Transferring usufruct of a property will be taxed as income from real estate capital

The legal nature of operations involving the transfer of rights over real estate has raised doubts regarding their correct classification for Personal Income Tax (IRPF). Recently, the Dirección General de Tributos (DGT) has specified the applicable tax treatment when a property owner transfers the usufruct of a home to a third party.

What the DGT has resolved

The administration has determined that the constitution or transfer of rights of use or enjoyment over real estate is strictly classified as income from real estate capital. This criterion marks a fundamental distinction from the figure of a conventional lease.

In this sense, the DGT establishes that:

• The operation cannot benefit from the reduction provided for in Article 23.2 of the IRPF Law, which is typically applied to the lease of a permanent residence.
• Since it involves the constitution of a usufruct and not a lease contract, the regulations regarding rental incentives for housing are not applicable.

What this means for you

If you are the owner of a property and decide to transfer the usufruct to another person, the income obtained must be declared as income from real estate capital. This implies that the tax burden and the method of declaring the income will change compared to what would occur in a standard rental contract.

Nevertheless, the bare owner maintains the ability to manage certain costs associated with the property. The owner may deduct the expenses necessary to obtain said income, such as:

• Interest on loans linked to the property.
• Repairs and maintenance.
• Taxes and insurance.
• Corresponding depreciation.

What is advisable to do

Since the classification of the operation determines both the type of income and the possibility of applying tax reductions, it is necessary to analyze the legal structure of the agreement before its formalization. The difference between a lease and a transfer of usufruct has a direct impact on the tax settlement and the optimization of deductible expenses. It is recommended to assess each particular situation to ensure that the nature of the contract aligns with the economic and tax reality of the operation.