Investing in bare ownership in France involves purchasing a property whose usufruct is temporarily transferred to a social or institutional landlord, in exchange for a significant discount on the price. This mechanism, derived from the splitting of property rights, provides access to real estate without rental management or taxation on rents throughout the duration of the transaction. This guide details how it works, the tax advantages, the suitable investor profile and the risks to be aware of before getting started.
In summary
- Bare ownership is based on the splitting of property rights: the usufruct (the right to use the property and collect rents) is transferred for a fixed period, generally 15 to 20 years, while the investor holds only the bare ownership.
- In exchange for this temporary loss of enjoyment, the bare owner purchases the property at a discount often ranging between 20% and 40% of its full ownership value.
- Throughout the split-ownership period, the usufructuary handles rental management and the bulk of the charges and works, with no rental income being taxable for the bare owner.
- When the usufruct expires, full ownership is automatically restored, with no taxation or additional costs, providing a long-term appreciating asset.
Understanding the splitting of property rights and the discount principle
What is the splitting of property rights?
Legally, property rights break down into two distinct attributes: usufruct, which grants the right to use a property or collect income from it, and bare ownership, which corresponds to the right to dispose of the property without being able to enjoy it immediately. When these two rights are separated between two different holders, this is referred to as the splitting of property rights. In a bare ownership investment, this split is organised from the outset: the investor purchases the bare ownership of a new or recent property, while a social landlord, a real estate investment company (SCPI) or an institutional investor acquires the usufruct for a contractually fixed period, most often between 15 and 20 years.
Why a discount on purchase?
Since the bare owner can neither occupy the property nor collect rents throughout the duration of the split ownership, they benefit in return from a purchase price lower than the value of the property in full ownership. This discount, often ranging between 30% and 40% depending on the chosen duration and the location, is calculated according to a contractual scale set by the operator or management company. The longer the duration of the split ownership, the greater the discount, as the loss of enjoyment extends over a longer period.
The absence of rental management during the split-ownership period
Who manages the property and pays the charges?
Throughout the duration of the split ownership, it is the usufructuary, generally a social or institutional landlord, who takes on the full rental management of the property: finding tenants, collecting rents, routine maintenance, and covering the majority of works and charges, including property tax in most arrangements. The bare owner is therefore entirely relieved of the usual constraints of rental management, which is one of the major attractions of this type of investment for investors who have little time available or who are geographically distant from the property.
A passive investment by nature
This absence of management sets bare ownership investment significantly apart from a traditional rental investment. No rental vacancy to manage, no unpaid rent to recover, no urgent co-ownership decisions to arbitrate: the bare owner simply holds an asset that appreciates over time. Those who wish to compare this mechanism with other opportunities on the market can consult our property listings to get an idea of the prices charged for full ownership in a given area.
The restoration of full ownership
What happens when the usufruct expires?
At the end of the split-ownership period set out in the contract, the usufruct automatically expires and the bare owner regains full ownership of the property, without having to pay any compensation, without any additional notarial deed and without any taxation linked to this reunification of rights. The property can then be freely occupied, let out under standard conditions, or sold by its owner, who now fully holds all the attributes of ownership.
A legally secured mechanism
This automatic reconstitution constitutes one of the legal foundations of temporary dismemberment: it is provided for from the signing of the purchase deed and does not depend on any condition precedent. The investor therefore knows, from the outset, the exact date on which they will regain full disposal of their property, which makes it possible to factor this deadline into a long-term wealth management strategy.
The tax advantages of investing in bare ownership
No taxation on rental income
As the bare owner does not receive any rent during the period of dismemberment, they are not liable for any income tax or social security contributions on rental income for this property. It is the usufructuary who receives the rent and bears its taxation alone. This mechanism can prove particularly relevant for taxpayers already heavily taxed on other rental income, who wish to diversify their real estate assets without increasing their tax burden.
Exclusion from the IFI (wealth tax on real estate) tax base
With regard to the wealth tax on real estate (IFI), the general rule set out in the French General Tax Code (Code général des impôts) places the tax burden on the usufructuary, who must in principle declare the value of the property in full ownership. The bare owner, for their part, has nothing to declare in this respect for the entire duration of the dismemberment. In bare-ownership investment schemes, since the usufruct is most often held by a social housing landlord or an institutional body not subject to the IFI, the property effectively escapes this tax for both parties throughout the period of dismemberment. This tax situation should always be verified with a wealth management professional, as the rules may change and certain specific schemes may be subject to particular provisions.
