Pixel

Usufruct & Inheritance Tax

Gary Green
Gary Green
January 7, 2020

Usufruct is a civil law term referring to the right of one individual to use and enjoy the property that is vested in another.

Usufruct is a little known aspect of property law that is worth knowing for inheritance tax purposes.

In this article, we'll talk a little bit about how usufruct works. We'll also give some tips about how best to take advantage of it.

We'll add the usual disclaimer. Make sure to check the HMRC documentation, or work with a professional accountant or lawyer, before making any big decisions.

What Is Usufruct?

According to Wikipedia, usufruct is:

a limited real right (or in rem right) found in civil-law and mixed jurisdictions that unites the two property interests of usus and fructus:

  • 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.

In essence, it's the right to use another person's property.

How It Affects Inheritance Tax

If an estate includes a usufruct, this can have implications on how inheritance tax is calculated.

This is by no means a settled issue. The HMRC page even includes the quote:

  • The correct treatment of a usufruct for IHT purposes is not universally accepted. One leading commentator refers to it as a ‘toss of a coin matter’

However, it may be the case that including a usufruct could result in a more favourable inheritance tax settlement. Once again, we urge you to consult with a tax specialist if you think this might affect you.

Usufruct & Foreign Property

Usufruct can also have implications if the estate is located in a foreign country.

Once again, HMRC admits that this is something of a grey area. Because a usufruct implies a split in ownership, any transfers could be treated as exempt (or partly exempt) from IHT considerations.

HMRC made changes to the way that IHT is applied in 2006. As such, transfers after this date are treated slightly differently. From the HMRC page:

  • Where the usufruct was created prior to 22 March 2006, it should be treated as an interest in possession created prior to that date.
  • Where the usufruct is created on or after 22 March 2006, the settlement will be a relevant property settlement.

As you can see, this is a complex area of property law. In some cases, a usufruct may be helpful in terms of reducing your IHT responsibilities.
If you'd like to discuss how you might benefit from usufruct, please get in touch.

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
May 5, 2021
How To Reduce Corporation Tax by Claiming Creative Industry Tax Reliefs

Creative Industry Tax Reliefs (CITR) are a collection of Corporation Tax reliefs that allow qualifying companies...

April 27, 2021
National Minimum & Living Wage Considerations For Employers

One of our most important jobs, as employers, is to help control payroll costs. However, one...

April 20, 2021
Employment Allowance: How to Make and Backdate a Claim

The Employment Allowance allows eligible employers to reduce their National Insurance liability. The allowance increased to...

April 20, 2021
How to Get an Overseas Employee Set Up on UK Payroll

Getting an overseas employee set up on UK Payroll can be complex. Employers in the UK...

April 15, 2021
How To File Your Company End-of-Year Accounts For The First Time

If you have recently setup a new limited company or are thinking of doing so, then...

April 13, 2021
How Does Equity Crowdfunding Work? All You Need to Know

In this article, we uncover the ins and outs of equity crowdfunding and the key considerations...

April 8, 2021
Why You Should Set Up a Trust To Cut Inheritance Tax

Inheritance Tax (IHT) is levied on a person’s estate when they die and can also be...

April 1, 2021
The Best Tax-Efficient Options To Pay Yourself As A Business Owner

Most director shareholders want to ensure that they pay the combined lowest rate of tax possible...

March 29, 2021
Chancellor Warns Businesses to Keep Offices – But Remote Working Is Here to Stay

Despite the UK's 'work from home' guidance likely to come to an end in late June,...

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.
02037 282 848
Mon-Fri 9am - 5.30pm
contact@keybusinessconsultants.co.uk
expert financial advice at your fingertips
Copyright © 2021 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