Inheriting a home is the only hope for many young people to own a home these days. Therefore, buying a home is an investment that not only the person who buys it will enjoy, but also the rest of their descendants. However, some experts recommend not inheriting it directly, in order to save taxes.
Bare property, the best tax option
A financial advisor (@martafintips) has recently explained on her social networks why not directly inheriting your parents’ home could be the best option to save taxes and, at the same time, create generational wealth.
The strategy proposed by this expert is based on a well-known legal concept in inheritance law: transferring bare ownership of the home to the children while the parents reserve the usufruct. But what exactly is this method and why is it more advantageous than inheriting the house directly?
Bare ownership is a sales formula by which the seller maintains usufruct (right to use and enjoy property without being the legal owner) the home after the sale until his death. So yes, when the seller dies, the property becomes fully available to the new owner.
In this way, what the expert recommends is that the parents maintain usufruct of the home, that is, that they can continue living in it or rent it to obtain income, while Children acquire legal property, but not the right to use it until the death of the parents occurs. But what tax advantages are obtained through this route?
Tax advantages of bare ownership
The main advantage of this strategy lies in the tax savings it represents compared to a traditional inheritance. These are the keys:
- Elimination of Inheritance Tax: When transferring bare property during life, this tax, which in many communities is very high, disappears, since the transmission does not occur after death.
- Exemption from personal income tax for people over 65 years of age: If the parents are over 65 years of age and the home constitutes their habitual residence, the transfer of the bare property may be exempt from paying Personal Income Tax (IRPF) for the possible capital gain that is generated.
- Reduction of municipal capital gains: This tax taxes the increase in the value of urban land from when it was acquired until it is transferred. Although it varies depending on each municipality, there are bonuses that can be applied to reduce its impact.
Costs associated with bare ownership
Although it’s not all advantages. ‘Inheriting’ a house through bare ownership also entails some costs:
- Donation Tax: The transfer of bare ownership is not exempt from the Donation Tax, the amount of which will depend on the value of the home and the autonomous community where it is taxed. Some regions, however, apply significant bonuses.
- Notarial and registration costs: The operation requires formalizing the donation before a notary and registering the change of ownership in the Property Registry, which generates additional expenses.
- Limitation of use for children: Although the children become legal owners, they will not be able to use or benefit from the home until the usufruct expires, that is, after the death of the parents.
#inherit #parents #house #tax #alternative #save #taxes
