the Civil Code:

"The usufruct gives the right to enjoy the property of others."

The owner of the usufruct, who is known as usufructuary, "you have the right to receive all the natural, industrial and civil fruits” of the thing (Article 471); and since we are talking about a right over real estate, it is the usufructuary who can fully enjoy the use of it.

The usufruct can be transferred in several ways:

  • By inheritance, a testator leaves the property to one person and the usufruct to another or, even, the Law gives the legitimate interest to the spouse over the usufruct of assets and this will happen in non-testament succession.
  • By sale: the owner or another person who already has the usufruct can sell it.

Depending on how and why it has appeared, usufruct has a fixed duration, it can have a specific duration specified (always before a notary) from date to date or conditioned to the occurrence of some event whose date is unknown.

As well can be for life, that is, that the usufruct will continue to exist as long as one person lives (or as long as several people live).

Free Valuation of the Bare Property of your Property

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The sale of the bare property

With the sale of the Bare Property, the owner of a home, usually over 65 years of age, transfers the ownership of the house in exchange for a one-time payment upon formalizing the transaction and maintains the right to continue using and enjoying his or her home for life.

This allows the seller to continue living the same life as before and also to receive an instant and one-time payment, which can be used to pay off a debt, to enjoy with the family, take trips, etc.

The fiscal valuation of the bare property

In the field of taxes, Spanish legislation regulates how bare property should be valued. This is regulated in Spanish national law (Law 29/1987, of December 18) in its article 26.

The value of the bare property will be the value of an asset subtracting the value of the usufruct which is what said article 26 says.

If the usufruct is temporary, it will be worth 2% for each year that it lasts, without exceeding 70%.

If the usufruct is for life, it will be worth:

  • 70% of the total value while the usufructuary is less than 20 years old.
  • As of the usufructuary's 20th birthday, 70% will be removed from this 1% for each year over 20 that the usufructuary has, with a minimum limit of 10%.

At what point does the bare owner obtain the use and enjoyment of the bare property?

Having defined full ownership, we can say that it is established when ownership and use and enjoyment are brought together in the same person.

The consolidation of full ownership will take place in the person of the bare owner for one of two reasons: the sale or termination of usufruct.

The sale of usufruct

If the usufructuary decides to sell his usufruct right, he most often sells it to the bare owner.

After acquiring this right, the owner gets freehold (ownership, use and enjoyment of the property).

The extinction of the usufruct

  • Compliance with the term for which it was established (in the case of temporary usufruct)

In the event that the usufructuary dies before the stipulated term, the use of the usufructuary will also pass to the bare owner, unless otherwise agreed.

  • Death of the usufructuary (in the case of life usufruct)

When the usufructuary dies, the enjoyment, use and enjoyment of the usufruct property passes to the bare owner.

If the usufruct corresponds to several persons in undivided (refers to the situation of a thing or right that belongs to several people in common, without there being separate parties to each of the owners or holders of the right) the bare owner does not receive full ownership until the death of all the usufructuaries.

Rights of the owner

  • Property rights: the bare owner retains ownership of the property, even though he does not have the right to use and enjoy it.
  • Right to be restored the use and enjoymentthe bare owner will obtain the use and enjoyment of the property once the usufruct is finished (usually because the Usufructee has died or gone in to permanent Spanish healthcare), consolidating full ownership in his person.
  • Right to mortgage bare property: the bare owner may request a mortgage loan on the bare ownership of real estate, even if he does not have his usufruct. Although it is true that currently conventional financial institutions are not granting mortgage loans on a bare property.
  • Right to carry out works and improvements: the bare owner will have the right to carry out works and improvements in the usufructuated property, as long as the usufructuary is not harmed by them.
  • Right to sell bare property: the bare owner may sell the bare property to a third party as long as the rights of the usufructuary are respected. Although the owner changes, the usufructuary will continue to have the use and enjoyment of the asset.

Obligations of the owner

  • Take charge of building repair: the bare owner will have to take charge of the payment of the extraordinary repairs of the property usually by an Insurance policy.
  • Respect the right of the usufructuary: the bare owner may not, in any case, make alterations to the property that harm the usufructuary.
  • Take over the mortgage: in the event that when the usufruct of the property is constituted, it is mortgaged, it will be the obligation of the bare owner to pay the corresponding installments.

Advantages of bare ownership for the seller

After learning about the rights and obligations of the bare owner, it is easy to draw conclusions about the advantagesof a bare property sale for the seller. In addition, as we have already pointed out, these increase as the seller's age increases. Among the many existing ones we highlight:

FORMALIZATION EXPENSES

The seller will not have to pay any expenses related to the Notary, the Property Registry and the Agency. All taxes derived from the operation will be assumed by the buyer, except for the Plus Valia Tax, which will be assumed by the seller. This is typically hundreds of euros not thousands.

EXPENSES OF THE PROPERTY

The usufruct holder Will no longer pay the real estate tax (IBI/SUMA) and the buildings insurance. He will only be responsible for the ordinary community fees, the bills for the supplies (water, electricity, rubbish clearance etc.)

LEGAL GUARANTEES

It has all the legal guarantees, all transactions are formally completed before a Public Notary and registered with the Land Registry.

SHARED OWNERSHIP

The operation can be completed by two people ( e.g. spouses), as long as they are both the homeowners.

RENT AND SALE OF USUFRUCT

The usufruct holder has the right to rent the property or sell the usufruct.

EXCELLENT TAX TREATMENT

If the operation is carried out on a property declared as habitual residence, the usufructuary is exempt of paying taxes for the increase of the patrimony in the IRPF.

How the bare property is taxed in the personal income tax of the bare owner

Is it necessary to pay taxes for the bare property in the IRPF? How is the bare property included in the rent?

The truth is that a property over which you have bare ownership does not generate any type of taxation in the income statement. Who enjoys ownership of the property, the usufructuary, is the one who can rent the flat and obtain income from it.

The bare owner must include the real estate in the income tax return and indicate in the property key that they hold the bare property, but not the usufruct.

How is the sale of the bare property is taxed in the personal income tax of the usufructuary

If the usufructuary is over 65 years of age and the property being sold is his or her habitual residence, he or she is 100% exempt in the income statement. That is, you do not have to pay taxes to the Treasury.

In the case of second homes, these are subject to the payment of taxes in the income statement, unless the money obtained from the sale is used for life annuity insurance.

Economic value of the bare property

How much money can be obtained from the sale of bare property? at the time of calculate the sale price of the bare property it is necessary to estimate the life expectancy of the holder. The greater his life expectancy, the less economic value this right will have, and vice versa.

The reason is that the buyer will not be able to use or enjoy the property until the time of death. It is for this reason that we have placed so much emphasis on the orientation of this modality to the Elderly, since they are usually the main beneficiaries of this operation:

  • On the one hand, it is a demographic group that generally owns some real estate. It is common that they are at least the owners of the real estate in which they live.
  • On the other hand, since their life expectancy is shorter, so will be the discount applied to the sale price. So, the older the seller, the more money they will get for the sale of the bare property.

Below is a link to the real estate annuity calculator where approximate data is obtained on the monthly amount obtained from the sale of the bare property, depending on the age and gender of the usufructuary.

Maximize your assets and preserve your home

Practical cases: Tax calculation of bare property and usufruct

Example of sale of bare property with 57 years

Let's imagine that Carmen, a 57-year-old woman, needs income and decides to sell the bare ownership of her home, reserving the usufruct for life. The house is valued at €260.000.

To calculate the value of the usufruct we must:

  • Subtract Maria's age from 89. 89 – 57 = 32.
  • Calculate 32% of the total value (€260.000).
  • We obtain, therefore, that the value of the usufruct is €83.200.

What, therefore, will be the tax value of the bare ownership of your home. To calculate it, all we have to do is subtract the value of the usufruct (€260.000) from the value of the home (€83.200). We will obtain a result of €176.800.

Example of sale of bare property with 80 years

Ricardo, an 80-year-old man, needs to enter a residence. However, he does not have enough income to do so.

