IFI: The Fundamental Rule — Usufruitier Taxed on Full Value
The French impôt sur la fortune immobilière (IFI) applies annually to taxpayers whose net taxable immoveable wealth exceeds €1.3 million, with a rate scale starting at 0.5% on the fraction above €800,000. For démembered assets, the IFI treatment is asymmetric and, for the usufruitier, more burdensome than might be expected.
Under the fundamental rule of Article 968 CGI, assets subject to a usufruit, a right of habitation, or a right of use granted to a specific individual are included at their full pleine propriété value in the taxable patrimony of the usufruitier — not at the value of the usufruit alone (CGI Art. 968 al. 1). Correlatively, the nu-propriétaire includes nothing in their IFI declaration for those assets. A parent who has donated the nue-propriété of their property portfolio to their children while retaining the usufruit continues to pay IFI as if they had never made the donation — on the full market value, not the discounted value of the usufruit alone. The gift reduces inheritance tax but does not reduce IFI.
The nu-propriétaire's total exemption from IFI on démembered assets creates a significant planning dynamic. An adult child who holds the nue-propriété of their parents' property pays no IFI on those assets, even if the underlying property value is large. However, neither the loan contracted to acquire the nue-propriété nor the acquisition cost of the nue-propriété is deductible from the IFI base for the nu-propriétaire, since the asset is not included in their base in the first place (CGI Art. 974 I).
The Three Exceptions: When Usufruitier and Nu-Propriétaire Are Each Taxed on Their Share
The general rule has three statutory exceptions where the asset is instead divided between the two rights holders, each taxed on the barème value of their own right (CGI Art. 968, 1° to 3°).
Exception 1: Démembrement Arising from Succession (Legal Usufruit)
Where the démembrement arises from the legal usufruit of the surviving spouse under Article 757 of the Civil Code (applicable to successions opened since 1 July 2002), each party is taxed separately on the value of their own right. The surviving spouse declares the IFI value of the usufruit; the children declare the IFI value of the nue-propriété.
This exception is narrow: it applies only to the legal usufruit arising automatically under the Code civil. A surviving spouse who receives the usufruit under a conventional arrangement — by testament or donation entre époux — is not within the exception and remains taxable on the full pleine propriété value under the general rule (CGI Art. 968, 1°). The distinction is significant in estate planning: families who want the surviving spouse to retain IFI efficiency should structure the succession to rely on the legal usufruit rather than a testamentary provision.
Exception 2: Usufruit Donated to or Reserved by Certain Public Bodies
Where the donation or bequest involves a réserve d'usufruit in favour of the State, public bodies, departments, communes, or associations of public utility, the usufruitier and nu-propriétaire are taxed separately on their respective rights (CGI Art. 968, 3°).
Exception 3: Sale of Nue-Propriété to an Unconnected Third Party
Where the nue-propriété has been sold at arm's length to a person who is not a presumptive heir, not a donee, and not a person treated as interposed under Article 751 CGI, the usufruitier and nu-propriétaire are taxed separately. If the usufruitier donates the nue-propriété and the donee subsequently sells it to a third party, the exception does not apply — the usufruitier remains taxable on the full value, even after the nue-propriété has been transferred to an unconnected buyer (BOI-PAT-IFI-20-20-30-10 n° 180).
Using a Temporary Usufruit Donation to Reduce IFI
Because the usufruitier bears the full IFI value, a donation of usufruit temporaire — for a fixed term of years rather than for life — transfers the IFI burden from the donor to the donee for the duration of the usufruit. If the donee's total IFI-taxable patrimony is below the €1.3 million threshold (or if the donee is a company, which is outside the scope of IFI entirely), the donated asset effectively disappears from the IFI base altogether for the duration. The fiscal value of a term usufruit is 23% of the full property value per decade or part thereof (CGI Art. 669 II) — so a ten-year usufruit donation generates a gift tax base of 23% of the asset's value.
Parents with a net IFI-taxable patrimony of €2,000,000 (taxable at 0.7% on the excess above €1.3 million) donate the ten-year usufruit of a property worth €600,000 to their son, whose own patrimony is €1,200,000.
Son's new patrimony: €1,200,000 + €600,000 = €1,800,000
Son's IFI: (€1,300,000 − €800,000) × 0.5% + (€1,800,000 − €1,300,000) × 0.7% = €6,000/year
Net family IFI effect: €6,000 − €4,200 = €1,800/year additional IFI family cost
The strategy is only beneficial at the family level if the IFI saved by the parents exceeds the IFI created for the donee. Where the donee is below the IFI threshold before the donation, the calculation must be made carefully — as this example shows, a well-intentioned donation can increase the family's overall IFI burden.
Temporary usufruit donations to companies attract specific abuse-of-law scrutiny from the tax authority, which reserves the right to challenge them as transactions exclusively motivated by tax avoidance (BOI-PAT-IFI-20-20-30-10 n° 280).
Gift and Succession Tax: The Barème and How It Works
For all gift and inheritance tax calculations on démembered assets — and for all registration duties on transfers — French law mandates the use of the barème fiscal of Article 669 CGI. This table assigns a percentage of the full property value to the usufruit based solely on the usufruitier's age at the date of the taxable event. The nue-propriété receives the remainder.
| Age of the usufruitier | Value of the usufruit | Value of the nue-propriété |
|---|---|---|
| Up to 20 years old | 90% | 10% |
| 21 to 30 years old | 80% | 20% |
| 31 to 40 years old | 70% | 30% |
| 41 to 50 years old | 60% | 40% |
| 51 to 60 years old | 50% | 50% |
| 61 to 70 years old | 40% | 60% |
| 71 to 80 years old | 30% | 70% |
| 81 to 90 years old | 20% | 80% |
| 91 years and over | 10% | 90% |
The barème applies mandatorily to all registrations — donations, successions, and sales — of démembered rights. Only usufruits that are open (actually in existence) at the date of the transmission are taken into account. If a parent donates the nue-propriété with a reserved usufruit and a réversibilité clause giving the surviving spouse a successive usufruit, the nue-propriété is valued using only the primary donor's age — the age of the surviving spouse is irrelevant for the initial gift tax calculation (CGI Art. 669 I al. 2).
The direct-line abatement of €100,000 per child per parent applies to the declared value of the right transmitted — whether nue-propriété or usufruit. It renews every 15 years. The gift tax rate scale in the direct line runs from 5% (below €8,072) to 45% (above €1,805,677), applied progressively to the net taxable value after abatement.
No Further Tax When the Usufruit Ends
The most powerful feature of the donation avec réserve d'usufruit from a tax perspective is what happens when the donor dies: nothing. The extinction of the usufruit and the automatic consolidation of full ownership in the nu-propriétaire's hands generate no additional gift tax or inheritance tax (CGI Art. 1133). The gift tax paid at the time of the original donation is the final and complete taxation of the transmission. This no-further-tax rule is the fiscal foundation of the entire réserve d'usufruit planning technique: the future value appreciation of the asset from the date of the donation accrues to the nu-propriétaire entirely free of any further gift or succession tax.
A parent donates the nue-propriété of a €400,000 property to their children at age 63, paying gift tax on €240,000 (60% barème × €400,000). If the property is worth €700,000 at the parent's death 15 years later, the children become full owners of €700,000 worth of property — having paid gift tax on only €240,000. The €460,000 increase in value (from €240,000 to €700,000) passes to the children entirely free of any further tax. The rate of asset appreciation and the length of the usufruit period therefore directly determine the economic benefit of the strategy.
The Presumption of Full Ownership: Article 751 CGI
Under Article 751 CGI, an usufruitier is presumed to be the full owner for inheritance tax purposes of any asset whose nue-propriété belongs to any of the following categories of person at the time of the usufruitier's death:
- Their presumptive heirs (even if they have renounced the succession or have been disinherited) or the descendants of those heirs
- Their donees or legatees (anyone to whom the usufruitier has ever made a gift)
- Persons treated as interposed between the usufruitier and any of the above, under the rules of Article 911 al. 2 of the Civil Code
When the presumption applies, the nu-propriétaire must pay inheritance tax on the full value of the asset as if it had been transmitted in full ownership at the usufruitier's death — but with a deduction for the gift tax already paid when the démembrement was originally constituted, recalculated on the asset's value at the date of death (CGI Art. 751; BOI-ENR-DMTG-10-10-40-10).
