There are various options for purchasing a property: privately, through a company, in joint ownership, via a split purchase…
A split purchase means, for example, that the parents buy the usufruct, and the children buy the bare ownership. This can also be done when purchasing a property in Spain, but there are specific regulations that apply in Spain. The purchase via a split purchase almost always fits into a family planning framework, in this case across borders.
Parents sometimes already have a considerable amount of real estate in their private wealth but still wish to generate income from purchasing a property or do not want to give up the property 'completely'. By purchasing the usufruct, they retain the 'exclusive enjoyment', meaning they can use the property whenever they wish. If the property is rented out, the rental income also goes to the parents.
For the valuation of the usufruct, the age of the youngest of both parents is taken into account.
The parents (usufructuaries) usually opt for the usufruct to transfer to the surviving spouse upon the first parent's death. When both parents have passed away, the usufruct 'automatically' merges with the bare ownership. In Belgium, in principle and provided everything has been done in accordance with the relevant regulations, no inheritance or registration taxes are due.
In Spain, however, registration taxes are due at the time of the usufructuary's death.
John (49) and Fiona (42) have two adult children. They are all residents in Belgium (Flanders). They have already built up a wealth of real estate in Belgium, placing them in the highest brackets of 27 percent inheritance tax. They are now about to purchase a new property on the Costa Blanca for 400,000 EUR (excluding VAT and costs). They have decided to purchase the property (as part of their family planning) together with the children. The children do not have the financial means themselves but, through a prior donation with the necessary conditions included, they buy their share in the bare ownership.
The value of the usufruct is 47 percent.
In principle, the usufruct will merge due to the death of the last surviving parent. At that moment, registration rights are due in Spain.
Neither in Belgium nor in Spain are the children liable for inheritance tax at that moment, which results in considerable savings.
In Spain, this purchase has consequences for the developer, making it necessary to check and discuss this in advance.
For John and Fiona, this is the ideal situation. They retain the enjoyment and any rental income. Moreover, the necessary conditions have been included in the donation deed or the 'pacte adjoint', providing for arrangements in case one of the children predeceases them. It was their wish to keep the wealth within the family.
You will have noticed that the purchase of a property needs to be well-prepared. A purchase in Spain even more so, as both Belgian and Spanish regulations must be taken into account.
More than ever, the message is "think before you act," but if everything is well and thoughtfully prepared, taking into account your specific situation, you can fully enjoy the Spanish sun with peace of mind.