Temporary donation of usufruct: gift tax and wealth tax

The value to be used for a gift of usufruct established for a fixed term is not defined by the official sources we consulted: it must be verified with the source (Article 669 of the French General Tax Code). Once this value is determined, taxes are applied to the remaining amount after the allowance (€100,000 for a child, with retroactive tax liability over 15 years). The tax regime for the proceeds from the sale of a temporary usufruct expressly excludes gifts.

This page reports what the current versions of the BOFiP (Official Bulletin of Public Finances) that we have consulted say. It does not provide the value of a given temporary usufruct, nor does it describe the income tax treatment of its proceeds, nor the tax treatment upon the termination of the usufruct: we have not found a reliable source on these points.

The value of a temporary usufruct

BOI-ENR-DMTG-10-40-10-50 is the tax authorities' commentary on the valuation of transferred assets, under the heading "Inheritance," and it contains a paragraph dedicated to usufructs established for a fixed term. The sources consulted do not confirm that this paragraph applies directly to a gift; therefore, this page does not specify any rates or values for a fixed-term usufruct. The text of Article 669 of the General Tax Code, which we were unable to access, should be verified with the source before making any decision.

For life usufruct, the BOFiP (Official Bulletin of Public Finances) reproduces the scale in Article 669, I, which depends on the usufructuary's age: under 21, 90 %; under 31, 80 %; under 41, 70 %; under 51, 60 %; under 61, 50 %; under 71, 40 %; under 81, 30 %; under 91, 20 %; over 91, 10 %. The exact thresholds for each bracket can be found in the BOFiP.

Gift taxes

The BOI-ENR-DMTG-20-30-10 indicates that usufruct and bare ownership transferred by gift are valued at a fixed rate as a fraction of full ownership determined according to the scale in article 669. This commentary does not address temporary usufruct: the value to be used for a usufruct of fixed duration should be verified with the source.

The fees are calculated according to service-public.gouv.fr and impots.gouv.fr:

• The allowance for a child is €100,000. It applies to gifts made by the same donor to the same recipient over a period of 15 years.
• The taxes apply to the portion of the donation that remains after the allowance.
• The direct line scale is 5 % up to €8,072, 10 % up to €12,109, 15 % up to €15,932, 20 % up to €552,324, 30 % up to €902,838, 40 % up to €1,805,677, 45 % beyond.

The boundary with the transfer of a temporary usufruct

The BOI-IR-BASE-10-10-30 (version in force since April 6, 2017) deals with the transfer for consideration of a temporary usufruct, a mechanism stemming from Article 15 of Law No. 2012-1510 of December 29, 2012, and applicable to the first transfer since November 14, 2012. It establishes the following rules:

• The proceeds of the sale are taxed, by way of derogation from the capital gains regime, in the same category of income as the fruits of the property: the BOFiP cites property income for real estate, investment income for securities, shares and bonds, and non-commercial profits in other cases; it gives as an example a furnished rental property, falling under industrial and commercial profits.
• It is taxed without taking into account the exemptions, deferrals, postponements or allowances specific to capital gains; the 40 % allowance on dividends is not applicable.
• Transferors subject to corporation tax are excluded. For a transferor whose tax domicile is outside France, the BOFiP (French Official Tax Bulletin) stipulates a minimum rate of 20% of net taxable income, which is waived if the taxpayer can demonstrate a lower rate.
• Usufruct granted for a fixed term is temporary usufruct; that whose only cause of termination is death is a life usufruct, outside the scope of this law.

The BOFiP (Official Bulletin of Public Finances) states that gratuitous transfers, such as donations of temporary usufruct, are not covered by this provision. However, it does not specify how the income from a granted temporary usufruct is taxed. Therefore, this page provides no rules on this matter.

The real estate wealth tax

The BOI-PAT-IFI-20-20-30-10 (version in effect since June 8, 2018) establishes the general rule: taxable assets are included in the usufructuary's estate at their full ownership value, and the bare owner has nothing to declare for IFI purposes, subject to specific cases. The exception that allocates assets between the usufructuary and the bare owner assumes that the usufruct is neither sold nor transferred free of charge by its holder. According to the BOFiP, when the property is sold for the bare ownership to one person and for the usufruct to another, the usufructuary is liable for IFI on the full ownership value. The BOFiP does not explicitly address, in the passages examined, temporary usufruct granted to an individual: the IFI liability of the donor and the donee in a family gift is not described here.

A section of the BOFiP (Official Bulletin of Public Finances) addresses the temporary transfer of usufruct by an individual to an organization. It indicates that individuals may make temporary transfers, donations, or assignments of usufruct of taxable assets to legal entities, and that such transactions may provide them with savings on their wealth tax (IFI). Their abusive nature may be investigated under Article L. 64 of the French Tax Procedures Code. The transaction is not subject to this procedure if it meets all of the following conditions:

• a donation by notarial deed; ;
• for the benefit of an organization in one of the listed categories (foundations or associations recognized as being of public utility, religious or charitable associations authorized to receive donations and bequests, recognized public religious establishments in Alsace-Moselle, approved non-profit higher education or artistic establishments); ;
• for a period of at least three years; ;
• relating to assets contributing to the achievement of the organization's purpose; ;
• preserving the rights of the usufructuary: the fruits must go to him.

Temporary donation of usufruct: typical case (fictitious profile, without figures)

Situation. A parent owns a building outright. They plan to give their child a temporary usufruct of this building for a fixed period and retain the bare ownership. This scenario is fictitious.

Issue. How should the taxation of such a donation be addressed?

Strategy. The firm gathers the necessary information from the donor: the intended duration, the recipient's age, any previous gifts during the recovery period, the nature of the property (unfurnished, furnished, securities), and its status with regard to the French wealth tax (IFI). Before calculating any taxes, the firm verifies the value to be used for the fixed-term usufruct with the source of the tax.

Steps.

1. Value of the usufruct given: to be verified with the source (article 669 of the CGI), as no legible source was found in our research.
2. Tax allowance: the direct line tax allowance applies to donations made by the same donor to the same donee during the recovery period.
3. Rights: the direct line scale applies to the portion remaining after the allowance.
4. Property income and IFI: to be examined separately, the sources read do not allow us to conclude.

This example is hypothetical and does not guarantee any outcome for your situation. No amount is given here, as no source value for a fixed-term usufruct is available.

Temporary donation of usufruct: what changes depending on your case

• The duration of the usufruct and the value to be retained should be verified with the source.
• The age of the beneficiary.
• The relationship between donor and donee determines the allowance and the scale.
• Previous donations from the last 15 years.
• The nature of the asset: unfurnished rental property, furnished rental property, securities.
• The status of the beneficiary: individual or legal entity.
• Your situation with regard to the IFI (French wealth tax), before and after the donation.

The rule depends on your situation. No results are guaranteed.