What do you want to know?
Why buy or sell bare ownership?
Buy a real estate in bare ownership, that is to say by renouncing its right Using it for a period of time can be an effective investment strategy.
There are many advantages to buying bare ownership. The bare owner automatically acquires full ownership of the property at the end of the ownership dismemberment.
Indeed, Acquiring bare ownership of a property allows:
to capitalize tax-free
to obtain direct remuneration and indirect (IFI)
Selling a property in bare ownership makes it possible to keep the usufruct of the latter.
Thus, the annuitant (Creditor of an annuity - opposed to the debtor) will be able to continue to occupy a property, to rent it and to derive income from it during his life.
It is a suitable solution if the need for cash is important, because it maximizes the amount of the bouquet if there are no life annuities.
Selling the bare ownership of a property allows:
to immediately obtain capital (= value of the bare ownership)
if the seller had full ownership, he retains the usufruct and can use the property or rent it to earn additional income
The acquisition & sale of bare ownership:
a wise strategy
How does the bare ownership purchase / sale work?
It is possible to make a real estate investment while limiting the costs thanks to the dismemberment of property.
The bare ownership purchase / sale is a real estate transfer contract relating to the dismemberment of the ownership of the real estate.
The right of ownership as real right is thus divided into bare ownership and usufruct. Bare ownership is the real right allowing its holder to dispose of the building as he wishes. This is essentially the right to alienate the building. As for the usufruct, it allows its holder to keep the use and economic use of the accommodation (rental).
There are many advantages to buying bare ownership. The bare owner automatically acquires full ownership of the property at the end of the ownership dismemberment. The bare owner is not considered as "owner" of the goods, certain costs related to the property are not therefore incumbent on him such as the Land Tax. Generally the purchase of the bare ownership of a good is done in a single payment, a "big bunch" without life annuities. This system therefore makes it possible to buy a property at a discounted value without worrying about the hazard as in the context of a life annuity sale where this will influence the price actually paid in the long term.
Selling a property in bare ownership makes it possible to keep the usufruct of the latter. Thus, the annuitant will be able to continue to occupy a property, to rent it and to derive income from it during his life.
The principle of dismemberment
Dismemberment is the separation, in civil law, of the prerogatives of ownership (usus, fructus and abusus) of a good between several people.
The property can be movable or immovable and natural or legal persons.
Usus corresponds to the right to use the property.
The fructus has the right to derive income from the property (i.e. a profit).
Abuse of the right to dispose of the property, that is to say to sell it, to give it away or to modify its nature.
Tax & Tax
It is the usufructuary who pays the property tax and the housing tax, except if the property is rented, it will then be the tenant who will pay the latter.
Real estate held in dismemberment of ownership falls within the scope of the heritage subject to the IFI.
The usufructuary declares the property for its value in full ownership, or on its contribution if it only holds part of the usufruct (when its net real estate assets exceed 1.3 million euros), and c it is up to him to pay the corresponding IFI.
The bare owner therefore has nothing to declare in respect of these goods
Note: The heirs (child or parent) who obtain bare ownership of real estate under the law are likely to be liable to the IFI.
Duration of usufruct
The usufruct can be for life (until the end of the life of the usufructuary) or temporary (until a term fixed at the time of the dismemberment).
At the end of the usufruct, full ownership is automatically and free of charge over the head of the bare owner.
Usufructuary, bare owner: rights and obligations?
The usufructuary has the right to inhabit the accommodation as well as to rent it. In the event of rental, he derives land income from it.
But, whether it is rented or not, a building has charges that must be shared between the usufructuary and the bare owner.
Article 606 of the Civil Code distributes these obligations by charging the usufructuary for maintenance repairs and the bare owner for major repairs.
Neither the usufructuary nor the bare owner can sell the property in its entirety on its own. Everyone can only sell their rights to the property.
The usufructuary, the usufruct and the bare owner, the bare ownership.
By mutual agreement, they can sell full ownership. Unless otherwise agreed, the sale price is shared between them according to the respective value of each of their rights.
Taxation
The usufructuary having the enjoyment of the dismembered property, he can inhabit it or rent it. If he rents it, he derives income from it, from which he can deduct the charges he has actually paid (management fees, insurance, maintenance)
The bare owner does not collect rents and does not declare income on the dismembered building.
However, when the building is dismembered and leased, he may deduct from the land income from his other properties the expenses that he has actually paid on the dismembered building.
Only expenses related to major repairs are concerned.
He can also deduct the interest on loans that he has contracted to buy the bare ownership of the rented building.
In the absence of land income, the bare owner may experience a land deficit. This land deficit can be attributable under the conditions of common law.
