Usufruits in France
The French notariat frequently propose an estate planning
structure to their clients known as a usufruit/nue-propriété
dismemberment so as to facilitate the transfer of a French
property to the next generation as a gift, at a lower tax basis,
rather than on the whole value of the property on the death of the
survivor. From the French perspective, it is tax efficient and
This would not be a settlement under English law, as two legal
interests are created over Foreign land, which is outside
Parliament's legal jurisdiction over land which only extends to
land in the United Kingdom: even the Scots have them.
A usufructuary dismemberment is not a trust but HMRC are abusing
a statutory fiction under s43(2) Inheritance Tax Act 1984 to assert
that the granting of a full legal right of nue-propriété to their
Children by the parents and the retention, not reservation of
another legal right, the usufruit, by the donors could only be
achieved under English law by a trust. That analysis is wrong.
However, given HMRC's current strategy of squeezing blood from
legal stones, whether foreign or not, in Inheritance Tax matters,
it is frequently cheaper in costs and in argument to parry that
If your parents have retained a usufruit and are coming to the
end of their lives, it may therefore be in your interest to have
them make an adjustment so that the extinction of their usufruits
does not enable HMRC Technical to argue that the whole property
value is transferred to you on their death.
Certainly, if your parents live in France and are thinking of
returning to the UK after Brexit or are being forced to return,
this solution can be adapted.
If a widow or a widower has inherited a usufruit from their
deceased spouse, with the Children taking the nue-propriété, it may
be possible to make the same type of adjustment there.
Whilst HMRC argue that there will be a difference in treatment
between such a dismemberment made before May 2006 and those made
thereafter under what HMRC choose to reinterpret as the Relevant
Property régime, that can be managed according to the facts.
The proposal that I may make is based upon a position admitted,
grudgingly, by HMRC in correspondence in which they accepted the
adjustment without being able to apply s. 43(2) ITA or s.49 ITA
which only applies to interest in settled property.
Contact Peter Harris for assistance and advice.