When you purchased your French property, you may have considered leaving a usufruit, or life interest to your surviving partner, in a French will. However, you may not be aware of the effects of the usufruit, nor what would be the rights and obligations of the usufruitier (beneficiary of the usufruit).

The usufruit of a property is the right to use the property, either to live there, or to rent the property out and keep the rent. The usufruitier does not have title to the property, but only the right to use it. It ends either on the death of its beneficiary; or if the usufruitier expressly renounces it.

A usufruit is usually a way to enable the surviving spouse to use the property when the deceased has reserved heirs (children), and to reduce French inheritance tax for both the surviving spouse and the children. It is a very tax efficient way of reducing French inheritance tax, as the tax burden will be shared between the beneficiary of the usufruit (usually the surviving spouse or partner), and the other heirs (usually children) who benefit from a reversionary ownership (nue propriété) on the property.

This, at least, is the situation under French law. However, there can be disadvantages from an English taxation perspective. If the beneficiary of the usufruit is resident in the UK, this option is not as tax efficient, as UK inheritance tax would be payable on the French property on his or her subsequent death. The effect of this is potentially that inheritance tax may be payable twice on the value of the French property – once in France at the time of the first death, and then in the UK at the time of the second death.

In France, each child benefits from a tax allowance of €50,000 (£33,863) on the death of each parent. Therefore, by inheriting a portion of the property on the first death and the rest on the second death, the children will benefit twice from their tax allowances, instead of once if they were to inherit only after the death of the surviving spouse.

The nue propriétaire – the person who has the reversionary or remainder interest in the property – cannot force the usufruitier to sell the property if the latter does not wish to do so.

The value of the usufruit depends on the age of its beneficiary at the time he inherits it. Thus if the usufruitier is 60 years old, the value of the usufruit or life interest is estimated as 40 per cent of the value of the property he inherits (50 per cent if he/she is 50 years old, 30 per cent if he is 70 years old, and 20 per cent if he is 80 years old, etc…). This value is deducted from the value of the property in order to calculate the value of the property inherited in reversionary ownership.

French inheritance tax will depend on the relationship between the usufruitier and the deceased, usually the surviving spouse, or partner. In case of an unmarried couple, there is very little tax allowance (€1,500 [£1,015]) and a fixed 60 per cent inheritance tax rate will be applied over this tax allowance. Between spouses there is a €76,000 (£51,473) tax allowance, and a sliding scale applies to anything above this, starting at 5 per cent up to 40 per cent.

A usufruit is an interesting solution to enable the surviving partner/spouse to keep use of the property, without increasing the children’s inheritance tax. This can also be particularly helpful where there are children from a previous relationship, as in this situation the deceased would grant the right for the surviving partner to stay in the property, while ensuring that his interest passes in its entirety to his own children in the end. They hold the reversionary interest until the death of the surviving partner, upon which death the usufruit ends.

However, the usufruitier cannot sell the property during his or her lifetime without the agreement of the beneficiary of the reversionary ownership. Furthermore, in case of a sale, the usufruitier will have to share the proceeds of the sale with the nue propriétaire in proportion with the value of the usufruit and of the reversionary ownership.

The usufruitier is responsible for the maintenance of the property; he has to keep it in the state it was when the usufruit was created. If the usufruitier fails to comply with this obligation, he can lose its usufruit as the property would be in a bad state of repair and lose its value when the nue propriétaire comes into full ownership of the property, ie when the usufruit becomes extinct.

The usufruitier is not responsible for major building works, such as full repairs of the roof, main structures, etc. It is the nue propriétaire who must do this. It is important to note, however, that the nue propriétaire does not have the obligation to carry out these major repairs, ie the usufruitier cannot compel him to carry out major building works.

In some cases the usufruit will apply to some movable assets, such as bank accounts, shares, etc. The usufruitier only benefits from the interest paid on these movable assets, but cannot use the capital.

The usufruit can also be created when the owner of a property proceeds with a lifetime gift, and retains a life interest. This means that the donor will still be able to use the property, and the recipient will only benefit from the reversionary ownership. It is a very efficient way of reducing French inheritance tax between parents and children under French law. However, if the recipient remains domiciled in the UK, this could have an adverse effect with regard to UK Inheritance Tax as mentioned above.

It is important to consider French estate planning to ensure that you understand how the French estate passes and that your wishes can be respected as far as possible, and to avoid family dispute. The creation of a life interest in someone’s favour can in certain circumstances be a highly effective option, although at the same time it can cause major concerns with inheritance tax, depending on your circumstances. It is therefore preferable to consider estate planning in detail with specialist solicitors at the earliest possible moment.

Bénédicte Morinière of Prettys Solicitors is a French national with a masters degree in French. She specialises in French property law and French inheritance law