Form 655: consolidating full ownership when a usufruct ends, the deadline and how the tax is worked out, with a solved example

When a person gives away or leaves by inheritance the bare ownership (nuda propiedad) of a property and keeps the usufruct, ownership is split into 2 rights. The usufructuary keeps the use and the enjoyment. The bare owner is the owner, but cannot use the home while the usufruct lasts. At that moment the bare owner paid tax only on the part received, the bare ownership. The share of the value corresponding to the usufruct was left unassessed.

When the usufructuary dies the usufruct is extinguished (article 513.1 of the Código Civil, the Spanish Civil Code) and the bare owner becomes full owner without anyone transferring anything new to them. Hacienda (the Spanish tax authority) is not taxing a transfer: it is collecting the part of the tax left outstanding since ownership was split. That is why the official form is headed "Autoliquidación de la adquisición de bienes por extinción de usufructo", the self assessment for the acquisition of assets on the extinction of a usufruct.

The person required to declare is the bare owner who consolidates full ownership, according to the official instructions for Form 655 issued by the Agencia Tributaria (AEAT, the Spanish tax agency). If the bare ownership was shared between several siblings, each one files their own form for their share, with their own calculation.

Form 655 is used when the usufruct was created through a gratuitous transfer, that is, by inheritance or by gift. If the bare ownership was bought, the tax is a different one and so is the calculation, as explained further down.

This is the rule almost nobody explains properly. Article 51.2 of the Reglamento del Impuesto sobre Sucesiones y Donaciones (Real Decreto 1629/1991, the regulations implementing Spanish inheritance and gift tax) says word for word that "al extinguirse el usufructo el primer nudo propietario viene obligado a pagar por este concepto sobre la base del valor atribuido al mismo en su constitución", when the usufruct ends the first bare owner is obliged to pay on this account on the basis of the value attributed to the usufruct when it was created. The taxable base is a figure frozen in the past.

What that means in practice: if the flat was worth €200,000 in 2012 and today it is worth €320,000, you are not taxed on today's value. You are taxed on the value attributed to the usufruct in 2012. The property going up in value does not increase the tax on the consolidation.

The percentage is not recalculated either. The tax value of a lifetime usufruct depends on the age the usufructuary was when the right was created, not on the age at death. It was fixed then and that is where it stays.

The applicable rate is not today's rate either. Article 26.c) of Ley 29/1987 (the Spanish Inheritance and Gift Tax Act) puts it like this: "En la extinción del usufructo se exigirá el impuesto según el título de constitución, aplicando el tipo medio efectivo de gravamen correspondiente a la desmembración del dominio", on the extinction of the usufruct the tax is charged according to the deed that created it, applying the average effective rate of tax corresponding to the original split of ownership. That is why the original assessment has to be recovered, not just the deed.

The deadline is 6 months counted from the day the usufructuary died. It is set by article 67.1.a) of Real Decreto 1629/1991 and confirmed by the AEAT electronic office. That same article adds an important point: the 6 month deadline applies "aunque la desmembración del dominio se hubiese realizado por acto inter vivos", even if ownership was split by an act between living persons. In other words, if the bare ownership was given to you as a gift during the donor's lifetime, when the usufructuary dies you still have 6 months, not 30 days.

If the usufruct ends for another reason, for example because a temporary usufruct runs out, the deadline drops to 30 working days from the following day (article 67.1.b of the same Reglamento). The gap between 6 months and 30 working days is the one that ruins the most files.

If you file late but before Hacienda sends you a formal request, the surcharge in article 27.2 of the Ley General Tributaria (the Spanish General Tax Act) applies: 1% plus a further 1% for each full month of delay, with no late payment interest. After 12 months the surcharge jumps to 15% and, on top of that, late payment interest starts running from the day after month 12.

The surcharge is reduced by 25% if you pay the debt and the surcharge itself within the periods in article 62.2 of the Ley General Tributaria (article 27.5). That discount is lost as soon as Hacienda sends you a formal request: from then on there is no reduced surcharge, there is a verification procedure and a possible penalty.

The average effective rate of tax is not the rate you get by applying the scale to the value of the usufruct. It is a rate that was calculated, back then, on the full value of the property. Article 51.2 of the Reglamento gives the exact formula: you divide "la cuota tributaria correspondiente a una base liquidable teórica, para cuya determinación se haya tomado en cuenta el valor íntegro de los bienes, por esta misma base y multiplicando el cociente por 100, expresando el resultado con inclusión de hasta dos decimales", the tax due on a theoretical taxable base determined by taking the full value of the assets, by that same base, multiplying the quotient by 100 and expressing the result with up to 2 decimals.

