Transfer of usufruct in shares: no registration duty according to the Court of Cassation

Imagine: you own shares in a family SCI (property company) in Versailles, and you wish to temporarily give the income to a relative while retaining the capital. You sign a deed of 'transfer of usufruct' of your shares. The notary demands registration duty on the value of the shares, as if it were a sale. Is this normal? This question, which many property owners in Montreuil or elsewhere ask, has just received a clear answer.

Indeed, the Court of Cassation, in a judgment of 30 November 2022 (No. 20-18.884), has ruled: the transfer of the usufruct of shares does not constitute a transfer of securities within the meaning of Article 726 of the French General Tax Code. In other words, it is not subject to the 3% registration duty provided for by that text. A decision that has immediate practical consequences for SCI partners and holders of shares.

But be careful, nothing is so simple. Tax law is a maze, and this decision only concerns the scope of Article 726. Other taxes or duties may apply. So, concretely, what does this judgment mean for you? I explain it all, without jargon.

The facts: a story that happens every day

Mr. X is a partner in a SCI named NSG, whose capital is composed of shares. In March 2012, he decides to transfer the temporary usufruct of his shares to a third-party company for a fixed period. The deed is signed, and the question arises: must registration duty be paid on this transaction? The tax authorities think yes. They claim the sum of €15,000 under Article 726 of the CGI, which subjects the transfer of securities to a 3% duty.

Mr. X contests. He argues that the transfer of usufruct does not involve the transfer of ownership of the shares: the bare owner remains the same, only the usufructuary changes. However, Article 726 targets transfers of securities, i.e., changes of ownership of the titles. It is not the same thing!

The case goes before the judicial court, then the court of appeal. The lower courts agree with the administration: for them, transferring usufruct is transferring an attribute of ownership, therefore a transfer of securities. Mr. X appeals to the Court of Cassation. The Court of Cassation, in its judgment of 30 November 2022, quashes and annuls the appeal decision. It holds that the transfer of usufruct does not entail a change of ownership of the securities, and therefore cannot be qualified as a transfer of securities within the meaning of Article 726.

The reasoning of the court — deconstructed

To understand, we must go back to the texts. Article 726 of the French General Tax Code provides that transfers of securities are subject to a 3% registration duty (with an allowance of €23,000 per partner). But what is a 'transfer of securities'? The law does not precisely define the term. The Court of Cassation enlightens us.

Its reasoning is as follows: the right of ownership over a share consists of two attributes: usufruct (the right to receive income, such as dividends) and bare ownership (the right to dispose of the title, to sell it). When one transfers the usufruct, one does not transfer the ownership of the share itself: the transferor remains the bare owner. There is therefore no 'change of ownership' of the title, but only a temporary split.

The Court relies on a civil law analysis of split ownership: usufruct is a real right, but it is not a social right. Transferring the usufruct is not transferring the status of partner, nor the voting rights (unless otherwise stipulated). It is simply transferring the right to the fruits. Therefore, the transaction does not fall within the scope of Article 726.

The lower courts had nevertheless adopted a broad interpretation: for them, transferring usufruct is transferring an element of ownership, therefore a transfer of rights. But the Court of Cassation narrows the definition. It recalls that tax texts are strictly interpreted: their application cannot be extended to situations not provided for.

This solution fits into a recent jurisprudential trend: judges protect taxpayers against expansive interpretations by the tax authorities. But be careful: this does not mean that the transfer of usufruct is exempt from all tax. It may be subject to VAT or income tax, depending on the case.

What this changes for you — concretely

If you own shares in an SCI or a company, and you are considering temporarily transferring the usufruct to a third party (for example, to allow them to receive rents from a building), this decision is good news: you will not have to pay the 3% registration duty on the value of the shares.

Let's take a concrete example. You own shares in an SCI in Montreuil valued at €500,000. If you transfer the usufruct for 10 years, the tax authorities could claim €15,000 (3% of €500,000). Thanks to this judgment, this sum is no longer due. A substantial saving!

For a tenant or buyer, the decision has less direct impact. However, if you are a real estate professional (notary, lawyer, advisor), you must review your deeds: no longer qualify a simple transfer of usufruct as a 'transfer of shares', at the risk of a tax recharacterization.

But be careful: the transfer of usufruct may still be subject to other taxes. For example, if the usufruct is transferred for consideration, the transferor realizes a taxable capital gain (social security contributions + income tax). Moreover, if the usufruct is transferred at a price below its real value, the administration may recharacterize the transaction as a disguised gift, with transfer taxes at stake.

If you are in this situation, you must consult a specialized lawyer to secure your transaction. An error in qualification can be costly.

Four tips to avoid this type of dispute

• Accurately qualify the deed: do not speak of 'transfer of shares' if you are only transferring the usufruct. Use the terms 'temporary transfer of usufruct' and clearly distinguish the bare ownership. This avoids any ambiguity with the tax authorities.
• Value the usufruct according to the tax scale: the administration uses a scale to value usufruct based on the age of the usufructuary (Article 669 CGI). Respect it to avoid recharacterization as a gift.
• Declare the transaction to the tax office: even if the 3% registration duty is not due, it may be prudent to file a declaration of transfer of securities (form no. 2759) to inform the tax authorities of the transaction and prevent any audit.
• Anticipate ancillary tax consequences: the transfer of usufruct generates a taxable capital gain for the transferor. Calculate it with your accountant to provision the tax due.

Deep dive: related case law and developments

This decision fits into a line of judgments protective of taxpayers. For example, the Court of Cassation has already ruled that the transfer of bare ownership alone is not a transfer of securities (Civ. 3e, 24 October 2019, No. 18-21.456). The logic is the same: as long as there is no transfer of full ownership, Article 726 does not apply.

Conversely, some earlier court of appeal decisions had adopted a broader position, considering that any transfer of an attribute of ownership was a transfer of rights. The Court of Cassation puts an end to these divergences.

For the future, it is possible that the legislature will intervene to clarify the tax treatment of split ownership. But as it stands, the Court's position is clear: transfer of usufruct = no 3% duty. A welcome legal certainty.

Summary and next steps

Frequently asked questions:

• Is the transfer of usufruct totally exempt from tax? No, it may generate a taxable capital gain and possibly gift tax if the price is below the real value.
• Do I have to declare the transfer of usufruct to the tax authorities? Yes, it is advisable to file a form 2759 to record the transaction, even if no duty is due.
• Does this decision apply to transfers of usufruct of shares in a SARL (limited liability company)? Yes, Article 726 targets all companies, including SARLs.
• What if the tax authorities demand duties despite this judgment? Contest the decision relying on this judgment. A lawyer can assist you in this process.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →