Split ownership: dividing to pass on more effectively

Split ownership (usufruct and bare ownership) is a legal concept that divides the ownership rights in a property into two distinct parts: bare ownership and usufruct. Understanding what makes up full ownership is essential to grasping this strategy.

Full ownership is made up of three distinct rights: abusus, fructus and usus. Abusus is the right to dispose of the property (to sell it, give it away or bequeath it): it belongs to the bare owner. Fructus is the right to receive the income generated by the property: the usufructuary may let the property and collect the rent. Finally, usus is the right to use the property, to occupy it and to enjoy it.

These rights in rem, which are temporary and distinct, form the basis of split ownership. This technique offers worthwhile tax and estate planning advantages for owners who wish to optimise the management of their assets.

Anyone may split ownership of a property in favour of a third party or a family member, with no requirement of kinship. A parent wishing to pass on assets gradually, an investor seeking to optimise their tax position, an individual wishing to organise the management of their assets: split ownership may be a suitable solution. The arrangement nevertheless requires legal and tax expertise to be put in place in compliance with the rules in force.

The bare owner is not obliged to carry out major repairs to the property, generally relating to the structure, although they may decide to do so. The usufructuary, who has the enjoyment of the property, is responsible for its day-to-day upkeep: minor repairs, maintenance, insurance. A split ownership agreement can define each party’s role precisely (terms of sale, allocation of proceeds, any reinvestment) in order to prevent disputes.

Article 669 of the French General Tax Code provides a tax scale that determines the value of the usufruct according to the usufructuary’s age. The economic value of the usufruct can also be calculated using a mathematical method that takes into account the usufructuary’s life expectancy, the term of a temporary usufruct (which may not exceed 30 years) and the particular features of each situation. The value of the bare ownership is obtained by deducting the value of the usufruct from that of full ownership.

The older the usufructuary, the lower the value of the usufruct. It is advisable to call on a property valuation expert or a specialist notary to obtain a fair and documented valuation of each right.

First, split ownership makes it possible to prepare the transfer of assets gradually: the donor gives the bare ownership to their heirs while retaining the usufruct until their death, benefiting from the tax advantages of a staged transfer.

Second, it makes it possible to build up assets at lower cost: by purchasing the bare ownership, the purchaser benefits from a significant discount compared with full ownership, with the prospect of recovering full ownership in due course.

From a tax standpoint, transferring the bare ownership during one’s lifetime reduces the inheritance duties payable later, and the value of the bare ownership is determined by scales that offer a degree of predictability.

Split ownership can also be used to help a child for a fixed period, by giving them the temporary usufruct of a property so that they receive its income. Finally, it protects the surviving spouse: by reserving the usufruct of the home for them, death entails neither the sale nor the loss of the property.

This leverage makes split ownership an attractive strategy for optimising one’s assets, preparing their transfer, managing tax and protecting one’s family. Since the value of each right must be justified, particularly to the tax authorities, a valuation by an expert is central to securing the arrangement.