When the Presumption Does Not Apply
The presumption is excluded — and the Art. 1133 no-further-tax rule applies instead — where the donation creating the démembrement meets all four of the following conditions:
- The donation was made more than three months before the usufruitier's death — a donation made within three months of death does not benefit from the exclusion (though it may still be possible to prove the presumption is factually unfounded if the death was sudden and unforeseeable at the time of the donation).
- The donation was made gratuitously — the donation was a genuine gift, not a concealed sale.
- The donation was recorded in an authentic notarial deed — a private deed is not sufficient to rebut the presumption.
- The value of the nue-propriété was determined in accordance with the barème of Article 669 CGI — the correct fiscal value must have been used, not an inflated or deflated valuation.
Where all four conditions are met, the standard donation avec réserve d'usufruit is outside the presumption — which is why the notarial deed, the Art. 669 barème valuation, and the three-month delay matter so much in practice (Loi 2006-1771 of 30-12-2006 Art. 46).
Structural Solutions to Avoid the Presumption
Rather than relying on rebuttal evidence, estate planners can structure démembrements to avoid the presumption entirely. The most commonly used technique: the usufruit is held by the parents and the nue-propriété is held by a company (SCI) whose shareholders are the children. The SCI has its own legal personality — it is not itself a presumptive heir or donee of the usufruitier. The tax authority has confirmed that in this structure, the full property value is not included in the usufruitier's estate, provided the arrangement cannot be challenged as an abuse of law (BOI-ENR-DMTG-10-10-40-10 n° 250). The SCI must be operated properly — real meetings, proper accounting, non-fiscal purposes — to withstand abuse-of-law scrutiny.
Deferred Payment of Succession Tax on Nue-Propriété
Inheritance tax on assets received in nue-propriété can be deferred — payment is postponed until the usufruit ends and the nu-propriétaire becomes full owner. During the deferral period, interest accrues at the statutory rate and is payable annually. This deferral mechanism is of particular practical value for families where the estate includes an illiquid asset — farmland, family business shares — that has been received in nue-propriété with the surviving parent holding the usufruit. The children do not need to fund the inheritance tax bill from other resources; they can wait until the asset is realised. For business assets qualifying for the Pacte Dutreil, a combined regime of deferred payment followed by fractional payment, with a significantly reduced interest rate, is available (CGI Ann. III Art. 397 A).
The Pacte Dutreil: Transmitting Business Assets with an 85% Tax Saving
The Pacte Dutreil is one of France's most important estate planning tools for business owners. Where a company's shares qualify, transmissions — whether by succession or by donation — benefit from an exemption of 75% of their value from inheritance or gift tax (CGI Art. 787 B). Only 25% of the value is taxable. Combined with the direct-line abatement of €100,000 per child per parent and the rate scale, the overall tax reduction relative to a straightforward succession can be dramatic.
The Pacte Dutreil is fully available for démembered transmissions — both donations of the nue-propriété and donations of the usufruit are eligible. However, for a donation of the nue-propriété to qualify, the company's articles of association must limit the usufruitier's rights to the allocation of profits. Where the statuts give the usufruitier wider powers, the nue-propriété donation is excluded from the favourable regime (BOI-ENR-DMTG-10-20-40-10 n° 300; CA Paris 6-3-2017 n° 14/08101). This limitation in the statuts must be genuine and embedded in the company's governance documents — a clause in the donation deed alone does not suffice.
