Donation of bare ownership with lifetime usufruct: Taxes, advantages and risks in Catalonia

The donation of bare ownership with reservation of lifetime usufruct makes it possible to transfer a property during the donor’s lifetime while, at the same time, retaining its use and rental income. It is a useful family estate-planning tool, but it is not simply a change of name, nor does it, by itself, guarantee tax savings.

The donation of bare ownership entails a genuine transfer: the child acquires the bare ownership from the moment the deed is signed, while the parent retains the usufruct. In addition, it may give rise to Gift Tax, Personal Income Tax and municipal capital gains tax, and requires a second tax assessment when the usufruct is extinguished.

What is actually transferred?

Full ownership of a property can be divided into two rights:

• Usufruct: allows the holder to possess and use the property and receive its benefits, such as rental income.
• Bare ownership: grants ownership title, but not the immediate right to use the property while the usufruct remains in force.

Therefore, the parent who reserves the usufruct may continue living in the property or renting it out, while the child becomes the bare owner and must respect that right. The Civil Code of Catalonia regulates these powers in Articles 561-2 and 561-6.

The reservation of lifetime usufruct does not turn the transaction into a transfer upon death: it remains an inter vivos donation, in accordance with Article 531-9.3 of the Civil Code of Catalonia.

What can each party do with the property?

• The usufructuary may live in the property and, as a general rule, rent it out and collect the rental income.
• The bare owner may transfer their bare ownership, but the purchaser must respect the existing usufruct.
• To sell the full ownership free of usufruct, both the usufructuary and the bare owner must participate in and consent to the transaction.
• The bare owner may not occupy the property or prevent the usufructuary from using it while the right remains in force.

In Catalonia, the law also allocates expenses unless the deed establishes a different arrangement:

• Usufructuary: conservation, maintenance, ordinary repairs, utilities and annual taxes, as a general rule.
• Bare owner: extraordinary repairs that do not arise from a breach by the usufructuary, and special contributions involving a permanent improvement.

This allocation is set out in Article 561-12 of the Civil Code of Catalonia. It is advisable to reproduce or adapt it expressly in the deed to avoid future family disputes.

How is the donation of bare ownership formalized?

La donación de un inmueble solo es válida si el donante la realiza y el donatario la acepta en escritura pública. Así lo exige el artículo 531-12 del Código Civil de Cataluña.

El proceso habitual comprende cuatro pasos:

• Comprobar la titularidad, las cargas, la hipoteca y el valor de referencia del inmueble.
• Calcular antes de firmar el Impuesto sobre Donaciones, el IRPF del donante y la plusvalía municipal.
• Otorgar la escritura notarial con la reserva de usufructo y las cláusulas de protección necesarias.
• Presentar los impuestos e inscribir la nuda propiedad y el usufructo en el Registro de la Propiedad.

How can the person making the donation protect themselves?

The most delicate issue is not taxation, but assets: once the donation has been accepted, the donor ceases to be the owner of the bare ownership and cannot freely recover it simply because they have changed their mind. As a general rule, the donation is irrevocable, without prejudice to the legal grounds for revocation (Articles 531-8 and 531-15 of the Civil Code of Catalonia).

Depending on the circumstances, the deed may consider measures such as:

• Joint usufruct in favour of both parents, so that the right is not extinguished until the death of the last of them, if structured in this way (Article 561-14).
• Power of disposal in case of need, reserved in favour of the donor and coordinated with the usufruct, allowing the property to be sold in the cases and under the conditions established in the deed (Articles 531-20 and 561-21 to 561-24).
• Reversion clause, for certain expressly defined events, such as the donee dying before the donor, where appropriate (Article 531-19).
• Clear regulation of expenses, works, insurance and rentals, avoiding these matters being left open to later interpretation.

There is no standard clause that is valid for every family. Before making the donation, the owner should retain sufficient assets and liquidity to cover future housing, care and assistance needs.

What taxes does the donation of bare ownership generate in Catalonia?

1. Gift Tax

It is paid by the person who receives the bare ownership. In Catalonia, it is filed using Form 651 and, as a general rule, the deadline is one month from the date of the donation.

The tax valuation is normally based on the reference value of the Cadastre in force on the date of the transaction. If the declared value is higher, the latter prevails; if the property has no reference value, the rules applicable to the declared value and market value must be reviewed.

A lifetime usufruct is valued by applying the rule “89 minus the age of the usufructuary”, with a minimum of 10% and a maximum of 70%. The bare ownership corresponds to the remaining percentage. This rule derives from Article 26 of Law 29/1987 on Inheritance and Gift Tax.

In Catalonia, there is a reduced rate for certain donations between ascendants, descendants, spouses and stable partners formalized in a public deed. However, there is no general tax relief that turns any donation of a home from parents to children into an almost tax-free transaction. The amount payable also depends on the donee’s pre-existing assets, the applicable reductions and the donations received from the same donor during the previous three years.

Reduced rate for kinship groups I and II with a public deed or court decision

Taxable base up to euros	Full tax liability Euros	Remaining taxable base up to euros	Rate %
0.00	0.00	200,000.00	5.00
200,000.00	10,000.00	600,000.00	7.00
600,000.00	38,000.00	and above	9.00

To benefit from the reduced rate, any donation from parents to children must be formalized in a public deed.

2. Donor’s Personal Income Tax (IRPF)

Although the donor does not receive any money, the transaction may generate a capital gain for Personal Income Tax purposes. To calculate it, the transfer value of the bare ownership is compared with the proportional part of its acquisition value. This consequence is often the major overlooked issue when comparing a donation with an inheritance.

