So what does it mean for a property seller if they agree to sell their property yet keep the usufruct?Usufruct is a legal term used widely in Spain but also across Europe. It appears to be a mix of the latin words, usus and fructus. Usus translates to the right to use or enjoy a possession, while Fructus is the right to derive profit or enjoyment from a thing possessed. (like a property in Spain!)
Generally, in Spain, an usufruct is a legal system whereby a person uses the real property of another. In our cases the current owner who effectively become the b’n paying tenant, enjoys the property which is now legally owned by our investor. We first encountered the concept in family law here where this is a very common way to reduce an heirs inheritance tax.
The “usufructuary” (i.e. the ex-owner) does not own the property, but does have an interest in it, which is sanctioned or contractually allowed by the owner. In reality the old owner still feels like it is their house, nothing changes on the outside, although as far as the Spanish Land registry is concerned, their title moves from owner to Usufructuary.
The Clause is vital to the person selling their property in order to release equity. It states clearly in balck and white that the seller can stay living in their existing property until such time as the deal matures; if the owner passes away, moves into long term care, permanently moves out of the country etc.What are your responsibilities now as a property owner who has used Usufruct law to gain equity release?
Most of our property sellers say that it feels like nothing has changed for them, except for the fact they have cleared their debt, met their grandchild in Australia for the first time or finally replaced the old rust bucket car.
You can use your equity release money for anything you wish. Some clients accept the equity in a lump sum, for others a monthly annuity payment is preferred.
The expectation is that you would still look after the property in a similar sort of way that you have done to date. You’re not expected to improve the property, but certainly you can do if you wish to, generally to maintain the fabric of the place. You’ll clip the hedges and paint the gate just as you’ve always done in your property.
Bricks and mortar type things like a leak in the roof would be paid for by the insurance of the buyer. As the holder of the usufruct, you would be responsible for the interior fixes and fittings of zones to keep them in a reasonable standard.
Secondly, you are expected once a year to touch base with the new owner simply to let him know that you’re still alive. Sounds morbid, I know, we hope you’ll be contacting the investors annually for many decades to come!We strongly advise all our clients to seek legal advice but even so many lawyers in Spain don’t understand exactly how this law works.
We can help you with your conveyancing, will and inheritance. Many clients find that they can save their heirs tens of thousands in inheritance tax if they do this before their days in the Spanish sun are up. The Spanish tax laws are constantly changing and vary from region to region, so please speak to us long in advance of making any decision.
You are also likely to dramatically reduce any CGT or capital gains tax. We have an inhouse tax expert, one of the best in Spain who will take care of this for you.
Bottom line; this is safe, legal and not only can free up some cash for you today, it can save your family a lot of money in fees and taxes down the road.
When not speak to us today and see if it is a good fit for your situation?