For the collective engagement de conservation, where shares are démembred, the commitment must be made jointly by the usufruitier and the nu-propriétaire. For the individual engagement following a démembrement arising on death, the commitment must be signed jointly by the nu-propriétaire(s) and the usufruitier in the succession declaration. When the usufruit subsequently extinguishes naturally, the nu-propriétaire becomes full owner without any further inheritance tax — the Art. 1133 no-further-tax rule applies, and the individual engagement period continues to run from its original start date; no new commitment is required following the consolidation (BOI-ENR-DMTG-10-20-40-10 n° 340).
Philippe (aged 67) holds 40% of the shares of his unquoted operating company. He wishes to give the nue-propriété to his grandchild Bertrand and the usufruit to his daughter Sylvie (aged 45). The shares are worth €3,000,000 in full ownership.
Value of nue-propriété: 40% × €3,000,000 = €1,200,000
Pacte Dutreil 75% reduction: taxable base = 25% × €1,200,000 = €300,000
Less direct-line abatement (grand-parent → grandchild): €31,865
Net taxable: €268,135 → gift tax (approx): €57,500
Without the Pacte Dutreil, gift tax on €1,200,000 minus the €31,865 abatement would be approximately €277,000. The Pacte Dutreil reduces the liability to approximately €57,500 — a saving of around €220,000.
Whether you are planning a donation avec réserve d'usufruit, managing an IFI declaration as an expat, or structuring a business succession under the Pacte Dutreil, our guides cover the complete French fiscal framework for split-ownership assets.
Book a ConsultationThis article is provided for general information and educational purposes only. It does not constitute legal or tax advice. The IFI, gift tax, and inheritance tax treatment of démembered assets is complex and depends on the specific circumstances — the origin of the démembrement, the identity and age of the parties, the type of asset, and any applicable bilateral tax treaties. The Pacte Dutreil conditions are technical and must be scrupulously observed. Always seek advice from a qualified French notary, lawyer, or tax adviser, and from an adviser in your country of residence for cross-border situations.
Get Advice
Contracting with a French Party?
We advise sellers and buyers on French sales law, warranties, retention of title and cross-border terms. Speak to our team.
Get Legal Advice
Key Legal References
IFI general rule: usufruitier taxed on full pleine propriété value of démembered asset; nu-propriétaire declares nothing. Three exceptions: legal succession usufruit; public body; arm’s-length sale of nue-propriété
Nu-propriétaire: borrowing contracted to acquire nue-propriété not deductible from IFI base (asset not included in nu-propriétaire’s base)
Barème fiscal: mandatory table allocating usufruit/nue-propriété values by usufruitier’s age (9 age brackets from under 20 to 91+); applies to all donations, successions, and sales of démembered rights
Fixed-term usufruit valuation: 23% of full property value per decade or part thereof, capped at viager usufruit value for donor’s age
No further gift or inheritance tax when usufruit extinguishes by death and nu-propriétaire automatically becomes full owner (consolidation)
Art. 751 presumption of full ownership: usufruitier presumed full owner for succession tax where nue-propriété belongs to presumptive heir, donee, or interposed person at time of death; exclusion requires 4 cumulative conditions
Four conditions excluding Art. 751 presumption: (1) donation more than 3 months before death; (2) gratuitous; (3) authentic notarial deed; (4) Art. 669 barème valuation used
Sudden death that was unforeseeable at the time of the donation can rebut the Art. 751 presumption
SCI as nu-propriétaire: full property value not included in usufruitier’s estate; SCI is not itself a presumptive heir or donee of the usufruitier (abuse-of-law scrutiny applies)
Deferred payment of succession tax on nue-propriété until usufruit ends; interest accrues annually
Pacte Dutreil: 75% exemption from gift/inheritance tax on qualifying business shares; conditions: qualifying activity; collective engagement de conservation (≥17% financial rights and 34% voting rights, non-listed, 2 years); individual engagement (4 years)
Pacte Dutreil + démembrement: nue-propriété donation eligible only if statuts limit usufruitier’s rights to allocation of profits; collective engagement must be signed jointly by usufruitier and nu-propriétaire; no new engagement required after natural extinction of usufruit
Direct-line abatement: €100,000 per child per parent; renews every 15 years