The main exception applies when the donor is over 65 years old and transfers the bare ownership of their habitual residence while retaining the lifetime usufruct. The Spanish Tax Agency confirms that the gain may be exempt if the property is the habitual residence at that time or has been so at any time during the previous two years, provided that the other legal requirements are met.

3. Municipal capital gains tax (Tax on the Increase in Value of Urban Land)

If the property is urban, the donation may generate the Tax on the Increase in Value of Urban Land. In a gratuitous transfer, the taxpayer is normally the person who acquires the land or the right, in accordance with Article 106 of the Local Tax Authorities Act.

The result depends on the municipality, the land value and the generation period. In addition, the municipal reduction of up to 95% provided for by state law refers to transfers upon death and does not automatically apply to lifetime donations.

PRACTICAL EXAMPLE OF A DONATION OF BARE OWNERSHIP: PROPERTY WORTH €300,000

OFFICIAL EXAMPLE FROM THE CATALAN TAX AGENCY A 55-year-old mother donates to her child the bare ownership of a property valued at €300,000 and retains the lifetime usufruct. Value of the usufruct: 34% (€102,000). Value of the bare ownership: 66% (€198,000). With a public deed, the child’s pre-existing assets below €100,000, no other donations in the previous three years and no reductions, the Catalan Tax Agency calculates an initial tax liability of €9,900 using Form 651. The transaction does not end there: when the usufruct is extinguished, the child must file the consolidation of full ownership for the value of the usufruct that was not initially taxed.

This example shows that donating only the bare ownership reduces the taxable base at the outset, but does not eliminate the deferred taxation of the usufruct. The actual amount for each family may vary significantly.

What happens when the usufructuary dies?

The lifetime usufruct is extinguished upon the death of its holder, in accordance with Article 561-16 of the Civil Code of Catalonia. At that point, the bare owner consolidates full ownership: they cease to hold only the bare ownership and acquire all rights over the property.

In Catalonia, if the split ownership originated from a donation, the bare owner must file Form 653. The deadline is six months from the death of the usufructuary. As a general rule, the tax base is calculated on the value that the usufruct had when the donation took place, and the average effective tax rate used at that time is applied.

The Catalan Tax Agency also indicates that, in consolidations arising from a donation, there are no applicable tax reductions. Therefore, it is not correct to say that when the usufructuary dies “nothing else has to be paid”: Gift Tax is distributed over two moments, first on the bare ownership and later on the consolidation of full ownership.

Main risks of donating bare ownership

• Loss of control: the donor will no longer be able to sell the full ownership alone, unless the deed has granted them a valid power of disposal.
• Future needs: if financing is needed for a care home, assistance or care, the donor may depend on the cooperation of the bare owner.
• Donee’s debts: the bare ownership becomes part of the child’s assets and may be affected by their financial problems or creditors’ claims.
• Inheritance consequences: in Catalonia, when calculating the legitime, as a general rule, donations made during the ten years prior to death are added; donations attributable to the legitime are counted regardless of their date. If the remaining estate is insufficient, a computable donation may be reduced due to infringement of the legitime (Articles 451-5, 451-8 and 451-22).
• Incomplete tax analysis: looking only at Gift Tax may overlook Personal Income Tax, municipal capital gains tax and the future consolidation of ownership.

Is it better to donate the bare ownership or wait for the inheritance?

ISSUE	DONATION NOW	LATER INHERITANCE
Control of the property	The donor retains the usufruct, but loses the bare ownership.	The owner retains full ownership throughout their lifetime.
Main taxes	Gift Tax, possible Personal Income Tax, municipal capital gains tax and future consolidation of ownership.	Inheritance Tax and municipal capital gains tax upon death.
Owner’s Personal Income Tax	A capital gain may arise, except where exemptions apply.	There is no capital gain or loss for Personal Income Tax purposes as a result of the transfer upon death.
Timing of the cost	Part is paid now and part when the usufruct is extinguished.	The cost is deferred until death.
Family decision	Ownership is transferred in advance through the deed.	Distribution is carried out through a will or intestate succession.

The comparison must be made using real figures: reference value, age, acquisition price and date, whether the property is the habitual residence, municipality, degree of kinship, pre-existing assets and the donor’s future financial needs.

When can this transaction make sense?

A donation of bare ownership may be worth considering favourably when the donor wishes to organise the transfer during their lifetime, is over 65 years old, the property is their habitual residence, they have sufficient other resources and the tax simulation produces a reasonable result.

On the other hand, it may be inadvisable when the owner may need to sell the property freely, there is a high capital gain for Personal Income Tax purposes, the child has debts or there are family conflicts. In these cases, retaining full ownership and properly planning the inheritance may provide greater security.

Frequently Asked Questions

Can I continue living in the property and receive rental income?

Yes. A lifetime usufruct allows you to use the property throughout your lifetime and, as a general rule, rent it out and receive the rental income, unless the deed provides otherwise.

Can the child sell the property?

They can sell the bare ownership, but the buyer must respect the usufruct. To transfer full ownership free of that encumbrance, both parties will normally need to participate.

Is usufruct the same as a right of habitation?

No. Usufruct allows the property to be used and, in general, rented out; the right of habitation is essentially limited to occupying it. The distinction also affects the tax valuation.

Conclusion

The donation of bare ownership with reservation of lifetime usufruct can bring forward the transfer of a property without losing its use, but it is not simply a change of name. Before signing, the donation and inheritance should be compared, Gift Tax, Personal Income Tax, municipal capital gains tax and the future consolidation of ownership should be calculated, the will should be reviewed and the donor’s liquidity should be protected. The aim is to organise the estate without creating a tax problem or leaving the owner financially unprotected.