Let’s start with the words themselves, and see what they mean.
Usufruct is the right to make full use of an asset without ownership. So, if you have the usufruct over a property, you can live in it, rent it out, holiday in it, and so forth; but because you don’t own it, you can’t sell it.
Bare dominium, on the other hand, is ownership without the right of use (usufruct). That means that if you have bare dominium, you can only sell the property if you obtain the consent of the usufruct holder so that you do not infringe upon their right of use.
Now, put usufruct together with bare dominium and you have full ownership and the right to use the property however you wish to — you own the property in the more common sense of the word.
When is usufruct awarded?
Typically, when a person owns a property that someone else is living in (their wife, ex-wife, uncle, etc.) and they want that person to enjoy occupation until their passing, whether or not the property owner is still alive, but thereafter they want full ownership to pass to their child, for instance, they can award a life usufruct to the occupant and the bare dominium to the child. Once the usufruct expires, the child acquires it and owns the property in full. The usufruct is recorded on the title deed.
Another example of when usufruct is awarded is when a person wants to transfer property ownership to a trust but wants to avoid the transfer duty and capital gains tax related to such a transaction. When only the bare dominium is transferred to the trust, with the person retaining the usufruct, these costs can successfully be avoided. The usufruct is worth nothing to creditors if a person is bankrupted and the gain in the value of the bare dominium is protected due to it being owned by the trust.
Now, this all looks very well in theory, but the trouble with these complex structures is the energy, management, and specialised tax knowledge that are required when done in practice. When we consider the time value of money, comparing the current value against its value in the future, it becomes apparent that there is also little to gain or lose in terms of tax.
This is why we prefer keeping it simple. There are often other ways around the problem that are much less complicated, more workable and, therefore, more likely to be implemented.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)