An excellent tool when it comes to inheritance, bare-ownership sales are becoming increasingly popular. A method that allows the seller to increase his or her purchasing power and, above all, allows him or her to anticipate the future.
“The traditional viager, or life annuity, has a slightly dusty side to it. The French word viager – derived from the old French “viage” or time of life – has no doubt been a setback, creating a certain form of apprehension. Right away the seller thinks of his or her future demise, while the buyer may remember a certain Mme Jeanne Calment” explains Vincent Illouz, bare ownership director at Daniel Féau.
For a long time, a viager or life annuity was the only way to monetize your assets while staying in your own home, but a new tool is now becoming increasingly popular: the démembrement en nue-propriété et usufruit, or separation of usufruct from bare title. "A few years ago, we achieved about one sale per month for exceptional properties” notes Vincent Desmarie, director of Barnes Nue-Propriété, the first luxury real estate group with two specialist agencies, one in Paris and one on the Côte d'Azur, to have launched itself into this market. “We have moved on to one transaction per week with an average price of 3 million. We have never before sold so many assets at such high prices.”
In both cases, at the signature the seller receives capital; a lump sum known as a bouquet. It is calculated on the market value of the property. Take for example an 80-year-old who owns a Parisian apartment estimated at 1 million euro. With a discount applied depending on the age of the seller, in this case about 30%, the asset is consequently considered to be worth 700,000 euro. In the case of the traditional viager, or life annuity, the crédirentier or sellermay wish for a lump sum payment or bouquet of 400,000 euro, paid by the débirentier orpurchaser. Given the seller’s life expectancy, let's say thirteen years, the 300,000 euro (the difference between the 700,000 and the 400,000 euro) shall be paid to him or her in the form of a monthly rent of 1,923 euro, with a low rate of tax.
“Sales with a monthly income are losing their appeal” points out Fabrice d'Halloy of Junot Immobilier. “Even though we still use the term viager or life annuity, thedémembrement en nue-propriété et usufruit or separation of usufruct from bare title is increasingly popular; for us, it represents almost 90% of the demand.”
The reason is simple: going back to our example, the seller receives his or her 700,000 euro and if it is his or her main residence, he or she isn’t subject to capital gains tax! “It is much more interesting for the seller to immediately collect the entire lump sum payment or bouquet than to take the risk of receiving the annuity over a period shorter than his or her life expectancy and, as for the buyer, he or she runs the risk of paying an annuity over a longer period than the seller's life expectancy", clarifies Vincent Illouz. This can turn out to be a really bad deal if the seller dies at an advanced age. A prime example : André-François Raffray, a notary based in Arles, decided in 1965 to purchase by means of a life annuity a property belonging to Jeanne Calment, then already aged 90. He never got to enjoy his future home: he died thirty years later in 1995, two years before the world’s oldest (at the time) human being, having paid her twice the value of the asset! An excellent reason, therefore, to go for the démembrement en nue-propriété et usufruit, or separation of usufruct from bare title option.
Especially since this method is more flexible for the usufructuary who can do what he or she wants with his or her asset. In the case of a viager or life annuity, the seller or crédirentiercannot rent his or her property, whereas in the démembrement en nue-propriété et usufruit or sale in bare ownership option, he or she he has three possibilities: "In 70% of cases, the seller transfers the bare ownership and retains the usufruct” according to Vincent Desmarie.“In 20% of cases, he or she retains the right of use and habitation. As for the remaining 10%, the usufruct is capped over time; i.e. there is a forward sale with a release date. If there is no suspensive condition for obtaining credit, some sales are signed in just two months.”
Démembrement en nue-propriété et usufruit, or separation of usufruct from bare title, is also an excellent tool because of the amount of the bouquet or lump sum paid in one go, known as capital net vendeur. “It responds particularly well to a societal and economic need” says Fabrice d'Halloy.
“It allows for a better life and lifestyle while staying at home, an increase in purchasing power, financing future projects, anticipating a succession, and basically enjoying what’s left of your life.” Moreover, the net capital received by the seller is not taxable in the context of a main residence.
In France, children inherit on average at the age of 57. “By this time, most will have got married, bought a house or apartment, and have had children”, analyzes Vincent Illouz. Capital allows parents to pass on money to their descendants (with an allowance of 100,000 euro per child and 31,865 euro per grandchild) “when they need it the most" continues Daniel Féau's expert for whom the bare ownership sale is also an excellent tool in the case of blended families.
A swift operation
Démembrement becomes increasingly interesting if the seller owns a property with a value of at least 1 million euro and as he or she approaches the age of 70 (as the discount is by then less significant). This explains why this market is particularly active in Paris and on the Côte d'Azur.
Among buyers, some are individuals who are attracted by the discount. "An interesting option, because it presents a secure investment throughout the dismemberment period, allowing the bare owner to not include this property in his Ifi (impôt sur la fortune immobilière) declaration and, at the end of the dismemberment period, to regains full ownership of the property at no additional cost" observes Fabrice d'Halloy.
There are also institutional investors (insurance companies, specialized investment funds, etc.) who, because they have a lot of money, benefit from signing a contract with no suspensive conditions and therefore reduce risk. The operation can then be realized very quickly.