Pixel

An Usufruct Could Save You Money

Gary Green
Gary Green
August 15, 2020

Is it possible that something called a "usufruct" could save you money? This is a little known part of civil law that is worth knowing if you own property.

If you (or a member of your family) owns property, you may find a usufruct could save you money. In this article, we'll explain how it can have particular advantages for Inheritance Tax.

Let's start by defining a usufruct. It means the legal right to use and derive income from someone else's property. The Wikipedia page on usufructs explains the derivation:

  • Usus (use) is the right to use or enjoy a thing possessed, directly and without altering it.
  • Fructus (fruit, in a figurative sense) is the right to derive profit from a thing possessed: for instance, by selling crops, leasing immovables or annexed movables, taxing for entry, and so on.
Usufruct Rules

Although a usufruct allows you to use someone else's property, there are some rules. You ARE allowed to make a profit (a fructus) by:

  • Leasing it
  • Selling crops produced by it
  • Charging admission to it

However, a usufruct is NOT the same as owning the property outright. The owner of the property can do most things to it. In particular, you (as the beneficiary of the usufruct) CANNOT:

  • Consume the property
  • Damage the property
  • Dispose of the property
  • Destroy the property
  • Transfer ownership of the property to anyone else

There are sometimes variations of usufruct that affect these rules. For example, something called an "imperfect usufruct" allows the beneficiary to make certain alterations or improvements to the property. Even so, the improvements would still belong to the original owner at the end of the usufruct.

In addition, usufruct is usually only in place for a limited time. This often ends when the owner of the property dies. As such, it can have some advantageous effects on Inheritance Tax (see below).

How Does Usufruct Work?

People often use a usufruct in times of ill health. If a friend of family member is too ill to run their pub/farm/cafe, they could grant you usufruct. You would run and manage the property for the duration of the usufruct.

At the time of their death, you can dispose of the property through the normal channels.

This is helpful for Inheritance Tax purposes. If the property has a usufruct, it will usually not be treated as a settlement for Inheritance Tax purposes. Instead, it will be treated as an interest in possession trust.

Usufruct - The Next Steps

If you think a usufruct could be helpful in your situation, it's best to contact a property lawyer or an accountant with specific expertise in this area.

If you'd like to discuss how a usufruct could save you money, please get in touch. We are experts at helping individuals and small businesses arrange their affairs in the most tax efficient way.

We also have close relationships with a number of superb property lawyers and would be happy to make the introductions.

Interested in our services?
Fill in your details and a member of our experienced team will be in touch shortly to discuss your needs.
We adhere to strict GDPR rules and do not reveal or sell your data to any third-parties. For more, please read our Privacy Policy.
Latest Insights
March 4, 2022
An Overview of EIS (Enterprise Investment Scheme) - All You Need to Know

There are several benefits for the EIS, or Enterprise Investment Scheme, to make this an interesting...

March 3, 2022
Tax Relief for Angel Investors: Gary Green's Webinar for Stakeholderz

Key Business Consultants' principal Gary Green spoke with Stakeholderz discussing the SEIS & EIS scheme and...

February 23, 2022
What Are EMI Share Schemes? All You Need to Know

If you are considering awarding shares to your employees, an Enterprise Management Incentive is often the...

January 31, 2022
Payments on Leaving Employment: How to Reduce Your Tax Liability

Normally the process for leaving employment is quick and straightforward but this is not always the...

January 17, 2022
HMRC Investigations: What You Need to Know

Discovering that you are being investigated by HMRC can be very stressful, even if you are...

January 14, 2022
Business Transactions - Guide to Planning and Executing Efficiently

There are some transactions in business that are significant and require substantial forward-planning to be a...

January 12, 2022
Why Employee Equity is an Important Issue For Every Business

Being a business leader is about being willing to embrace innovation and be flexible about how...

January 10, 2022
An Employer’s Guide to Settlement Agreements

If you need to terminate the contract of an employee, a properly drafted settlement agreement can...

January 7, 2022
Taxation of Private Company Shares - What Should You Know?

Many companies opt to reward their employees with shares or options because of the manifold benefits...

View Our latest insights »
Get the latest UK tax & business news and guidance delivered straight to your inbox
We care about the protection of your data. No spam. Unsubscribe anytime.
Copyright © 2022 Key Business Consultants LLP. Reg: E&W OC389322
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram