What is the Real Estate Life Annuity?
The Real Estate Life Annuity is a contract, formalised in a Public Deed before a Notary, whereby the Elderly receive a monthly income for the rest of their lives, in exchange for the sale of the bare ownership of their home, but maintaining at all times the right of use and enjoyment.
In other words, the Elderly retain the usufruct of their home forever, is guaranteed to receive a monthly rent for life and is freed forever from certain expenses of the home, such as the Property Tax, the extraordinary community fees and the home insurance.
Both the value of the property and the life expectancy of the elderly person (according to the age and sex of the annuitant, and according to the official tables of the National Institute of Statistics and the Directorate General of Insurance), determine the monthly payments that the elderly person receives.
Therefore, it is the product designed for the Elderly with which a much higher monthly life annuity is obtained than that which can be received with a Reverse Mortgage, achieving the ideal complement to their retirement pension.
Requirements to take it out
You only need to be over 65 years of age and be the owner of a home. If the house has any outstanding debts, it will also be possible to take it out, although this will depend on the amount of the debt. It can be contracted by 1 or 2 holders.
Calculation: the monthly payment to be received with a life annuity will depend mainly on the Value of the Property and the Life Expectancy of the Elderly Person, the latter calculated according to the age and sex of the Annuitant, and following the Official Tables of the National Institute of Statistics and the Directorate General of Insurance. The higher the value of the home and the age of the contracting person/s, the higher the monthly rent to be received.
On the other hand, the value of the use and enjoyment of your home must be taken into account, as the use of the home that you reserve for life has a market price. This amount is comparable to the total amount that the rent of a flat with the same characteristics and location as your home would represent over your Life Expectancy.
Legal regulations: Life Annuities have been included in our Civil Code since 1889, in its articles 1802 to 1808, which is why it is a legal figure with deep roots in our legal system.
How does a Real Estate Life Annuity work?
When an Elderly Person contracts a Real Estate Life Annuity, he/she sells the bare ownership of his/her home in exchange for the payment of a monthly income for life or a temporary period, according to his/her convenience, and reserves the right of usufruct for life over the home.
Therefore, the right of ownership of the house is broken down into two legal concepts, as explained in the following diagram.
Types of Life annuities
- Classic Life Annuity: this is the most common type of annuity. In exchange for the sale of the bare ownership of his or her home, the Elderly Person receives a monthly annuity for life, while reserving the right of usufruct during his or her lifetime.
- Classic Temporary Annuity: in this modality, the Elderly Person maintains, as in the previous one, the usufruct of the home for life. However, the collection of the monthly Income will last a certain period (7, 10, 12, 15 years, etc.).
- Life Annuity or Temporary Annuity outside the Home: the Elderly Person renounces the right of use and enjoyment of the home, to obtain a significant increase in the monthly Income to be received that will allow you to pay for the Nursing Home / Elderly Centre of their choice.
In addition, in all the above types of rentals, you can request an advance of capital or initial provision.
If you prefer to sell the bare ownership in exchange for a lump sum payment on signing the Title Deed, please consult our Sale of bare ownership.
Remember that all modalities are available for one or two owners (e.g. married couple, siblings, etc.).
Advantages and Guarantees of taking out a Real Estate Life Annuity Contract
The advantages of a Real Estate Life Annuity are numerous for the Elderly:
- Receive a monthly annuity, that is, throughout your life, increasing your purchasing power significantly, which will have an impact on improving your quality of life.
- Maintain full use and enjoyment of your home, in the same conditions in which you were using it as the owner. You will make your property assets profitable without having to give up the enormous advantage of continuing to live in your home.
- You will stop paying certain expenses of the property: the Property Tax, the extraordinary Community expenses and the insurance of the property.
- The agreement will not cost you anything, as you will not have to assume any of the expenses, professional fees and taxes generated by the constitution of the Real Estate Life Annuity.
- Taxation of the Life Annuity: enjoy the excellent tax treatment of Life Annuities, as those over 70 years of age are exempt from taxation on 92% of the monthly amounts they receive through this product. Furthermore, if the Real Estate Life Annuity is constituted on a habitual residence, as the contracting party is over 65 years of age, the sale of the bare ownership of your home has no repercussions on your income tax. In short, the taxation of the life annuity is unbeatable.
In addition, if in the future you wish to move to a Nursing Home / Centre for the Elderly, you can waive the right of usufruct, starting to receive from that moment a new monthly income that will be higher than the one you were receiving up to that date, or rent the property if you prefer.
But perhaps the greatest advantage is the full GUARANTEES of Life Annuities:
- The Life Annuity is formalised before a Notary, in a Public Deed that is registered in the Land Registry where you will continue to be the holder of 100% of the usufruct of your home.
- The Deed establishes a Resolutory Condition, which is the maximum legal guarantee for the hypothetical case of non-payment of the Rents, based on which the Elderly Person would recover full ownership of the property without having to return the amounts already received.
On the other hand, you can rest assured that you will have the professional advice and permanent support of Grupo Retiro, a pioneer and leading company in Spain since 1996 in the management of Real Estate Annuities on dwellings for the Elderly. We can also help you with our complementary services for the search of Elderly Homes / Centres for the Elderly, Assistance / Home Care companies, Residential Complexes / Apartments for the Elderly, Annuity Insurance, etc., and of course, completely free of charge.
Please contact us if you have any doubts on any of the points mentioned above or if you would like to request a FREE AND NON-BINDING STUDY on your specific case.
If you prefer to sell the bare ownership of your property in exchange for a lump-sum payment of capital, please consult our product Sale of bare ownership.