Usufruct and bare ownership: what each part of a property is worth

Two rights over the same house

Full ownership is the widest right you can hold over a thing: to use it, to draw its fruits and to dispose of it. Usufruct carves the use and the income out of that ownership and hands them to someone else for a period. Article 1439.º of the Portuguese Civil Code defines it as the right to enjoy, temporarily and fully, something belonging to another, without altering its form or substance⁶.

On a house, the usufructuary can live in it, let it and collect the rent, but must preserve it and return it in the condition received, ordinary wear aside. On the other side stands the bare owner, also called the radiciário because what is left to them is the root: they hold title, and the house will be fully theirs once the usufruct ends, but in the meantime they cannot use it.

There is one limit that explains everything else in this article. Article 1443.º of the Civil Code provides that a usufruct constituted in favour of an individual cannot exceed that person's life⁶. A lifetime usufruct dies with the usufructuary and is not inherited. It is that tie to one specific life which forces tax law to arbitrate what it is worth.

Why the law has to split the value

Whenever a property is divided between these two rights, someone owes tax on something, and it has to be clear on how much. It happens in a parent-to-child gift with reserved usufruct, in the sale of a bare ownership, in an inheritance where the surviving spouse takes the usufruct and the children the root, and on the extinction of the usufruct itself.

If the parties could set those values freely, hollowing out the tax would be trivial: you would simply declare that the bare ownership being gifted is worth very little. So article 13.º, point a) of the IMT code takes the decision out of the parties' hands and requires the value of the property separated from the usufruct to be obtained by deducting a tabled percentage from the full property value¹. Point b) of the same article closes the loop: the current value of the usufruct is obtained by subtracting from the full property value the value of the ownership calculated under the preceding rule¹. In other words, the percentage the table deducts is exactly the weight of the usufruct.

The table was born in IMT, but it governs gratuitous transmissions too, because the stamp duty code points to it twice: article 13.º, n.º 4 states that the rules laid down in the IMT code apply when determining the taxable values of partial forms of the ownership right, and article 21.º adds that the rules of articles 13.º and 15.º of the IMT code apply to determining the taxable value in gratuitous transmissions²³. Gifts and inheritances therefore use the same table as sales.

The age table, band by band

The logic is expected enjoyment: the older the usufructuary, the fewer years in theory remain to use the property, and the less the right is worth. The percentage falls five points for every five years of age.

Note two things. First, at only one point in the table, the band from 50 to 54, are the two parts worth half each; everywhere else the split is lopsided, which is why the half-and-half intuition almost always fails. Second, the wording of the bands: less than 70, not up to 70. Someone turning 70 leaves the 30% band and enters the 25% one, which means the day the deed is signed can change the taxable value.

The age that counts is that of the person on whose life the right's duration depends, that is the usufructuary. In a gift with reserved usufruct the usufructuary is the donor, so it is the donor's age that enters the calculation, not that of whoever receives the root.

What if the usufruct runs for a set number of years?

A usufruct can be set up for a fixed term, and then age stops being the main criterion. The closing part of point a) requires 10% to be deducted from the full property value for each indivisible five-year period the right still has to run¹.

The word indivisible is what catches people out. There is no proportion within a period: twelve years do not give 24%, they give three periods and therefore 30%, because the two spare years count as a whole period. A usufruct of a single year is already worth 10%.

And the same point imposes a brake: the deduction cannot exceed what it would be if the usufruct were for life. A thirty-year usufruct would give 60% by counting periods, but if the usufructuary is 80 the cap for their band is 15%, and that is the figure that applies. Age is therefore still needed for a temporary usufruct, only there it serves to compute the ceiling.

Example: a mother aged 68 gifts the house to her son

A mother aged 68 wants to make sure the flat goes to her son, but wants to keep living in it for the rest of her life. She gifts him the ownership and reserves the usufruct for herself. The flat's tax value is €200,000.

At 68 the table falls in the "less than 70" band and deducts 30%. So:

• Usufruct the mother keeps: 30% of €200,000, that is €60,000.
• Bare ownership the son receives: the remaining 70%, that is €140,000.

