Split ownership: investing in bare ownership and passing on your property

Usufruct, bare ownership: behind these legal terms lies one of the most effective wealth-planning tools in France. Split ownership (démembrement) lets you buy property at a significant discount, or pass on your assets while reducing the tax payable. Here is how it works.

Three rights in one

Full ownership combines the right to use a property, to receive its income and to dispose of it. Split ownership divides these rights between two people:

• the usufructuary can live in the property or let it and receive the rent;

• the bare owner owns the walls, without the use of them.

When the usufruct ends, at the agreed term or on the death of the usufructuary, the bare owner automatically recovers full ownership.

Investing in bare ownership

The principle: you buy only the bare ownership of a home, usually a new-build, for 15 to 20 years. A landlord, often a social housing provider, holds the usufruct during this period: it lets, manages and maintains the property.

The benefits are many:

1. A significant discount, often 35 to 40% of the full-ownership price.

2. No management: no tenants, no service charges, no works during the usufruct.

3. No taxable income: the investment generates no rent, so no additional tax.

4. Outside the IFI: bare ownership is not included in the French real estate wealth tax base during the split.

At the end of the term, you recover full ownership of a property that has regained its full value, with no tax on that reconstitution. The trade-off: your capital is tied up and earns nothing for 15 to 20 years. It is a long-term strategy, ideal for retirement planning.

Passing on property while keeping the usufruct

Split ownership is also an estate-planning tool. Parents give the bare ownership of a property to their children and keep the usufruct. They continue to live there or to receive the rent.

Gift tax applies only to the value of the bare ownership, set by a tax scale based on the usufructuary's age:

• Aged 51 to 60: usufruct 50%, bare ownership 50%

• Aged 61 to 70: usufruct 40%, bare ownership 60%

• Aged 71 to 80: usufruct 30%, bare ownership 70%

• Aged 81 to 90: usufruct 20%, bare ownership 80%

When the parents die, the usufruct ends and the children become full owners, with no inheritance tax on that property. The earlier the gift, the greater the benefit.

Points to watch

Split ownership is hard to undo: selling a split property requires the agreement of both the usufructuary and the bare owner. The allocation of works and charges must be clearly defined. And the transaction is always carried out before a notary.

LGH Patrimoine helps you identify bare-ownership programmes and integrate this strategy into an overall view of your wealth.