What does renouncing the usufruct of a property entail?

A life usufruct grants a person the right to enjoy someone else's property for their entire lifetime, whether by residing in it or receiving the income it generates, such as rental income. However, the holder of this right is not obliged to maintain it indefinitely. According to Article 513 of the Spanish Civil Code, express renunciation by the usufructuary is one of the legal grounds for the termination of the usufruct.

When renouncing the usufruct, the holder irreversibly forfeits the right of use and the fruits of the property. As a direct consequence, the so-called consolidation of ownership occurs: the bare owner combines legal title with the actual use of the asset, becoming the full owner of the property.

Types of usufruct renunciation: gratuitous or onerous

When making the decision to extinguish the right, there are two main modalities that determine the tax and legal impact of the process:

• Pure and simple renunciation (gratuitous): The usufructuary renounces their right without receiving any financial consideration in return. Legally, this is equivalent to a donation in favour of the bare owner, whose estate increases in value at no acquisition cost.
• Onerous renunciation: The usufructuary assigns or extinguishes their right in exchange for compensation, a financial payment or an annuity. In this scenario, the transaction operates similarly to a sale of property rights.

Steps required to carry out the renunciation

For the renunciation to take full legal effect against third parties and for property ownership to be updated, a series of formal steps must be followed:

1. Signing of a public deed: The renunciation cannot be formalised through a private document. It must be executed before a notary to certify the unreserved will and legal capacity of the usufructuary.
2. Tax settlement: Depending on whether the renunciation is gratuitous or onerous, the corresponding regional and municipal taxes must be paid to the tax authority.
3. Land registry entry: With the notarised deed and the tax payment receipt, the parties proceed to the Land Registry to register the cancellation of the usufruct and the consolidation of ownership in the name of the full owner.

Taxes arising from renouncing a usufruct

Taxation is one of the most important aspects to consider when renouncing a usufruct. The distribution of the tax burden will vary depending on the nature of the act:

1. Inheritance and Gift Tax (ISD) or Property Transfer Tax (ITP)

If the renunciation is gratuitous, the bare owner pays Inheritance and Gift Tax, applying any allowances available in their autonomous community. If the renunciation is onerous, the transaction is taxed under Transfer Tax (ITPO), with payment being the responsibility of the acquirer of full ownership.

2. Personal Income Tax (IRPF)

The renouncing usufructuary may face tax consequences on their tax return. In the case of an onerous renunciation, they must declare the capital gain or loss resulting from the difference between the acquisition value and the transfer value. In the case of a gratuitous renunciation, the tax authorities may calculate a capital alteration for IRPF purposes.

3. Tax on the Increase in Value of Urban Land (Municipal Plusvalía)

The consolidation of ownership through renunciation of usufruct requires the settlement of municipal plusvalía tax at the local town hall where the property is located. The taxable person will depend on whether the renunciation is gratuitous or onerous.

Renunciation of usufruct and mortgage implications

The existence of a life usufruct usually limits the ability to obtain credit secured against the property, as financial institutions require signatures from all right holders over the property. When the usufructuary renounces their right, the full owner acquires absolute freedom to dispose of the property, sell it or apply for a mortgage loan without needing third-party authorisations.

In situations where the objective is to cancel or restructure family debts associated with a property, seeking advice from specialised professionals such as mortgage credit intermediaries allows for assessing the financial feasibility of consolidating ownership prior to applying for new mortgage facilities.

Specific aspects: Officially Protected Housing (VPO) and special scenarios

When the property encumbered by the usufruct is protected under the VPO scheme, it is essential to check regional legislation. In the Comunidad de Madrid, the transfer or modification of rights in rem over publicly protected housing requires verifying the maximum legally established sale or rental prices, as well as the applicable descalificación periods, particularly if the renunciation is carried out on an onerous basis.

Is it possible to reverse the renunciation?

No, a formalised and registered renunciation of a life usufruct is an irrevocable act. Once the usufructuary formalises their declaration before a notary and full ownership is consolidated in the bare owner, the extinguished right cannot be recovered, unless a new usufruct is created through a new legal transaction with its corresponding taxation.