You may have already heard about the dismemberment of a property, without really knowing what it was all about. What is the interest of this legal tool, both for families and investors?
The principle of the dismemberment of property
Dismemberment in the field of real estate consists in dividing the property of a real estate into two parts: the bare ownership and the usufruct. On the one hand, the usus (the right to use the property) and the fructus (the right to receive the fruits, the rents) belong to the usufructuary. On the other hand, the bare owner can dispose of the property (the abusus). These rights are certainly independent of each other, but the usufructuary and the bare owner are linked because the agreement of both is essential to transfer the full ownership of the property. The dismemberment ends at the death of the usufructuary. The usufruct then joins the bare ownership to reconstitute the full ownership.
The dismemberment to make a purchase at lower cost
In the context of a new real estate investment, dismemberment means temporarily giving up the use of the property in exchange for a significant discount on the purchase price (between 30 and 50%). In this case, a professional receives the income and bears the expenses for a period of 15 to 20 years. The financing can of course be done through a loan. In the event of a transfer or donation, any tax due will only be calculated on the value of the property without the usufruct. This makes it possible toinvest in real estate at a discount, without management worries, while benefiting from optimized taxation.
The dismemberment to transmit an inheritance
When you make a donation, it allows you to optimize the transmission of your assets, but you must divest yourself of the property during your lifetime. With a dismemberment of property, you can give to your children, for example, only the bare ownership. You keep the usufruct during your life and that of your spouse (with a reversible usufruct). In this case, you keep the use and the income of the property. The advantage is also fiscal. Indeed, the reunion of the usufruct with the bare ownership at the death of the donor does not give rise to the payment of inheritance tax by the donees.
Think about temporary usufruct!
The temporary usufruct donation consists in transmitting the usufruct of an income-producing property for a period of at least 3 years in order to help a relative. You don't strip yourself of the property permanently! The usufructuary uses the property and receives income from it for a limited period of time. The gift tax is only due on the amount of the usufruct.
A tool to be handled with care
The donation can be challenged by the tax authorities if they consider that the usufructuary does not benefit from it. This is the case if you temporarily transmit the usufruct of a property to one of your children, while the latter enjoys a comfortable income. If the administration considers that the only interest was to exempt the property from the payment of theIFI (tax on real estate wealth), you run the risk of having the tax reassessed.
Beware of the notion of abuse of right. Since the 2019 Finance Act, this tax concept has been broadened and the procedure has been extended to transactions that have a "primarily tax" and not "no longer exclusively tax" motive. However, donations with usufruct reserve are not concerned by the new definition of abuse of right but they should be handled with care. In addition, a note from the Conseil d'analyse économique recommends a complete overhaul of the inheritance system. Life insurance and property dismemberment are in the crosshairs. Thus the CAE would propose to eliminate the tax advantages linked to the dismemberment of property. Another reform that will displease many!
Stéphanie Swiklinski.