What You Need to Know When Acquiring Full Ownership After the Death of the Usufructuary: Crucial Tax Aspects
The establishment of a life usufruct on a property divides ownership between a bare owner and a usufructuary. However, when the usufructuary passes away, fiscal issues may arise that could significantly impact those acquiring full ownership.
Domain Consolidation Prescription: What Should You Know?
One of the main questions is whether domain consolidation prescribes when the original inheritance or donation has already expired. According to Article 51.2 of Royal Decree 1629/1991, consolidation is not considered a new acquisition. However, the interpretation of this point still generates debates. While the General Directorate of Taxes maintains that prescription does not occur, the Madrid Regional Economic Administrative Tribunal (TEAR) holds a different opinion.
Recent Supreme Court rulings suggest the taxation of domain consolidation despite prescription, focusing on applicable reductions in these cases.
Applicable Regulations for Domain Consolidation
The applicable regulations will be those in force at the time of establishing the usufruct, regardless of the time elapsed. This is supported by a judgment from the Superior Court of Justice of Madrid, emphasizing that only one tax law can be applied in this context.
Unapplied Fiscal Benefits During Usufruct Establishment
If fiscal benefits were not applied when taxing the establishment of the usufruct, the General Directorate of Taxes suggests that they cannot be applied during domain consolidation. However, this criterion is debatable and is under review by the Supreme Court, which will assess the applicability of reductions based on kinship in cases where the right to determine the tax debt has lapsed.
Taxes when Acquiring Full Ownership
The General Directorate of Taxes indicates that it is not necessary to pay municipal capital gains tax after acquiring full ownership. There is also no need to pay income tax (IRPF) during domain consolidation, as the extinction of usufruct due to death is not considered a new acquisition.
Given the uncertainty, expert José María Salcedo suggests two approaches to dealing with the tax authorities: appealing the notified settlement or paying taxes according to the criteria of the tax authorities and subsequently requesting the rectification of the contested tax return.
In summary, understanding these crucial tax aspects is fundamental when acquiring full ownership after the death of the usufructuary, avoiding potential issues with tax authorities and making informed decisions.
Article by Living Sitges Real Estate