Usufruct is a term that describes that a person has the right legally to live in a property until they die. They have no right to sell it or charge it. Usufruct, while in place, splits the rights of the ownership, as the holder of the usufruct can legally use the property, and get rental income from it, for example, but only the original owner can sell it. At the end of the usufruct period, it reverts to the original owner or their heirs.
It is used more frequently in Spain by Spanish nationals, due to the way their testaments have to be written by law. It can be total or a percentage and can be temporary or for a lifetime. The usufruct may be applied by law (such as in the case of Spanish inheritance rules) or voluntarily.
In the case of non-residents, it is possible for a couple who own a property jointly (thus 50% each) to choose in their Wills to leave their 50% to their children, but with an usufruct to their spouse. This allows the spouse to remain in the house until they die, say, but there are still tax implications so it should not be seen as a way of avoiding inheritance tax, as there maybe tax when inheriting a lifetime usufruct. The only advantage of doing an usufruct for a non resident is to avoid the children of a previous marriage forcing you to leave the property if it is left to them.
The best thing is to consult an expert if you are thinking of doing this to see whether it is worth considering and the reasons for giving someone an usufruct in a Will. Fortunately, from 2015, the tax allowances for non residents both with inheriting property in Spain and usufructs are much more generous. Tax wise:-
If the usufruct has been acquired by purchase, the tax is the purchase tax.
If the usufruct has been acquired by inheritance or donation, the tax is inheritance/donation tax.
The tax paid on commutation is the tax you should have paid to acquire the full owenership.
As this is a very complicated issue, please contact us for any legal advice on this matter.