That is exactly the split the Portuguese chartered accountants' body uses in its article on this topic, with a mother of the same age⁷.

The son is a descendant, so the exemption in article 6.º of the stamp duty code spares him the 10% of item 1.2⁴. That exemption does not cover item 1.1, though, the 0.8% that immovable property always pays. On the €140,000 of bare ownership, that comes to €1,120.

Years later the mother dies and the usufruct ends. If the tax value is still €200,000, the consolidation base is the difference between that value and the €140,000 already assessed, that is €60,000, and the 0.8% adds another €480. In total, €1,600, which is precisely 0.8% of the property's €200,000. Nothing was lost to the state: it was merely spread over two moments.

Had the beneficiary been a nephew, with no right to the exemption, the same two bases would pay 10.8% and the total would be €21,600. And had the tax value risen to €250,000 by the date of death, the consolidation base would become €110,000 and the tax at that second moment €880, because any increase in the meantime is caught as well.

Stamp duty is paid at two moments

This is the point that most often escapes people making a gift with reserved usufruct, and the rule is worth reading. Article 13.º, n.º 6 of the stamp duty code says that where the ownership is transmitted separately from the usufruct, the tax owed by the acquirer as a consequence of the consolidation of the ownership with the usufruct falls on the difference between the property's tax value on the register and the value of its ownership taken into account in the relevant assessment².

Translated: the gift taxed only the root, and the usufruct's slice went untaxed. When the usufruct ends and the two parts meet in the same person, that missing slice is collected, measured against the tax value of the day. That is why the calculator asks for a second tax value, and why a rise in the property's registered value during the usufruct ends up increasing the final tax.

It is worth noting what the rule does not say. It does not speak of a new acquisition, it speaks of consolidation. When the usufruct ends through the usufructuary's death or the expiry of its term, there is no transfer of the usufruct to the owner: the right simply ceases. A voluntary renunciation of the usufruct, by contrast, is treated as a gift in favour of the bare owner, with its own date and value, which has consequences for calculating future capital gains⁷.

Who pays IMI and the works

Splitting the value for tax is not the same thing as splitting the running costs, and the two are frequently confused.

For IMI, the answer sits in article 8.º of the IMI code: in cases of usufruct the tax is owed by the usufructuary⁵. They appear as the taxable person and the demand is addressed to them, not to the bare owner. The logic follows the benefit: whoever draws the use and the rent from the property pays the annual tax on it.

For works, article 1472.º of the Civil Code splits them by nature: ordinary repairs fall on the usufructuary and extraordinary ones on the owner⁶. Painting, replacing a water heater or dealing with a small leak is for the usufructuary; rebuilding the structure or the roof is for the owner.

And when the property is sold?

When the time to sell arrives, each holder computes their own capital gain. Each one's acquisition value is the one that served as the base for the stamp duty assessment on their percentage, as article 45.º, n.º 1 of the income tax code requires, and the sale proceeds are split by the same percentages you worked out here⁸.

If the usufruct has already ended through the usufructuary's death, the owner holds a property acquired at two distinct moments: the root on the date of the gift and the usufruct's share on the date of consolidation, each with its own value and date. It is a calculation done twice and added up, exactly as for someone who inherits half a house from their father and half from their mother years later.

Is a gift with reserved usufruct worth doing?

The honest answer is that it depends what it is for. As a family planning tool it solves a real problem: it transfers the house during the donor's lifetime, avoiding a future partition, without the donor losing the right to live in it or to let it. As a tax saving, the effect is more modest than it looks, because the usufruct's slice reappears at consolidation.

Where the effect is clear is in deferral and predictability: you pay now on a smaller base and the rest only later, against the tax value known at each moment. And between parents and children, with the item 1.2 exemption working at both moments, what is at stake is the 0.8% of item 1.1, not the 10% that alarms anyone reading the general table for the first time.

What you should not do is sign the deed without knowing the numbers. Work out first what each part is worth and what each of the two moments costs, and take that calculation to whoever drafts the document.