The investor profile suited to bare ownership
An investment designed for the long term
Investing in bare ownership is aimed primarily at individuals who do not need immediate additional income and who have a long investment horizon, aligned with the duration of the dismemberment. It is particularly suited to investors who are still working, taxed at high brackets, and who wish to build up assets they will fully enjoy once retired, at a time when their income—and therefore their tax burden—generally decreases.
A wealth transfer tool
This type of investment is also sought after as part of a wealth transfer strategy: since the value of the property is discounted at purchase, the inheritance or gift tax calculated on the bare ownership will also be reduced, while the heirs will ultimately benefit from the reconstituted full ownership. A local Capifrance estate agent can support these wealth planning considerations, taking into account each investor's personal and family situation.
Risks and limitations to be aware of
Illiquidity throughout the duration of the dismemberment
Reselling a bare ownership before the end of the dismemberment period is possible but remains more complex than a conventional resale, as the secondary market is more limited and potential buyers fewer in number. This is therefore an investment to be considered with capital that one does not intend to mobilise quickly.
Performance linked to the local market
The final valuation of the investment depends directly on how the local property market evolves over the duration of the dismemberment. An area that loses value or experiences a decline in rental demand can reduce the capital gain expected at the end of the operation, hence the importance of choosing a location with strong demographic and economic potential.
The choice of operator and property
The quality of the social housing landlord or institutional body holding the usufruct, the soundness of the contractual arrangement and the location of the property are decisive criteria for the success of the operation. A free property valuation can help compare the anticipated value of the property in full ownership with the price offered in bare ownership, in order to check the consistency of the stated discount.
How to get started in practice
The key steps of an investment in bare ownership
The first step is to define one's wealth objectives and investment horizon, in order to determine whether this type of investment genuinely matches one's situation. It is then advisable to compare the available programmes, paying close attention to the location, the duration of the split ownership arrangement, the discount offered and the reputation of the usufructuary. Calling on a real estate professional makes it possible to secure every stage, from analysing the contract through to signing at the notary's office.
Getting support from a professional
Given the legal and tax complexity of this arrangement, it is recommended to consult a local Capifrance real estate advisor, who can present the available bare ownership programmes, analyse the consistency of the discount in relation to the market, and refer you to a notary or a wealth management advisor to confirm that the transaction is suited to your personal situation.
Conclusion
Investing in bare ownership is a wealth strategy in its own right, particularly suited to investors seeking long-term appreciation without the burden of management or immediate taxation on rental income. The discount at purchase, the absence of charges during the split ownership period and the automatic reconstitution of full ownership make it a relevant tool for retirement planning or estate transfer. As with any real estate investment, the success of the transaction relies above all on the careful choice of location, operator and duration of the split ownership arrangement, ideally with the support of an experienced professional.
Frequently Asked Questions
What is the difference between usufruct and bare ownership?
Usufruct is the right to use a property and to receive the income from it, while bare ownership is the right to dispose of the property without being able to enjoy it immediately. Together, these two rights form full ownership. In a bare ownership investment, these rights are separated for a set period between the investor and a social or institutional landlord.
How long does the split ownership period generally last in this type of investment?
The duration of the split ownership arrangement is most often between 15 and 20 years, but it can vary depending on the programmes and operators. This duration is set contractually at the time of purchase and directly determines the level of the discount applied to the price of the property.
Does the bare owner pay taxes during the split ownership period?
The bare owner receives no rent during the split ownership period and is therefore not liable for income tax or social security contributions on rental income for this property. With regard to the real estate wealth tax, the property is generally excluded from the taxable base of both parties, as the usufructuary is generally an organisation not subject to this tax.
These tax rules may vary depending on the exact structure of the arrangement and the status of the usufructuary; it is recommended that they be validated by a professional before entering into any commitment.
Can you resell the property before the end of the split ownership period?
It is possible to transfer one's bare ownership rights before the scheduled term, but the secondary market remains more limited than that of conventional full ownership. It is therefore preferable to consider this investment with a holding horizon corresponding to the initial duration of the split ownership arrangement.
What budget should be planned for investing in bare ownership?
The budget depends on the price of the property in full ownership and the discount applied, which can represent 30% to 40% of the market value. This often makes it possible to access well-located new or recent properties for an initial capital lower than that required for a conventional purchase. A free property valuation makes it possible to gauge the potential value of the property concerned in full ownership.
Does one need to manage the letting oneself during the split ownership period?
No, rental management as well as most of the charges and works are the responsibility of the usufructuary throughout the entire duration of the split ownership arrangement. The bare owner therefore has no management tasks to carry out and receives a fully reconstituted property at the end of the scheduled period.
Author
Frédéric Rémy – Director of Sales Performance
A real estate professional with several years of experience within the Capifrance network, I would like to share essential advice with you to help you successfully complete your property project with our advisors.