The sale of the naked ownership of his home, valued at €160.000, is proposed.

To calculate the fiscal value of the usufruct we will repeat the previous operation:

  1. 89 (life expectancy) – 80 (years) = 9% (discount).
  2. As we have determined, the minimum discount in these cases is 10%, therefore, we will apply this figure.
  3. 10% of €160.000 (house price) = €16.000 (usufruct price).
  4. €160.000 (price of the house) – €16.000 (price of the usufruct) = €144.000 (price of the bare property).

Last example: temporary usufruct

We have already seen how lifetime usufructs affect certain scenarios. So we are going to offer one last example, to show how the temporary usufruct is calculated.

Again, let's imagine a character, Laura, who wants to go live in Madrid.

To pay the down payment on her new home, she plans to sell the current one, which she owns. However, she is in the middle of an important work project that has two years left and that will force him to return almost daily to his current location, Barcelona.

So, after conducting an investigation, Laura decides to sell her home, reserving a two-year usufruct.

In this case, the value of the usufruct will be 2% per year of duration (ie 4%). If Laura's home is appraised at €320.000, the value of the usufruct will be €12.800. Therefore, the fiscal value of the bare property will be €307.200.

Conclusions

In summary, Bare ownership, together with usufruct, are the components of full ownership. Therefore, whoever owns the bare property will have the deeds, but no rights to use and enjoy the asset.

However, at the time the usufruct is over, (for whatever reason), the bare owner will recover this power, thus becoming full owner.

We will list some of their differences so that everything is clearer.

  • The bare owner is the legal owner of the property but does not have the use and enjoyment of it until the end of the Usufruct.
  • The usufructuary has the use and enjoyment of the property but does not own the property.
  • The bare owner will only be able to enjoy the house when the usufruct ends.
  • The bare owner cannot rent the house, but can sell the bare property to a third party under the exact same terms as agreed on day one.
  • The usufructuary can rent the house and obtain an income. They can also sell the usufruct to a third party.
  • The usufructuary may enjoy the dwelling for the duration of his Usufruct rights.

If you are interested in this concept or have any questions, you can visit our FAQ on our sale of the bare property or you can contact us directly in contact ussince, at Mas Vida, are the market leading specialists in this type of operation.

Julian Franco Mena

Julian Franco Mena

Financial Analyst specialized in Investments

Julián Franco Mena is an expert financial analyst in real estate investments with more than 10 years of experience.

He is a founding partner of Más Vida, and is responsible for the commercial team and investor relations.

He has previously worked for the financial sector and is passionate about the real estate sector.

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Comments

  1. Manuel

    In which cities do bare ownership and what is the minimum appraisal value of the home?

    regards

    Reply
    • Antonio Garcia Saiz

      Good morning: I would like to present my case, I am 69 years old and my Mrs is 66. A single-family house "Montañesa" with housing and commercial premises, "Restaurant" currently rented. Our intention is to repay the debt (Mortgage)
      Could we get -opt for La Nuda Propiedad?
      Thanks a greeting.

      Reply
      • Mas Vida

        Hello Antonio,

        Yes you can. You can contact us by calling 910 413 840 or by writing to info@aunmasvida.es. We only need the exact address and we will be able to make an accurate assessment. We will be happy to help you.

        Reply
      • Alberto

        Hello. If in a forced expropriation procedure a property of which I have bare ownership and my mother has lifetime usufruct is expropriated, how is the capital gain taxed in Personal Income Tax of both, when the compensation for the fair price is recognized?

        Reply
        • Mas Vida

          Hello Alberto. We can provide you with more information privately. Contact us by calling this number: 606 900 730

          Greetings and thank you.

          Reply
  2. mari

    Hello. Mother and son sell their home: The mother is a usufructuary and is a tax resident. The son is a Non-Resident and has bare ownership. When selling: Is it necessary to withhold 3% of the sale price from the child as NON-RESIDENT INCOME TAX? or not having full ownership is not necessary? . Thanks.

