Usufruct and Bare Ownership: How to Allocate the Sale Price?

Picture the scene: in Gravelines, an elderly couple sells their house to enter a retirement home. But the property is split: one spouse is the usufructuary (entitled to live in and receive rent), the other is the bare owner (owns the property without enjoyment). The notary allocates the sale price by applying the tax scale of Article 762 of the French General Tax Code (a fixed percentage based on the usufructuary's age). But the heirs contest: is the real value of the usufruct really that?

This question is asked by hundreds of property owners each year. Should one follow the convenient and simple tax scale, or a fairer economic valuation? The Court of Cassation ruled in 1997: the tax valuation is not a rule of civil law. The lower courts can (and must) value the usufruct based on the age of the usufructuary and the net income the property can generate. A decision that changes everything for families in Grande-Synthe as well as for Parisian investors.

In this article, I explain the facts, the reasoning of the judges, and most importantly what you should do if you are involved in a split ownership (démembrement de propriété). Because an error in allocation can cost you thousands of euros — or make you gain them.

The Facts: A Story Like Many Others

Mrs. Z., a widow, is usufructuary of a portfolio of shares after her husband's death. Her two children are bare owners. The succession was settled with a particular tax option: one quarter in full ownership for Mrs. Z. and three quarters in usufruct (the right to receive dividends). A few years later, the shares are sold. The proceeds of sale must be allocated between the usufructuary and the bare owners.

The notary applies the tax scale of Article 762 of the French General Tax Code: for a person aged 75, the value of the usufruct is set at 30% of the value of the property. But the children believe this allocation is unfair. In their view, their mother's usufruct, given her age and the income she could derive from the shares, was worth much less. They sue Mrs. Z. to obtain a revaluation.

The first instance court rules in favour of the notary. But the Rennes Court of Appeal, on 19 April 1994, reverses the judgment: it decides that the allocation must be proportionate to the comparative value of the usufruct and the bare ownership, assessed based on the age of the usufructuary and the expected net income. Mrs. Z. appeals to the Court of Cassation, arguing that only the tax scale should apply. The Court of Cassation dismisses her appeal on 25 February 1997, upholding the appeal court's decision.

The Reasoning of the Court — Explained

The Court of Cassation had to answer a simple question: should the allocation of the sale price between usufructuary and bare owner be made according to the tax scale of Article 762 of the French General Tax Code (which gives a fixed percentage based on age) or according to a real economic valuation?

Article 762 of the French General Tax Code provides a fixed scale: for example, at age 70, the usufruct is worth 20% of the property's value; at age 80, 10%. This scale is convenient for inheritance tax purposes, but it does not necessarily reflect the real value of a usufruct. Because the latter depends on several factors: the life expectancy of the usufructuary, the net yield of the property (rent, dividends), and the charges (property tax, repairs).

In its judgment of 25 February 1997, the Court of Cassation recalls that the tax scale is only a tax valuation rule, which does not apply in civil matters. "The application of Article 762 of the French General Tax Code only applies in tax matters," states the High Court. Consequently, the lower courts can (and must) value the usufruct taking into account the age of the usufructuary and the net income he or she can expect from the property. This is an "economic" or "actuarial" method: the net annual income is capitalised over the probable duration of the usufruct.

In this case, the appeal court had independently determined that Mrs. Z.'s usufruct, given her advanced age, was worth only 15% of the value of the shares, whereas the tax scale would have given 30%. The Court of Cassation validates this approach: the allocation must be proportionate to the comparative value of the usufruct and the bare ownership, full stop.

This decision is neither a reversal nor an evolution: it confirms consistent case law (already established by the Court of Cassation in 1981, for example). But it is often overlooked by notaries themselves, who mechanically apply the tax scale for convenience.

What This Changes for You — Practically

Whether you are an owner, usufructuary, or bare owner, this decision has direct consequences on your wallet. Here is what changes, profile by profile.

If you are a usufructuary (for example, you retained the usufruct of your former house when you donated it to your children): you have an interest in having the usufruct valued as high as possible upon sale. Because you will receive a larger share of the price. To maximise your share, you must demonstrate that the property generates high income (rent) and that your life expectancy is long. But beware: if the property is sold, you lose your right of use, and the compensation must be fair.

