Here you will current news and articles of interest about the real estate sector

Firstly it is important to understand that usufruct is the legal right held by a person known as the usufructuary to use and enjoy a asset that belongs to another person who holds bare ownership. Once the usufruct expires the bare owner automatically acquires full ownership of the property.

In Spain, this is primarily regulated by the Civil Code.

In the case of a residential property a usufruct grants not only the right to reside in the property but also the right to rent it out and collect the rental income, always within the established legal limits.

Depending on its duration a usufruct may be temporary (lasting until a specific date or for a set period) or for life (normally lasting until the death of the usufructuary). A temporary usufruct allows the bare owner to better plan when they will regain the use of the property, unlike a life usufruct where the timeframe is uncertain.

Depending on who holds the right of usufruct it may be individual (when it belongs to a single person), joint (when it is established in favour of several people and may last until the death of the last survivor) or successive (when it belongs to one person and may subsequently pass to another, provided it has been validly established and within the legal limits).

Depending on its origin we can speak of voluntary usufruct (established by agreement, normally by means of a public deed, or by testamentary disposition), legal usufruct (arising directly from the law in the cases provided for) or usufruct by prescription (established by adverse possession, that is through continuous possession of the property over a legally defined period and in compliance with established legal requirements).

When purchasing a residential property with a right of usufruct it is most commonly a for life usufruct. Below we set out the advantages and disadvantages that such a transaction may entail.

Advantages:

1. Lower purchase price:This is the main advantage. You are purchasing a property right whose enjoyment is deferred, so it can cost considerably less than full ownership.
2. Potential for long-term appreciation: If the property market rises the property may increase in value while you retain bare ownership. However, market performance is not guaranteed.
3. Lower initial investment:You can gain access to a property with a higher market value using less capital than would be required to purchase it with full ownership.
4. Future consolidation of ownership:When the usufruct expires, the bare owner assumes full ownership in accordance with applicable legal conditions.

Disadvantages:

1. It is unknown when the property will become available: Since this is a for lifeusufruct, it can last for many years. The usufructuary’s age helps calculate its actuarial value, but does not allow for predicting when the property will be available for use.
2. The investment funds are tied up:As a general rule the bare owner will not receive rental income from the property nor will they be able to live in it while another person retains the usufruct. It is an investment with limited liquidity.
3. Potential expenses without the benefit of using the property:Depending on the law and the terms of the agreement the bare owner may have to cover extraordinary repairs and certain expenses.
4. A subsequent sale may be difficult:Bare ownership can be sold, but the buyer will acquire a right that is limited by the existing usufruct. This reduces the number of potential buyers.

DEDUCTIONS AND REDUCTIONS APPLICABLE TO PERSONAL INCOME TAX ON INCOME FROM RENTING OUT A RESIDENTIAL PROPERTY

When a property is let, the owner or, alternatively, the usufructuary must declare the total income received in their income tax return. The regulations allow for a number of expenses to be deducted, as detailed below:

1. Interest and other financing costs for borrowed capital invested in the acquisition or improvement of the asset, right or entitlement to use or enjoyment.

This includes loan interest, origination or processing fees, and other expenses related to financing or cancellation.
The maximum total amount deductible for interest and other financing costs (together with the maintenance and repair expenses mentioned in the following section) may not exceed, for each asset or right, the amount of the gross income obtained. Any excess may be deducted in the following four years.

2. Maintenance and repair expenses.

These are expenses incurred to maintain the normal use of real estate, such as painting, plastering or repairing installations, and the replacement of elements, such as heating systems, elevators, security doors or others.
Amounts allocated to the expansion or improvement of the property are not deductible under this heading, as they constitute an increase in the acquisition value, the recovery of which is effected through the corresponding depreciation charges.

3. Taxes, surcharges and fees.

This includes taxes and surcharges that are not levied by the central government, as well as state-level fees and surcharges. For example: property tax (IBI), garbage collection fees, etc.

4. Amounts accrued by third parties as a result of personal services.

For example: administration, security, concierge, garden maintenance, etc.

5. Lease formalization and legal defense expenses.

This includes fees paid to professionals for drafting and formalizing the lease agreement and attorney and legal representative fees in the event of disputes with the tenant (non-payment of rent, breach of contract, etc.).

6. Doubtful debts.

These will be deductible when the risk of non-collection is duly justified. To qualify, at least one of the following requirements must be met:

- The debtor is subject to insolvency proceedings.
- More than six months must have elapsed between the taxpayer's first collection attempt and the end of the tax period, and the debt must not have been renewed.

When a doubtful debt is collected after its deduction, this income must be declared in the tax year in which the collection takes place.

7. Insurance premiums.

These can refer to home insurance, liability insurance or rent guarantee insurance, provided they cover the assets or rights that generate the income.

8. Services or utilities.

Amounts spent on services or utilities, such as water, electricity, gas, internet, etc., are deductible if they have been incurred and paid for by the landlord.

9. Other necessary tax-deductible expenses.

In addition to the expenses specifically listed above, any other expense is considered tax-deductible provided that it is necessary for the generation of the corresponding income.

10. Amounts allocated to depreciation.

Depreciation reflects the loss of value of real estate and other assets transferred with it due to use or the passage of time.