    Reply
    • Mas Vida

      Hello Maria, thank you for your message.
      Even if the child only holds bare ownership, he or she is obliged to withhold for non-resident income tax.
      If you need more information you can contact us through the following ways:
      Phone: 910 413 840
      Email: info@aunmasvida.es

      Reply
  3. Bill Stonehill

    Will this work for property in the UK

    Reply
  4. Anne-Marie Fry

    Hi,
    1) How is, or, who makes the initial house valuation before calculations.
    2) What additional costs are incurred by the seller (admin etc).
    3) If bare owner becomes bankrupt are sellers rights still guaranteed?
    Thank you Anne-Marie

    Reply
  5. Mr David Brooks

    I am thinking about equity release my home is worth €100,000

    Reply
  6. Maurice Nichols

    I own an apartment in Benahavis. Value 375k. No mortgage. My age is 71. I would like to receive a cash sum and continue to live in an apartment

    Reply
  7. Mari Carmen

    Hello, I would like to find out about... if I have to make a declaration to the Treasury for selling my home in bare ownership and being over 65 years of age

    Reply
    • Mas Vida

      Hello Mari Carmen, thank you for contacting us.

      You should make the income statement and report the sale. The good thing is that in the event that you carry out the operation on your habitual residence, you would not have to pay taxes to the Treasury.

      If it's okay with you, you can contact us through the following ways for more information about the process:
      Phone: 910 413 840
      Email: info@aunmasvida.es

      Reply
  8. jose maria

    Widow usufructuary and sons who are owners sell rustic farms to a third party, who declare the increase in income for 2022.

    Reply
    • Mas Vida

      Good morning,
      Those who have to declare the sale in the income statement are both the bare owners and the usufructuary.

      If you have more questions, you can contact us through the following ways for more information about the process:
      Phone: 910 413 840
      Email: info@aunmasvida.es

      Reply
      • shelter san juan

        Regarding the case of Jose Maria, since mine is the same, how many days would be included in the rent that the property has been available to the bare owner? Only 1 because the same day that the property is sold is the day in which the usufruct is extinguished?

        Reply
        • Mas Vida

          Hello Amparo,
          We lack data to be able to answer this question. Please contact us through one of the following ways in order to advise you correctly:
          Phone: 910 413 840
          Email: info@aunmasvida.es

          Reply
  9. Yolanda

    Hello, if I own the Nuda property of a farm, I know that I do not have to declare it for rent, but in the declaration of assets I do have to detail it?

    Reply
  10. Noelia

    Hello,

    I tell my case to see if you can help me. In my case, when my father died, the house was divided like this: my mother has an undivided half in full ownership and an undivided sixth part in usufruct and I an undivided third part in full ownership and an undivided sixth part in bare ownership. In this case, if the house wanted to be sold, what percentage of the house would be mine? That is, what percentage of the sale would be for me. Mine would only be the undivided part or also the bare ownership?

    Thank you.

    A greeting.

    Reply
    • Mas Vida

      Hello Noelia. Effectively, it would correspond to you to collect the undivided third part of the full ownership and the undivided sixth part of the bare ownership.
      If you have more questions or want more information, do not hesitate to contact us: Telephone: 910 413 840
      Email: info@aunmasvida.es

      Reply
      • Juan

        Good afternoon, I do not understand this part very well: RENT AND SALE OF THE USUFRUCT

        The usufruct holder has the right to rent the property or sell the usufruct.

        Does this mean, in the hypothetical case, that the seller of the bare property could transfer the usufruct to his daughter and the buyer of the house could not enjoy the property until the extinction of the usufruct? What kind of guarantees are given to the buyer so that this does not happen and buy a home that he will not be able to enjoy?

        Reply
        • Mas Vida

          Hello John. If the usufructuary sells the usufruct after the sale of the bare ownership, the extinction of the usufruct is always subject to the age of the first usufructuary, not the second.

