The Legal Concept of usufruit in France

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The Legal Concept of usufruit in France

An usufruit is a bit like a UK life interest trust, in that it allows an individual to give the freehold of the property (the nue-propriété) to an individual, but allow someone else (a life tenant) to use the property (to enjoy the usufruit) during their lifetime.

How does it work?

So, typically an individual could give the freehold of their property (the nue-propriété) to their children, and (during their lifetime) retain a right to use the assets. Alternatively on death they could allow their spouse (the life tenant) to live in the property (enjoy the usufruit) for the rest of their life. This may be particularly attractive for individuals who have children from previous relationships, who ultimately want their children to receive their property, but who also want to make provision for their spouses.

It can also be attractive to those who may be concerned about issues such as their spouse’s remarriage after their death, or undue influence. An usufruit does not only have to be made up of immovable property (buildings and land) it can also be of movable property such as a portfolio of investments. The life tenant cannot spend the core assets (the capital) that comprise the usufruit, but they have a right to the income and in the case of real estate, the right to occupy the property. As well as the right to occupy the real estate, with some exceptions the life tenant also has a right to right to let the property and take the proceeds.

How do usufruits arise?

Usufruits can arise either as a result of a lifetime gift, or on death. They can be set up in a will for specific assets, or indeed for the entire estate. Alternatively where no will has been left (called an intestacy) and where the deceased has left children, a spouse can choose whether or not to take a fixed 25% share of the estate, or choose the usufruit of 100% of the estate for their lifetime – after which it passes to the deceased’s children.

Usufruits and taxation

The French tax system favours usufruit, so there may be tax advantages to creating a lifetime usufruit, particularly for those who are domiciled in France, but in a cross-border context this is not necessarily the case and your advisor should be able to explain to you whether an usufruit is advantageous in your particular circumstances.

Can an usufruit be removed?

Unless prohibited by the document creating the usufruit, the owner of the nue-propriété (the freehold) and the usufrutier (the life tenant) can sell or gift their interests Either the person benefitting from the usufruit (the usufrutier) or the children can unilaterally convert the usufruit into a rente viagère, which is a life annuity, usually paid annually. An usufruit can also be terminated by agreement between the parties and in these circumstances the children (or other ultimate beneficiary) can ‘buy out’ the usufrutier. Since 17th August 2015 of course, it is necessary to consider which law would apply to UK and other non-French nationals, but it is possible to structure your will/s to incorporate usufruits to maximise the succession (and potentially taxation) benefits.

Content written and provided by Dan Harris.


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Comments

  •  Michael Lambourne
    2024-01-04 12:46:54
    Michael Lambourne
    My wife and I own a small apartment in France which we purchased for cash in 2001 from an English couple. We reside in the UK and use the property as a holiday home for several weeks each year. The Notiare used for the purchase was Francois Rames at Villefranche-de-Rouergue 12200. We have two children who are married and live in the UK. I am wishing to make plans in the event of the death of one or both of us and am unsure of how to procede. It is suggested that I create a "usufruit" such that in the event of the passing of one of us, the other can retain use of the property for as long as they wish. I understand that this will need to be done via a Notaire. Would this be a sensible decision in your view? I also have been advised by a local Notaire in Le Lavandou that I should add an addendum to my UK will to state that I wish my (our) French property to be dealt with under French law and not as part of our UK estate. I am unsure if this is your area of expertise, please accept my apologies if I have wasted your time.

    REPLY

    •  Charlotte Macdonald
      2024-01-09 09:11:22
      Charlotte Macdonald
      Hello Thank you for summarising your circumstances. We can certainly advise you here. There can be many good reasons for creating an usufruit during your lifetime - however as you are UK tax resident you need to be cautious in case the act of splitting your property into an usufruit gives rise to UK capital gains tax, and there may also be UK inheritance tax issues to consider. Establishing an usufruit in your will may be the better option, but it would still be sensible to understand the UK inheritance tax consequences of this (depending on your circumstances it may be that no tax is payable). For more detail advice please email [email protected]

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