Frequently Asked Questions

Q: What does “Usufruct” mean?
Q: What happens if my circumstances change and I want to leave Spain and relocate to another country?
Q: How can I be assured that I will receive my monthly payment, when I have signed over ownership to a buyer whose financial capacity to meet future obligations are unknown to me or could perhaps change for the worse over time?
Q: Do we need to tell our family of our intentions?
Q: Can I live in my home for the rest of my life?
Q: If I die can my partner still live in the property?
Q: Will the property need to be valued?
Q: Do I need to take legal advice?
Q: What fees are payable upfront?
Q: Who is responsible for the maintenance of the property and other expenses?
Q: How long does the process take and when will I receive my first monthly pension payment?
Q: Will I be able to leave my home?
Q: What about my heirs?
Q: What if I were to die prematurely?
Q: And if I later want to move into a nursing home indefinitely?
Q: What about my furniture and personal belongings?
Q: Will my monthly pension be adjusted for inflation?
Q: What taxes do I have to pay on my monthly pension?
Q: Who pays for the different taxes, the legal expenses and the notary?
Q: Who pays for the property tax (IBI) and the home insurance?
Q: I need some extra cash upfront. Can I get an initial lump sum?
Q: Can I get a LUIS if my property is not unencumbered?
Q: What about capital gains tax?

Q: What does “Usufruct” mean?A: “Usufruct” originates from Latin and is the broad legal term describing a situation wherein a person retains the right of use of a property for life after it has been sold. Lawyers and mortgage institutions are very familiar with the terminology and we have chosen this word because it accurately describes what we offer. You sell your property but retain the right of sole occupancy. The term is widely used throughout the EU.

Take a look at http://en.wikipedia.org/wiki/Usufruct to learn more of the origins of Usufruct.

Now, in addition to the usufruct, our proposal includes a lifetime pension, with the possibility of receiving an initial lump sum in combination with the pension payments.

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Q: What happens if my circumstances change and I want to leave Spain and relocate to another country?A: We are aware that circumstances can change quickly and the preferred option of life style can change because of unexpected events. There are a number of options that you can choose at the outset or during the contract – a so-called ‘opt-out’ clause to deal with such situations.

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Q: How can I be assured that I will receive my monthly payment, when I have signed over ownership to a buyer whose financial capacity to meet future obligations are unknown to me or could perhaps change for the worse over time?A: This is a relevant and natural concern that many have. The answer is that the usufruct contract has a clearly defined clause (lien) that will be registered at the Land Registry and that will entitle you to repossess the property if the buyer fails to pay the monthly income on time (details in contract).

In the unlikely event of this happening, the buyer would lose all monies that it had paid to you with no refunds, and the property would revert back to your ownership. This has been the law in France for over 200 years and we have followed this concept in the terms of our LUIS (Lifetime Usufruct and Income Solution) contract.

The full legal rights to the Usufruct are also recorded at the Spanish Land Registry so there can be no doubts as to your continued usufruct rights over the property.

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Q: Do we need to tell our family of our intentions? A: Your Advisor will recommend that you to involve your family from day one to ensure that there are no misunderstandings with regard to any future inheritance. This is a very important financial decision, which has implications for your family in relation to their possible inheritance.

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Q: Can I live in my home for the rest of my life?A: Yes, you and anyone else named on the LUIS agreement have security for life. You have guaranteed lifetime occupancy under the agreement and a copy is registered at the Land Registry. Provided you comply with the terms of the agreement, you and anyone else named in the agreement has guaranteed sole occupancy for life.

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Q: If I die can my partner still live in the property?A: Yes. Anyone named on the LUIS contract has the legal right to continue to live in the property until they voluntarily decide to leave it or until their death.

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Q: Will the property need to be valued?A: A valuation of your Spanish property will be performed by Valmesa (www.valmesa.com) to establish the current market value. The valuation fee is included in our standard application fee. Your Advisor will provide you with our application fee scale. The application fee cannot be refunded once the valuation has been instructed even if you decide not to proceed.

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Q: Do I need to take legal advice?A: Yes. An independent firm of lawyers will provide you with the appropriate legal advice and ensure that you fully understand the contract that you are undertaking.

The independent lawyer will go through the “Offer to Purchase” with you to ensure that you have a clear understanding of it and that you are given a full detailed explanation of how the agreement works.

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Q: What fees are payable upfront?A: If you do decide to proceed after receiving an indicate estimate of the likely pension size an Application Fee is payable upfront. The application fee covers the cost of valuing your property, the technical report and also the independent legal advice session with the lawyer. This will be the only fee that is payable upfront. The valuation fee will be refunded in full if the transaction is completed.

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Q: Who is responsible for the maintenance of the property and other expenses?A: You will be required to keep the property in good repair and condition and permit New Day Properties (or agents acting upon their instructions) to enter and view the property upon reasonable notice. This would normally be twice a year for apartments and once a month for villas.

The usufructuary (yourself) will be expected to carry out the routine and ordinary repairs that the property might need. Ordinary repairs are understood to be the ones resulting from damages or defects caused by the natural use of the items and being indispensable for their maintenance. The buyer will be responsible for carrying out the extraordinary repairs as necessary.

For example, the maintenance of the garden (if there is one), the replacement of broken windows, keeping doors in good working order, general cleaning, toilet repairs, replacement of dirty or damaged wall to wall carpeting, and the maintenance of heating and cooling equipment as well as of hot water generation systems would all be the responsibility of the usufructuary. On the other hand, extraordinary repairs such as the ones resulting from construction defects, the normal degradation of the building or a natural phenomenon (storm, flooding) would be the responsibility of the buyer.

The payment of the ordinary expenses of the owner’s community, as well as the contracted services for the property (electricity, water, gas, telephone, security, etc) will be the responsibility of the usufructuary.

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Q: How long does the process take and when will I receive my first monthly pension payment?A: Normally the whole process takes around 4-8 weeks to completion before a Spanish Notary.

If there are complications with the current registration of your property at the land registry, then the process may take longer. In instances where such problems with registration are identified, then these will need to be rectified by you prior to Notary completion. You should be aware that to rectify these matters you may incur additional expenditure which will be your responsibility.

Once the Land Registry has confirmed that the Escritura (deeds) including the Usufruct Agreement have been successfully entered in to the registry, then we will arrange your first monthly pension payment. You should be aware that because of the complexities of the Spanish registration system this could take a further 2/3 weeks after the contracts have been signed in front of the local Spanish Notary.

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Q: Will I be able to leave my home?A: Of course, you will be able to spend time away from your home whenever you wish – for holidays, to travel or to spend time with family and friends. Your right to use and enjoy your home will not be affected, since you will have the usufruct right over your property at all times.

The property is available for your personal use on a full or part time basis – entirely at your choice.

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Q: What about my heirs?A: With a LUIS (Lifetime Usufruct and Income Solution), you sell your home but keep a lifetime usufruct, which gives you the right to use and enjoy the property for life. When you die (or a surviving spouse passes away), the usufruct ends and the occupancy rights return to the buyer. Since the occupiers (usufructuary(ies) have already sold the property there is nothing to inherit from this asset. However, NDP has developed an option that might still allow you to leave something to your heirs if you were to die prematurely (see question below).

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Q: What if I were to die prematurely?A: Your early death would be of benefit to the buyer (in the same way that exceeding your life expectancy would be to the buyer’s disadvantage). However, if you want to ensure that an early death benefits a family member or other, we have an option for you. NDP has developed a monthly pension payment guarantee that will secure a lump sum for your designated heir(s) in case of your early death. The cost of this guarantee will depend on your age, your monthly penson, and the period of time that you want the guarantee to cover. NDP or your broker will be happy to provide more details.

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Q: And if I later want to move into a nursing home indefinitely?A: If you are not going to use the property and you wish to terminate your usufructuary right, you can do so and benefit from a single lump sum payment or an increase in the monthly income. Details available upon request.

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Q: What about my furniture and personal belongings?A: With this transaction, you transfer the property, not the contents. All your personal belongings and furniture remain your possession and can be passed on to your heirs. The only items whose ownership is transferred to the buyer in conjunction with the property are the following:

Hot water accumulation equipment (water tanks)

Hot water generation equipment (gas or oil fired burners but not solar panels).

All domestic and electronic appliances such as air con units, ovens, hobs, extractor fans, refrigerators, freezers, washing machines, tumble dryers and dishwashers are not included in the sale and remain the property of the usufructuary.

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Q: Will my monthly pension be adjusted for inflation?A: If you have taken the indexed option, after one year of the contract has elapsed, the monthly pension will increase every year on January 1st based on the last officially published CPI index (max. of 3% p.a.).

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Q: What taxes do I have to pay on my monthly pension?A: The monthly pension is very lightly taxed:
In 2010 the monthly pension was subject to a yearly income tax of 19% on the first 6.000€ (per year) and a 21% tax on the excess over that amount. Now, tax residents in Spain that are older than 70 and are receiving a lifetime pension based on their habitual dwelling are eligible for a 92% discount, bringing the effective tax rate down to around only 1.52%of the total monies received. Note: this is not generally applicable to those who are not resident, where the tax authorities in the country of your principal residence may apply taxes (capital gains tax or income tax on part of the income funds). Guidance can be given by our office.

Q: Who pays for the different taxes, the legal expenses and the notary?A: All transaction related taxes (purchase tax, stamp duty tax) will be paid by the buyer. The plusvalía tax will be paid by the seller. The legal expenses and the notary will be paid by the buyer.

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Q: Who pays for the property tax (IBI) and the home insurance?A: The buyer.

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Q: I need some extra cash upfront. Can I get an initial lump sum?A: Yes, an initial lump sum can be arranged, though this will reduce the amount of the monthly pension.

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Q: Can a get a LUIS if my property is not unencumbered?A: LUIS is basically available only to owners of un-mortgaged properties. However, if the obligations on the property represent only a small percentage of the total value of the property (less than 10%), we might be able to help you. Please contact New Day Properties.

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Q: What about capital gains tax?A: If you are 65 or older, and a tax resident in Spain, you are exempt from any capital gains tax on the sale of your habitual dwelling.

If you are a non-resident, there is a 19% CGT to be paid. Because of the way the transaction is structured, the GGT will likely be lower than if you were to sell your property in the open market.

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Contact us today on:
+34 951 242 500
+34 670 502 955

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