A concept called usufruit plays an important role in inheritance planning and family affairs in France.
It refers to the lifetime right to use something – usually a property – or enjoy the ‘fruits’ of it, for example by renting it out.
This contrasts with the nue-propriété, which is the residual legal ownership rights over the property.
It has a monetary value that is less than the full market value, reducing in proportion as the age of the usufruitier (life tenant) increases.
When a usufruit comes to an end, notably due to the death of the usufruitier, the full ownership reverts to the nue-propriétaire(s).
How usufruit can help
There are two main ways this can be helpful to typical Connexion readers.
One relates to protection of a surviving spouse and the other to helping your children.
Foreign couples in France often wonder how best to protect the surviving partner in the event of one of them dying.
This has come to the fore since a 2021 inheritance law reform sought to enforce France’s forced heirship rights, even where the deceased has requested the inheritance law of their nationality to apply in their will.
The 2021 law states that where a French resident has chosen a foreign inheritance law that does not provide reserved shares for children, the notaire settling the estate must inform the children of their right to seek compensation from assets situated in France.
One way in which spouses can mitigate this situation is to write a will leaving the usufruit to the survivor, which is permitted under French inheritance law, whether or not the couple’s children are from their relationship or previous ones.
This can help the survivor to continue enjoying the same lifestyle until they die, with the estate only passing to the children afterwards.
However, it is not a solution to all situations.
For example, a usufruitier has no right to sell the usufruit property without permission from the nue-propriétaires. If they grant it, the proceeds should be shared.
This share-out can be made pro rata based on the value of the rights of each individual, or, by agreement, to the benefit of the usufruitier. It is also possible to use the sale money to invest in a new property that will also be démembré (meaning split into usufruit and nue-propriété).
In theory, the usufruitier could unilaterally sell just their usufruit, but this is uncommon as the market is limited for such a purchase. In addition, it remains linked to the lifespan of the original usufruitier.
Using usufruit to pass property to children
Another way in which usufruit is commonly used is for parents to keep usufruit over their home while gifting the nue-propriété to their children during their own lifetime.
This can have inheritance tax advantages, as the tax payable by the recipient when receiving a gift of nue-propriété is lower than if they inherited the same property later. This is because the value of the gift takes into account the fact the beneficiary does not (yet) have full rights to it.
Then, when the usufruitier later dies, the recipient assumes full ownership of the property with no additional tax to pay.
Note also that the usual French gift/inheritance tax allowances of up to €100,000 per child, per parent, would apply to such a gift. These renew after 15 years so, depending on the home value, there may be no tax to pay.
You should understand, however, that if you do not survive at least 15 years after making a gift of nue-propriété, the value of the gift must be accounted for when calculating allowances against inheritance tax (for example the €100,000 allowance for a child).
Where a property is démembré, the usufruitier usually pays routine costs linked to the property, while the nue-propriétaire pays for any major structural repairs.
The local property taxes are usually paid by the usufruitier.
As an example:
If the donor is 69 and wants to pass the nue-propriété of a house valued at €195,000 to his or her two nephews, the gift is worth €117,000 (discounted because the value of nue-propriété for this age is 60% of the full value).
Each nephew gets €58,500.
There is a €7,967 tax allowance for nephews, so they are taxed at 55% (nephews' rate) on €50,533, giving tax of €27,793.15 per person.
By comparison, inheritance tax on half of the house for each nephew would have been €49,243.15.
The value of the usufruit retained by the donor of the nue-propriété is:
90% of the value if the donor is aged under 21 (the nue-propriété gifted therefore being just 10% of the full value)
80% (donor aged under 31)
70% (donor aged under 41)
60% (donor aged under 51)
50% (donor aged under 61)
40% (donor aged under 71)
30% (donor aged under 81)
20% (donor aged under 91)
10% (donor aged 91+)
A less common arrangement is a temporary gift of the usufruit of a property or an investment, such as a share portfolio, to a child to help them finance studies or get started in working life. This is called a donation temporaire d’usufruit.
The value of a temporary usufruit is 23% of the full value, per period of 10 years. This can benefit from the usual gift tax allowances, meaning each parent can give €100,000 per child, every 15 years, tax-free.
If the parents pay wealth tax, the item gifted will in general no longer be assessable for it during the arrangement.
However, the parents will continue to pay taxe foncière on the property in this case.
If there is rental income, it is the child who declares it for income tax. Similarly, in the case of a share portfolio, it is the child who declares any interest and dividends.
From a tax perspective, these procedures should in theory only be used where a child genuinely needs financial help.