In the case of real estate, annual depreciation may not exceed 3% of the higher of the acquisition cost (excluding the land) and the cadastral value of the building. For fixtures, fittings and equipment, the limit is 10% per year.

Regarding the expenses listed, they will only be deductible for the period during which the property was rented and generating income, in proportion to the corresponding income-expense matching principle. However, maintenance and repair expenses will be deductible even if they were incurred while the property was not rented, provided they were carried out for the purpose of renting the property and not for the owner's personal use.
Furthermore, if the property was only partially rented, only the expenses proportional to the rented portion will be deductible.

A reduction may be applied to the net income remaining after deducting the aforementioned expenses. This reduction will vary depending on which of the following requirements are met:

• A 90% reduction when the same landlord has entered into a new lease agreement for a property located in a high-demand residential market area, where the initial rent has been reduced by more than 5% compared to the last rent of the previous lease agreement for the same property, after applying, where applicable, the annual adjustment clause of the previous contract.

• A 70% reduction when any of the following circumstances take place:
- The taxpayer is renting the property for the first time, provided it is located in a high-demand residential area and the tenant is between 18 and 35 years old.
- The tenant is a public administration or non-profit entity that uses the property for social housing.

• A 60% reduction when the property has undergone renovation work, provided that the work was completed within the two years prior to the date the lease agreement was signed.

• A 50% reduction in all other cases.

When purchasing a home, the associated expenses must be considered.The main expenses are detailed below.

1. Taxes:

- Value Added Tax (VAT).
This is due on new construction and the first transfer. It is generally taxed at 10% and 4% on social housing.

- Property Transfer Tax (ITP).
This is due on second or subsequent transfers.It varies by Autonomous Community. In Catalonia a progressive rate is applied based on the value of the property: 10% up to the first €600,000 €, 11% on the excess up to the next €300,000 €, 12% on the excess up to the next €600,000 € and 13% on the remaining excess.
The rate is reduced to 7% for social housing and to 5% when the buyer meets certain requirements.

- Stamp Duty (IAJD).
There are two fees: one fixed and one variable.
The fixed fee refers to the stamped paper on which notarial documents must be issued and amounts to €0.30 per sheet and €0.15 per page.
The variable fee depends on the Autonomous Community.In Catalonia it is 1.5% of the property's value.
For new-build properties sales both the fixed and variable fees must be paid, while for second-hand properties sales only the fixed fee must be paid.

- Municipal capital gains tax (Tax on the increase in the value of urban land).
According to regulations, this tax must be paid by the seller, although it is possible to agree otherwise.

2. Notary Fees:

The purchase and sale must be formalized by public deed before a notary. Notary fees are regulated by law and vary depending on the price of the property. They typically range between 0.2% and 0.5% of the purchase price.

3. Property Registry Fees:

Once the deed is executed, it must be registered in the Property Registry, whose main function is to guarantee legal security and provide greater protection to the owner. Fees are also regulated by law and vary depending on the price of the property. They amount to between 0.10% and 0.25% of the purchase price.

4. Mortgage costs (if financing is available):

- Property appraisal:
This will be carried out by a company approved by the Bank of Spain and usually costs between €300 and €500.

- Mortgage arrangement fee:
This is a charge that banks apply at the outset to cover administrative, assessment and management costs. It usually ranges between 0.5% and 1% of the loan value.

- Home and/or life insurance:
By law it is only compulsory to take out home insurance with coverage for damage caused by fire, flooding or natural disasters. However, banks recommend taking out other types of insurance, such as life insurance.

Below we'll share some practical ideas and tips you can follow to boost the value of a home you're planning to sell.

1. Neutral colors in paint.

An easy and inexpensive way to create more spaciousness and light in the rooms of a home is to use neutral colors with low saturation tones and without a dominant primary color, such as white, light gray, or beige. They are characterized by their warmth and elegance, allowing them to create a serene and welcoming atmosphere and are ideal for achieving a minimalist look.

2. Order and cleanliness.

A tidy home optimizes the use of space, making it a more pleasant and functional place and contributing to the well-being of those who live there. Likewise cleanliness in a home is essential to convey peace and tranquility and create a healthy and positive environment that helps visitors imagine themselves living there.

3. Lighting.

You can improve the value of a property by following some simple lighting tips, such as maximizing natural light to make rooms feel more spacious using mirrors and light curtains that reflect and transmit light, using warm and neutral light bulbs that encourage relaxation and rest, installing auxiliary lamps that help illuminate areas of the home that the main light fixture doesn't reach and also decorate the home, etc.

4. Plants.

Introducing plants adds a touch of color and vitality to the home.They're also beneficial for your physical and mental health as they help purify the air, increase humidity, absorb noise and reduce stress.
On the other hand they're an additional decoration and adornment for the home.
So there are only advantages, although it is advisable to select the most suitable plants according to the characteristics of each space where they will be placed.

5. Clear spaces.

Keeping rooms clear and organizing the space helps create a sense of greater spaciousness. It's essential to find a balance when arranging furniture. It is advisable to remove or hide unnecessary objects and items that do not contribute anything, avoid overloading the rooms and use furniture with clean lines, prioritizing simplicity, functionality and harmony. The goal is to create a calm, tidy and welcoming environment.

In short, you don't need to make large investments to improve the value of your home. Just follow these tips.