Because the tax is progressive, that average rate calculated on the full value of the property is usually quite a bit higher than the one that would correspond to the small base of the usufruct. Anyone who applies the scale directly to the value of the usufruct declares too little and ends up with a supplementary assessment, interest and a penalty.

The opposite mistake also exists and it is even more expensive: recalculating the usufruct percentage using the usufructuary's age at death, or applying it to the current value of the property. In the solved example in this guide, the 2 mistakes give figures that are 43% below and 60% above the correct one.

That is why we always ask for 2 documents: the deed by which ownership was split and the self assessment that was paid at the time. Without the second there is no average effective rate, and without the average effective rate Form 655 cannot be done properly.

Form 655 only applies when the usufruct was created by inheritance or gift. If you bought the bare ownership, the consolidation is taxed under the Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados (Spanish transfer tax and stamp duty), using the self assessment form of your comunidad autónoma (Spanish region). That is what article 42.7 of Real Decreto 828/1995 provides and what the official instructions for Form 655 repeat.

And the calculation is reversed. Article 42.2 of Real Decreto 828/1995 requires the unassessed percentage to be applied "sobre el valor que tuvieren los bienes en el momento de la consolidación del dominio y por el tipo de gravamen que estuviese vigente en este momento", on the value the assets have at the moment ownership is consolidated and at the rate of tax in force at that moment. Here the property going up in value does count and today's rate does count. It is exactly the opposite of inheritance and gift tax.

The deadline changes too. The state regulations set 30 working days from when the event occurs (article 102.1 of Real Decreto 828/1995), not 6 months. Several comunidades autónomas have extended it to 1 month, so it is worth checking the regional rule before counting days.

How to tell which of the 2 cases you are in: look at the deed by which you acquired the bare ownership. If it is an inheritance deed or a gift deed, Form 655 applies. If it is a sale and purchase, Transmisiones Patrimoniales applies.

Box 02 is the unused relief. If when you acquired the bare ownership you were entitled to a relief for family relationship and did not use it all up because the taxable base was too small, that remainder is deducted now. It is in article 51.2 of the Reglamento and in the official instructions for the form. Those same instructions warn of a limit: no relief applies when ownership was split before 1 January 1988.

Box 06 is the tax credit. According to the official instructions, if the taxpayer was entitled to a tax credit when acquiring the bare ownership, you enter the result of applying that same credit percentage to the tax due on the consolidation. In regions with very high credits that can leave the tax at almost zero, but only if it is entered: it is not applied on its own.

There is a third scenario with rules of its own. If you are not the first bare owner, but bought or inherited the bare ownership after the usufruct had been created, the form is completed through boxes 08 to 13. There you take the value of the usufruct on the date you acquired the bare ownership, you apply the full scale and the multiplier coefficient for pre existing wealth and family relationship, and the official instructions warn that regional deductions do not apply.

These 3 things, the unused relief, the tax credit carried over from the first assessment and knowing whether you are the first or the second bare owner, are what separate a correct tax bill from an inflated one. None of them comes from the death certificate: they come from the old paperwork.

If the usufruct was created in favour of both spouses at the same time, nothing is paid when the first one dies. Article 51.5 of the Reglamento is explicit: "solo se practicará liquidación por consolidación del dominio cuando fallezca el último", an assessment for consolidation of ownership is only made when the last one dies. Many families file and pay when the first parent dies without needing to.

With successive usufructs, the value of the bare ownership was calculated taking into account the usufruct with the highest percentage. When that usufruct ends the bare owner pays on the increase in value of the bare ownership, and so on as the others end (article 51.5).

If the usufructuary waives, during their lifetime, a usufruct they had already accepted, even where the waiver is plain and unconditional, for tax purposes it is treated as a gift from the usufructuary to the bare owner (article 51.6). That changes the tax and cuts the deadline to 30 working days.

And if consolidation happens for another reason, for example because you buy the usufruct from the usufructuary, article 51.4 requires payment of the higher of 2 assessments: the one left outstanding from the split of ownership and the one corresponding to the transaction by which the usufruct ends. Both have to be calculated.