HELPLINE: 
Démembrement and the contrat de capitalisation can significantly reduce inheritance tax, says Daniel Butcher of DTB Wealth Management
Once you reach 70 in France, the way assets are structured determines how much heirs ultimately receive. One of the most effective strategies is démembrement de propriété (split ownership), particularly when combined with a contrat de capitalisation.
“Under French law, unlike in the UK where assets are held outright, property rights can be divided into usufruit (the right to use and benefit from an asset) and nue-propriété (bare ownership),” said Daniel. “The value of each is defined by Article 669 of the tax code and depends on the age of the usufruitier.”
For example, Peter, age 58, owns a farmhouse worth €200,000. He gifts the bare ownership to his son John but keeps the usufruit, meaning he can continue living in or renting out the property for life.
At Peter’s age, bare ownership is valued at €100,000. As children receive a €100,000 allowance per parent, John pays no tax on the gift. When Peter dies, the usufruit automatically merges with the bare ownership, giving John full ownership with no additional inheritance tax. Without the split, John would have owed €25,000 in succession tax.
Once the property is sold, both usufruitier and nu-propriétaire must usually sign. To avoid complications later, a clause de remploi can be added so the sale proceeds are reinvested into a new asset under the same split structure, preserving the usufruitier’s rights and income.
“The contrat de capitalisation becomes especially important after age 70,” said Daniel. “At this point, the generous inheritance allowances linked to assurance vie shrink dramatically, leaving only a €30,500 allowance to be shared among beneficiaries, which is where a contrat de capitalisation offers a stronger solution.”
By gifting the bare ownership and keeping the usufruit, heirs are taxed only on the bare-ownership value – set at 60% at age 71 – automatically saving tax on the remaining 30%. When the usufruitier passes away, the bare owner receives full ownership free of inheritance tax because the tax was paid upfront.
“Démembrement, especially when applied to a contrat de capitalisation, can dramatically reduce your estate’s tax burden,” he added, “ensuring your heirs receive significantly more while you maintain financial security.”