Acquisition end of dismemberment:
At the end of the dismemberment, you become the full owner of the property. You will be able :
keep it for regular income or to occupy it,
possibly give the bare ownership to your children to anticipate the transmission at a lower cost because the donation will be taxed only on the value of the bare ownership,
sell it in order to capture the mechanically realized capital gain. We consider that the purchase price to calculate the capital gain corresponds to the value in full ownership on the day of the acquisition of the bare ownership. This solution is favorable because the usufruct is acquired free of charge.
The bare owner is responsible for major work relating to the structure and general solidity of the building (foundations, walls, vaults, beams, roofs, cellars, etc.).
The usufructuary assumes the day-to-day maintenance of the property. Its obligations go well beyond those of the tenant of a dwelling: bringing the electrical installation into conformity or changing an obsolete heating system is the responsibility of the usufructuary in particular.
Property tax: It is the responsibility of the usufructuary, unless the parties agree to the contrary and in writing.
Real estate wealth tax (IFI): In principle, the usufructuary must indicate the value of the property in full ownership in his declaration. However, within the framework of the legal usufruct of the surviving spouse, the value of the property is taken into account in the respective assets of the usufructuary and the bare owner, up to their rights.
The IFI is divided between the usufructuary and the bare owner in three exceptional situations, and on the condition that the usufruct is neither sold nor transferred free of charge by its holder:
in the event of legal usufruct of the surviving spouse, legal usufruct of the surviving ascendants after donation between spouses of the reserving party in bare ownership, in the absence of a descendant, forced usufruct of the surviving spouse in the presence of children of the first bed in case of sale of a property of which the seller reserves the usufruct or the right of use or habitation and if the purchaser of the bare ownership is not a heir presumptive or a descendant of the usufructuary, donee, legatee or intermediary (father, mother or spouse of the parties and descendants of the donee)
in the event of a donation or bequest with reserve of usufruct to a public entity (State, departments, municipalities etc.), an association or a foundation recognized as being of public utility.
The heirs (child or parent) who obtain bare ownership of real estate in application of the law are likely to be liable to the IFI. In this case, the value to be declared in bare ownership depends on the age of the usufructuary on January 1 of the year, according to a scale defined by article 669 of the General Tax Code. It increases over the years and approaches the value of full ownership.
We can escape the automatic distribution of the IFI between the usufructuary and the bare owner. Indeed, since the law imposes this distribution in the event of legal usufruct, inherited during an unprepared succession, the solution is to organize the transmission of your real estate assets, during your lifetime.
You have several options:
Make a donation to the last person alive, also called donation between spouses, so that the usufruct reverts to the surviving spouse on the death of the spouse. The tax is then on the surviving spouse for the full ownership value of the property. This provision makes it possible to strengthen the protection of the surviving spouse, in particular if he has children, by granting him more rights in the inheritance and the possibility of choosing the assets he inherits;
Make a donation in bare ownership to your children, reserving the usufruct and the burden of tax on the value in full ownership of the property. When you die, your children become full owners, with no inheritance tax to pay;
Write a will specifying your provisions.
The usufruct constituted for a fixed period is estimated at 23% of the value of the entire property for each ten-year period of the duration of the usufruct, without fraction and regardless of the age of the usufructuary.
However, these provisions must not have the effect of giving the usufruct a value greater than the value of the life usufruct.
Usufructs established for the benefit of a legal person may not last for more than thirty years (Civil Code, art. 619). These usufructs therefore have a maximum value of 69%.
Pursuant to article 762 bis of the CGI, for the liquidation of transfer rights free of charge, the value of housing and use rights is 60% of the value of the usufruct determined in accordance with I of the article 669 of the CGI.
With regard to housing and use rights established in favor of the surviving spouse by article 764 of the Civil Code, for the application of the scale, it is necessary to take into account the age of the surviving spouse at the end of the the exercise of the temporary right to housing, that is to say one year after the death.
Advantages & Disadvantages of bare ownership
Advantages & Disadvantages of bare ownership
Bare ownership
Example of bare ownership
1
Initial situation
Sandrine has available capital of € 260,000. She would like to invest in real estate in order to generate regular income in 15 years when she retires.
2
Acquisition of bare ownership of a property
She decides to buy bare ownership an apartment estimated at € 500,000.
The purchase price of the bare ownership is 280,000 €
For a 15-year dismemberment of ownership, bare ownership represents an assumption of 56% of the full ownership value.
During 15 years, Sandrine does not receive any income, does not pay any tax (neither IR, nor PS, nor IFI).
At the end of the dismemberment, it obtains, free of charge and tax, full ownership of the property that it can subsequently rent or resell.