If you are a bare owner (you received the bare ownership of a property, while your parents retained the usufruct): you have an interest in having the usufruct valued as low as possible, because your share of the sale price will be higher. You will therefore want to emphasise the advanced age of the usufructuary and the low net yield of the property (for example, shares that pay few dividends, or an empty dwelling).

Example with figures in Grande-Synthe: a house rented for €600 per month, i.e., €7,200 annual rent. After charges (property tax €1,200, insurance €200, repairs €800), the net income is €5,000. The usufructuary is 75, life expectancy 12 years. Capitalising this income over 12 years at a rate of 5%, the usufruct is worth approximately €44,000. If the house is worth €200,000, this gives 22% for the usufruct. The tax scale would have given 30% i.e., €60,000. The difference for the bare owner is €16,000 in his favour!

If you are a buyer of a split property: you must be vigilant when signing the sale deed. The allocation of the price between the usufructuary and the bare owner must be clearly indicated. If it seems inconsistent to you, you can ask for a revision before signing. In the event of a dispute, the judge will decide, but you risk costs and delays.

If you are a notary or estate agent: this decision obliges you not to blindly apply the tax scale. You must advise your clients to carry out an economic valuation, especially if the stakes are high. A preliminary allocation clause in the sale deed can avoid future litigation.

Four Tips to Avoid This Type of Dispute

• Have the usufruct valued by an accountant or actuary before the sale. This economic valuation, based on the age of the usufructuary and the net income, will serve as the basis for the allocation. It can be contested, but it will be more robust than a simple tax scale.
• Draft an allocation clause in the sale deed specifying the calculation method used. For example: "The usufructuary's share shall be equal to the present value of the estimated future net income over the probable duration of the usufruct, according to the INSEE mortality table and a discount rate of 5%." This avoids any ambiguity.
• In case of disagreement, apply to the interim relief judge for a judicial expert appraisal. The cost is modest (a few hundred euros) and allows a fair allocation to be fixed. Do not let the dispute fester for years.
• If you are a bare owner, check the net income of the property (rent, dividends) and the age of the usufructuary. The older the usufructuary and the lower the income, the higher your share will be. Do not hesitate to request a statement of account if the property is managed by a third party.
• Finally, anticipate at the time of the gift or inheritance: if you wish to avoid any conflict, provide from the outset a clause for the allocation of the sale price in the event of a future sale. This will save you costs and family tensions.

Further Reading: Related Case Law and Developments

This 1997 judgment is part of a consistent line of the Court of Cassation. As early as 1981 (Civ. 1re, 3 June 1981, n° 80-10.147), the High Court had ruled that "the value of the usufruct must be assessed on the day of the sale, taking into account the age of the usufructuary and the probable income of the property." A more recent judgment of 10 December 2014 (n° 13-25.747) confirmed this approach, specifying that the tax scale is only a simple presumption, which can be rebutted by an economic valuation.

On the other hand, some appeal courts had sometimes applied the tax scale by default, in the absence of elements of assessment. The current trend is towards an increasingly individualised valuation, notably with the use of mortality tables and discount rates. The courts are also sensitive to the nature of the property: a usufruct over a high-yield rental property will be valued more highly than a usufruct over a secondary residence without income.

For the future, one can expect the economic method to become widespread, especially as notaries are increasingly trained in these calculations. The tax scale, convenient but too simplistic, should be reserved for small estates where the stakes do not justify an expert appraisal.

What You Absolutely Must Remember

FAQ:

1. Can I contest the allocation of the sale price if it has already been made? Yes, if the sale deed was signed less than 5 years ago (limitation period in civil matters). You must sue the other party before the judicial court. But beware: if you accepted the allocation without reservation, you risk being dismissed.
2. What is the cost of a judicial expert appraisal? Count between €500 and €2,000 depending on complexity. The losing party may be ordered to bear them.
3. Is the tax scale always prohibited? No, it remains applicable for inheritance and gift tax purposes. But for the allocation of the sale price, it is only one indicator among others.
4. What if the property generates no income? The usufruct can be valued at zero (e.g., an unoccupied secondary residence). But in practice, judges take into account the use value (the usufructuary could have rented the property).

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 →