Bare ownership and usufruct: strategies to optimise your property portfolio

At Hayot Expertise, property dismemberment is one of the most frequently requested wealth-planning tools among the directors, families and investors we advise. It is also one of the most misapplied when used without a clear framework. Before presenting the mechanics, one principle should be stated at the outset: the structure only justifies itself when the underlying need is genuine.

In brief: property dismemberment separates usufruct (the right to use and collect income from an asset) from bare ownership (the right to the asset's future value). This separation can act simultaneously on succession, rental income taxation, the French wealth tax (IFI) and the acquisition price — provided that family, financial and tax objectives genuinely converge.

Full ownership of a property combines two distinct rights: usufruct and bare ownership. Article 578 of the French Civil Code defines usufruct as the right to enjoy assets belonging to another person in the same way as the owner, subject to preserving their substance. The bare owner holds the "shell" of the property: no income rights during the dismemberment period, but full ownership on extinction.

The dismemberment period may be viager (for life, ending on the usufructuary's death) or temporary (fixed term, often fifteen to twenty years in investment structures). This parameter radically changes the value of each right.

For the legal foundations see split ownership explained.

The fiscal valuation of dismemberment rests on Article 669 of the French Tax Code (CGI). The statutory scale — used for gift tax, inheritance tax and IFI purposes — is as follows:

Source: art. 669 CGI — scale applicable to gratuitous dismemberments (gifts and successions).

For temporary dismemberments, usufruct is valued fiscally at 23 % of full ownership value per ten-year period (art. 669 al. 2 CGI).

Our reading: this scale governs all gift tax and IFI calculations. It does not necessarily reflect the actual economic value of the dismemberment on a given rental market — market value may diverge depending on gross yield and remaining duration.

Scenario: Monsieur M., aged 65, wishes to acquire the bare ownership of a Paris apartment whose full ownership value is estimated at €600,000. Temporary usufruct for fifteen years is granted to a social housing operator.

• Value of temporary usufruct (15 years): 23 % × €600,000 = €138,000
• Value of bare ownership: €600,000 − €138,000 = €462,000

Monsieur M. pays €462,000 for an asset worth €600,000 in full ownership, a discount of 23 %. At the end of fifteen years, he recovers full ownership with no additional tax cost.

During the dismemberment period:

• No rental income received (the usufructuary collects it) → no income tax on property income for M.
• Asset not included in M.'s IFI assessment in this type of structure.
• Debt-financed acquisition is possible; however, mortgage interest is not deductible from rental income because M. has none. The overall return (discount plus future appreciation) may nonetheless be attractive depending on the horizon.

Watch point: the quality of the usufructuary (institutional landlord, developer, private individual), the allocation of non-recoverable costs, and any early-exit clauses all require careful review before signing.

Donating bare ownership while retaining usufruct is one of the most commonly used succession structures. It allows parents to transfer the future value of an asset to their children while keeping income or occupation rights.

Direct-line allowance: €100,000 per parent and per child, renewable every fifteen years (CGI, art. 779 and 784).

For a parent aged 61 to 70, the taxable bare ownership value represents 60 % of full ownership value. On an asset worth €500,000, the base for gift tax calculation is €300,000. After the €100,000 per-child allowance (CGI, art. 779), the potential saving in gift tax can be material, but it should not be the sole decision criterion.

For the detailed scale calculations see barème démembrement.

The IFI taxes the usufructuary on the full ownership value of the asset as a general rule (art. 968 CGI). The bare owner is therefore not in principle assessed on the bare ownership value in the usufructuary's estate.

Notable exceptions:

• Dismemberment arising from statutory succession (surviving spouse's usufruct): the usufructuary spouse is assessed on full value.
• Dismemberment arising from a gift with retained usufruct: the donor-usufructuary remains assessable on full value.
• Dismemberment from a third-party sale of bare ownership: the usufructuary remains assessable; the third-party bare owner does not.

The underestimated risk: directors subject to IFI sometimes assume they can reduce their IFI exposure by donating bare ownership to their children while retaining usufruct. Art. 968 CGI keeps the assessment at full value in the donor's estate. IFI relief only materialises when the usufruct extinguishes.

A SCI (société civile immobilière) can itself be subject to dismemberment, either at the level of the shares or the property assets it holds.

Share-level dismemberment: parents donate bare ownership of SCI shares to children while retaining usufruct. They maintain management control and decision-making, while progressively transferring economic value. The valuation of shares takes into account the dismemberment discount and, in some cases, a holding company discount.

Specific watch points:

• The articles of association must define voting rights for each party at general meetings.
• Profit distribution must be contractually defined.
• The tax authority may scrutinise structures combining share dismemberment and a tax-opaque SCI (IS regime) for potential abuse of law (art. L64 LPF).

A dismembered SCI remains a useful tool for families with multiple properties seeking multi-generational governance — provided the articles are drafted with precision.

The bare owner receives no rental income. As a result, rental deficits arising from the dismembered property cannot in principle be offset against the bare owner's other rental income.

Article 31 CGI sets out the deductible expenses for rental income purposes. These rules apply to the usufructuary, who collects the rent. Repair costs are allocated by nature:

• Major structural works (art. 605 Code civil): borne by the bare owner — no tax deduction available to him.
• Day-to-day maintenance and repairs: borne by the usufructuary, deductible from his rental income.

Practical point: in Malraux or Monuments Historiques structures involving dismemberment, the deductibility of works by each party must be analysed carefully before any commitment. Some bare-ownership structures on historic renovation projects include clauses attributing certain renovation costs to the bare owner in exchange for a different recovery value at reunification — this requires notaire and tax counsel review.

In the files we handle, several situations lead us to advise against dismemberment:

• Short-term liquidity need: the bare owner cannot sell independently without the usufructuary's consent (absent a contractual exit clause).
• Family not aligned on the timeframe: a viager dismemberment may last thirty years or more; family relationships must be able to sustain that duration.
• Asset whose value is uncertain: if the property has planning issues or rental disputes, dismemberment locks rights onto a contested valuation.
• Purely tax-driven motive: a dismemberment without genuine economic or family substance exposes the parties to abuse-of-law risk.

For a complete inventory of constraints, see quasi-usufruct: advantages and drawbacks.

The administration may challenge a dismemberment in the following situations:

• Valuation below the art. 669 CGI scale without justification.
• Structure whose sole purpose is to avoid IFI or succession tax, without genuine economic rationale.
• Dismemberment followed quickly by a sale of the dismembered asset, potentially characterised as abuse of law (art. L64 LPF).
• Works funded by the bare owner without documented consideration, potentially recharacterised as a supplement to a donation.

Documentation quality (notarised deeds, SCI articles, cost-allocation protocols) is therefore as important as the underlying economic decision.

• Wealth objective clearly articulated (succession, investment, IFI, income)
• Duration defined (temporary or viager) and consistent with the horizon
• Art. 669 CGI scale applied and valuation justified
• Cost allocation (works, taxes, management) drafted into the deed
• IFI impact verified against the usufructuary's profile
• No exclusively tax-driven purpose — documentary trail in place
• Early-exit clause considered (joint sale, usufruct buyout)
• SCI: articles adapted for voting rights and profit distribution
• Notaire mandated for the dismemberment or gift deed

To integrate dismemberment into a broader strategy, see how to optimise your wealth portfolio.

This article is written for information purposes only. It does not replace a personalised analysis of your situation by a chartered accountant, notaire or wealth management adviser. The tax rules and scales referred to are those in force at the date of the last update indicated — verify their currency before taking any decision.

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