HELPLINE: 
Why démembrement and the contrat de capitalisation can significantly reduce inheritance tax
Once you reach 70 years old, planning ahead is essential in France and the way you structure your assets can determine how much your heirs ultimately receive.
One of the most effective strategies is démembrement de propriété (split ownership), particularly when combined with a contrat de capitalisation.
About split ownership. Unlike the UK, where assets are held in full ownership, France allows property rights to be divided into usufruit (usufruct – the right to use and benefit from an asset) and nue-propriété (bare ownership). The value of each is set by Article 669 of the tax code and depends on the usufructuary’s age.
A practical example. Peter, age 58, owns a farmhouse worth €200,000. He gifts the bare ownership to his son John but keeps the usufruct, 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 does not pay tax on the gift.
When Peter passes away, the usufruct automatically merges with the bare ownership, giving John full ownership without any additional inheritance tax. Without the split, John would have paid €25,000 in succession tax.
What if the property is sold? A sale normally requires signatures from both usufructuary and bare owner. To avoid future difficulties, you can add a clause de remploi so that sale proceeds are reinvested into a new asset under the same split structure. This preserves the usufructuary’s rights and income.
Why contrats de capitalisation matter after 70. Once you turn 70, the generous inheritance allowances associated with assurance vie fall sharply leaving a meagre €30,500 allowance to be split between the beneficiaries. This is where a contrat de capitalisation becomes far more advantageous.
By gifting the nue-propriété and keeping the usufruct, heirs only pay gift tax on the bare-ownership value – 60% at age 71 – automatically saving tax on the other 30%. When the usufructuary dies, the bare owner receives full ownership free of inheritance tax, because the tax was handled upfront.
Take action. Anyone over 70 with French assets should review their estate planning. Démembrement – especially when applied to a contrat de capitalisation – can transform your estate’s tax burden ensuring your heirs receive significantly more while you retain financial security.
Speak to our team for personalised guidance on how a contrat de capitalisation could improve your estate planning strategy.