          If you have more questions or want more information, do not hesitate to contact us:
          Phone: 910 413 840
          Email: info@aunmasvida.es

          Reply
  11. Marta

    Due to non-payment of a debt and the bare ownership of a house being as collateral before a notary public, I have to hand it over to a third party
    As income taxes the delivery of that bare property
    Thank you

    Reply
    • Mas Vida

      Good morning Marta,

      your repercussion in rent would be for the profit that in theory you were generating to the operation. In other words, in this specific case, the tax will be based on the difference between the reference value of the bare ownership of the property today and the value at which you acquired the property in public deed.

      If you want us to help you with the specific calculation please write us through info@aunmasvida.es.

      Reply
  12. Monica

    Hello, good afternoon, my father died and it seems to me in the rent that I am the bare owner and they denied me the university scholarship for having that as assets. My question is if I have not taken any money, my mother is the one who lives in the house What I can do

    Reply
    • Mas Vida

      Hello Monica.
      For this specific case, we ask you to contact us as we need more information to analyze the situation.
      You can call directly at 606 900 730. We will be happy to assist you, thank you!

      Reply
  13. Monica Pasamon

    Good morning. I am interested in the /Nude property/ Sale of apartment
    I would like information
    Thank you

    Reply
  14. Antonio

    Good morning.
    I am a 74-year-old person from Madrid... with the minimum non-contributory pension and my habitual residence as my only property.
    If I sell the bare property, would I have to pay the municipal capital gain?
    I'm reading articles about this on the internet... and it's quite confusing. In some places I read that it is and in others that it isn't.
    Thanks for your help.

    Reply
    • Mas Vida

      Hello Antonio.

      Indeed, you would have to assume the Municipal Capital Gains if you sell the bare property. If you want more information, do not hesitate to contact us: 910 413 840

      Reply
      • Anonymous

        Hello, I was the bare owner when my mother died, I am the full owner. When I sold it, what value did my father and mother's ISD take at 50, or the value of my mother's ISD? And the date would be the date of my mother's death. , the usufructuary?, or would it be two parts, one of the bare property of my father and the rest of my mother?, thank you

        Reply
        • Mas Vida

          Hello. We need more information to be able to provide a solution. Contact this number and we will be happy to help you: 606 900 730

          Greetings and thank you.

          Reply
  15. Francisco

    Good morning.
    My father died in 2003 and I have the bare ownership and usufruct of my mother, who in turn died in 2016.
    In 2023 I sold the urban land.
    What coefficient would be applied to the capital gain at 19 years (since 2003) or at 7 years, which is when ownership is consolidated due to the death of my mother.
    Thank you.

    Reply
    • Mas Vida

      Hello Francisco,

      This will depend on whether it was a community property or whether each of your parents had an undivided share in the land.

      If it was a community asset, then the Capital Gain would be calculated based on 7 years, which is when you consolidate ownership.

      If it was an undivided 50% of each of your parents, then half of the Capital Gain would be calculated over 19 years and the other half over 7 years.

      If you have any other questions you can contact us through the following means:
      Phone: 910 413 840
      Email: info@aunmasvida.es

      Our team will be happy to assist you. Thank you so much!

      Reply
  16. Anna

    Good evening,
    für die Garage meines Hauses welches ich vor 3 Jahren gekauft habe wurde an den damaligen Eigentümer des Nachbarhauses 1999 ein Nutzungsrecht eingetragen. Inzwischen gibt es einen neuen Eigentümer der das Haus nun verkaufen möchte und laut Anzeige meinen Raum mit anbietet. Laut Kataster und writing ist die Garage, die zwischenzeitlich zum Wohnraum umgebaut wurde, nach wie vor mein Eigentum. Erlischt das Nutzungsrecht nach Verkauf des Nachbarhauses? The Eigentümer der jetzt verkaufen will be nicht der mit Titel des Nutzungsrechtes. Habe ich wieder Anspruch? Vielen Dank

    Reply
    • Mas Vida

      Guten Tag Frau Schwass, das Nutzungsrecht kann man verkaufen, aber dies hält nur solange die Person dieses als erste hatte ( oder die Personen, falls es ein Ehepaar war) noch leben. Sollten diese tot sein, dann würde dieses Recht nicht mehr gelten und es wäre Ihrs. With best Grüßen

      Reply

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