Consolidation of full ownership will be taxed according to the title of dismemberment

The consolidation of full ownership is a legal phenomenon that occurs when the usufructuary and the bare owner coincide in the total ownership of an asset. When this process derives from the extinction of the usufruct, there is a need to determine the tax treatment applicable to that increase in wealth.

What the DGT has resolved

The Dirección General de Tributos (DGT) has specified that if the acquisition of bare ownership was carried out through a succession agreement, said operation is considered a mortis causa transfer. Consequently, upon the extinction of the usufruct and the consolidation of full ownership, the taxpayer must perform a settlement on the percentage of the total value of the asset that was not subject to taxation at the time of the dismemberment.

The criterion establishes that for this calculation, the tax scale corresponding to the title by which the ownership was originally dismembered will be applied. For example, if the dismemberment was onerous and fell under the Transfer Tax, Documented Legal Acts and other Transfer Taxes and Documented Legal Acts (ITPAJD), that same nature will determine the scale applicable upon consolidation.

What it means for you

This criterion directly affects natural persons who have acquired the bare ownership of an asset through succession agreements. It means that the consolidation of ownership is not an event exempt from taxation, but rather completes the tax cycle initiated with the dismemberment.

The taxpayer should keep in mind that:

• The tax base will be the value of the percentage of the asset that was not previously taxed.
• The tax rate will depend on the nature of the original transfer (whether it was onerous or gratuitous).
• The regulations of the Inheritance and Gift Tax (ISD) must be observed in accordance with Law 29/1987 and the Inheritance and Gift Tax Regulations.

What should be done

It is necessary to review the documentation of the original dismemberment to identify the title under which the bare ownership was transferred. Knowing whether the initial operation was onerous or gratuitous is fundamental to determining the tax scale that will be applied at the time of the consolidation of full ownership and to avoid errors in the settlement before the Administration.