Buying a French property at a lower price is possible through the concept of bare ownership. By purchasing only the bare title, you reduce upfront costs and gain full ownership at the end of the usufruct period. Here’s how it works and why it could be a smart investment.
What is Bare Ownership?
Bare ownership involves dividing property ownership into two parts:
- Bare owner: Owns the property but cannot use or benefit from it during the usufruct period.
- Usufructuary: Holds the right to use the property and receive rental income.
Once the usufruct period ends, the bare owner automatically gains full ownership. The responsibilities and obligations of each party are outlined in the authentic deed of sale, notarised as required by French law.
Both the usufruct and the bare title have a value, which is calculated by the French tax administration based on the age of the usufruct holder at any given time, as follows:
| Age of Usufruct holder | Value of usufruct | Value of bare title |
| Under 21 years | 90% | 10% |
| From 21 to 30 years | 80% | 20% |
| From 31 to 40 years | 70% | 30% |
| From 41 to 50 years | 60% | 40% |
| From 51 to 60 years | 50% | 50% |
| From 61 to 70 years | 40% | 60% |
| From 71 to 80 years | 30% | 70% |
| From 81 to 90 years | 20% | 80% |
| From 91 years | 10% | 90% |
Why buy in Bare Ownership?
Investing in bare ownership offers numerous advantages:
- Reduced purchase price: Acquire property at a 30-50% discount compared to full ownership.
- Tax benefits: Loan interest may be deductible if the usufruct is held by a social landlord or taxable lessor.
- No management costs: Maintenance and management expenses are borne by the usufructuary.
- No rental risks: The usufructuary handles tenant management.
- Wealth tax exemption: The property is excluded from your taxable real estate wealth (IFI).
- No property taxes: Property and housing taxes are paid by the usufructuary.
- Guaranteed full ownership: At the end of the usufruct period, you become the sole owner with no additional cost.
- Estate planning: You can transfer bare ownership to heirs with reduced inheritance taxes.
Potential drawbacks of Bare Ownership
- No immediate use or income: You cannot occupy the property or earn rental income until the usufruct ends.
- Financing challenges: Banks may hesitate to finance bare ownership without additional guarantees.
- Responsibilities: Without clear terms in the contract, major repairs could become the bare owner’s responsibility.
How to purchase bare ownership
Bare ownership purchases can occur between individuals or through specialised companies that manage usufructuary rights. Typically, companies offer limited usufruct periods (15-20 years) and professionally manage the property. This arrangement ensures a lower purchase price and hassle-free management.
Before committing, UK buyers should consult with a British accountant to assess any UK tax implications.
Financing a Bare Ownership purchase
While financing options are limited, possible solutions include:
- Mortgage on other assets: Using another property as collateral.
- Life insurance pledge: Pledging a life insurance policy as security.
- In fine loans: Paying only interest during the loan term, with capital repaid at maturity.
Additional considerations
- Donation in Bare Ownership: Gifting bare ownership can reduce inheritance taxes. However, this process is irrevocable.
- Sale in Bare Ownership: Sellers seeking liquidity can retain usufruct rights while accessing capital from the sale.
- Parent-child purchases: Parents can buy usufruct while children hold bare ownership, facilitating property acquisition.
Expert guidance
Bare ownership can be a smart investment, but legal and financial advice is essential. Contact Avocat Herve Blatry for personalised guidance on navigating the complexities of bare ownership in France.
