Personal Income Tax exemption for the donation of bare ownership of the primary residence

Estate planning for individuals often includes the transfer of assets during their lifetime. One of the most frequent operations is the donation of the bare ownership of a property, while the donor retains the life usufruct. Recently, the Dirección General de Tributos (DGT) has clarified the tax treatment of this operation regarding Personal Income Tax (IRPF).

What the DGT has ruled

The query focused on determining whether the donation of the bare ownership of a property to a descendant generated a capital gain subject to taxation or whether it could qualify for the exemption provided for in current regulations. The DGT has pointed out that the donation of bare ownership alters the composition of the donor's assets, which technically generates a capital gain or loss.

However, the criteria establish that if the property constitutes the donor's primary residence, in accordance with the terms and circumstances established in the IRPF Regulations, and the transferor is over 65 years of age, said capital gain resulting from the donation of the bare ownership is exempt from taxation pursuant to article 33.4.b) of the LIRPF.

What this means for you

This ruling has direct relevance for individuals over 65 who intend to transfer the bare ownership of their primary residence to their heirs, such as children or grandchildren, without losing the right to use and enjoy the home through usufruct.

The key lies in meeting two concurrent requirements:

• That the property is the donor's primary residence according to the criteria of the IRPF Regulations.
• That the donor is over 65 years of age at the time of the transfer.

If these conditions are met, the operation will not result in a tax cost in IRPF for the donor, as the capital gain derived from the alteration of their assets will be exempt.

What should be done

In the event of a potential operation of this type, it is necessary to verify that the requirements for the primary residence are strictly met to avoid contingencies with the Tax Administration. Every family and asset situation is different, so it is fundamental to assess the particularities of each case before proceeding with the donation deed.