New IFI: a trap for bare owners

The Real Estate Tax (IFI) provides for a new article 968 of the General Tax Code which upsets an established rule of the ISF concerning the declaration of dismembered real estate. Many usufructures could fall into the IFI.
Article 12 of the Finance Bill for 2018 introduces the Property Tax (IFI). It provides in particular for a new Article 968 of the General Tax Code which upsets an established rule of the ISF with regard to the declaration of dismembered real estate. investissement défiscalisant
In fact, from now on, real estate assets encumbered by a usufruct, a right of habitation or a right of use granted in a personal capacity, are included in the patrimony of the usufructuary or of the right holder for their freehold value. This rule is well known. comment défiscaliser en immobilier
However, these assets are respectively included in the assets of the usufructuary or the bare owner according to the proportions fixed by the scale of article 669 of the CGI when the constitution of the usufruct results from the application of article 757 of the Civil Code. This is completely new compared to the ISF.
Recall the content of section 757 which provides that: “if the predeceased spouse leaves children or descendants, the surviving spouse collects, at his option, the usufruct of all the existing property or the property of a quarter of the property when all the children are from both spouses and the property of the quarter in the presence of one or more children who are not from both spouses “.
This new rule has a considerable impact since it is common for the death of a spouse that the spouse retains the legal usufruct and that the children receive bare ownership. Henceforth, if they personally exceed the threshold of € 1.3 million in assets, they will have to declare the dismembered real estate assets to the IFI even if they do not have the use value of their rights. The surviving spouse will only have to mention the usufruct up to its value.
The impact can be enormous: imagine a property worth € 1 million, with two naked-owners children. Their mother, after the death of the father, has the legal usufruct of this property. Until now, if it exceeded the reporting threshold, it had to declare 100% of the property. Being 85 years old, this property is worth 20% for her, which can tilt her under the taxable threshold; the two children will have to declare 40% each (400 000 €), which may lead them to become taxable or increase their wealth tax burden.
But beware ! If the surviving spouse receives the usufruct by virtue of testamentary dispositions or by virtue of a donation to the last surviving spouse (which is expressly provided for in the draft budget law: “Property whose property is dismembered pursuant to other provisions, in particular of article 1094-1 of the Civil Code, can not be the subject of this distributed taxation “), in this case it remains the sole responsibility of the IFI on the value of the property in full ownership.
The draft budget law makes an important distinction between usufruct on a legal basis and usufruct on a contractual basis.