Dismemberment of ownership
Dismemberment splits ownership of an asset into usufruct (use and income, art. 578 Civil Code) and bare ownership, valued under art. 669 CGI.
Please note.This definition is deliberately simplified. It does not constitute legal or tax advice. The exact conditions, thresholds, rates and periods depend on your situation and on the regulations in force.
Which text applies?
- Art. 578 of the French Civil Code : Defines usufruct as the right to enjoy property owned by another person, subject to preserving its substance.
- Art. 669 of the French Tax Code (CGI) : Sets the tax value of life usufruct and of bare ownership according to the usufructuary’s age, and that of fixed-term usufruct at 23% of full ownership for each ten-year period.
- Art. 1133 CGI : Exempts from any tax the merger of usufruct with bare ownership when it occurs on expiry of the term set for the usufruct or on the death of the usufructuary.
What are the rights of the usufructuary and of the bare owner?
The usufructuary uses the asset or receives its income (rents, dividends) and bears the maintenance costs. The bare owner holds the substance of the asset and acquires full ownership when the usufruct ends; major repairs are in principle their responsibility (art. 605 and 606 Civil Code), unless otherwise agreed. For company shares, the allocation of voting rights between usufructuary and bare owner is set by the articles of association, within the limits laid down by statute and case law.
How does a dismemberment of ownership arise?
- by agreement: gift of bare ownership with reserved usufruct, split acquisition, temporary transfer of usufruct;
- by law: the surviving spouse’s usufruct rights over the estate (art. 757 Civil Code);
- by will: legacy of the usufruct or of the bare ownership.
How are usufruct and bare ownership valued?
For transfer duties, life usufruct is worth 90% of full ownership where the usufructuary is under 21 full years of age, then 10 points less for each ten-year band, down to 10% at 91 full years and over. Fixed-term usufruct is worth 23% for each ten-year period, disregarding fractions of a period and the usufructuary’s age.
On the death of the usufructuary or at the end of a temporary usufruct, the bare owner becomes full owner without further duties (art. 1133 CGI), whatever value the asset has reached. Where the bare ownership belongs to a presumptive heir, a donee or a legatee of the usufructuary, article 751 CGI presumes, unless proven otherwise, that the asset forms part of the usufructuary’s estate; the presumption is set aside in particular where the dismemberment results from a valid gift made more than three months before death.
For the real estate wealth tax (IFI), the usufructuary in principle declares the asset at its full ownership value (art. 968 CGI), subject to limited exceptions.
How does the rule apply? A worked example
Value of a life usufruct and of a temporary usufruct
Illustrative example: an asset is worth €500,000 in full ownership. A life usufruct reserved by a 58-year-old usufructuary is compared with a fifteen-year temporary usufruct.
- Life usufruct, usufructuary aged 58 (under 61 full years)
- 50%, i.e. €250,000
- Corresponding bare ownership
- 50%, i.e. €250,000
- Temporary usufruct of 15 years (one full ten-year period)
- 23%, i.e. €115,000
- Corresponding bare ownership
- 77%, i.e. €385,000
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