The quasi-usufruct: restitution claim and Article 774 bis of the French Tax Code

A quasi-usufruct is a usufruct over consumable assets, that is, assets which cannot be used without being consumed, principally sums of money. Article 587 of the French Civil Code then allows the usufructuary to dispose of them freely, subject to the obligation to return, at the end of the usufruct, property of the same quantity and quality, or its value assessed at that date. The usufructuary becomes the owner of the funds but remains the debtor of a restitution claim owed to the bare owner.

The restitution claim is the right of the bare owner to obtain, upon the extinction of the quasi-usufruct, the restitution of a value equivalent to that of the assets consumed by the usufructuary. When the usufructuary dies, this claim constitutes a debt of the estate. In principle, it is deductible from the taxable estate, which reduces the base for inheritance transfer duties, subject to the restrictions laid down by Article 774 bis of the French Tax Code.

Article 774 bis of the French Tax Code, introduced by the Finance Act for 2024, disallows the deduction from the taxable estate of payable restitution debts relating to a sum of money in respect of which the deceased had reserved the usufruct. This case covers, in particular, the gift of a sum of money with a reserved usufruct. In practical terms, the restitution claim corresponding to that sum of money can no longer reduce the inheritance tax base. The value of the non-deductible debt gives rise to inheritance transfer duties payable by the bare owner, calculated according to his or her degree of kinship with the usufructuary; any duties paid when the usufruct was created are credited against those due on death, which avoids double taxation.

The statute reserves two situations. The non-deductibility rule does not apply: to usufructs resulting from the application of Articles 757 or 1094-1 of the French Civil Code, that is, the statutory usufruct of the surviving spouse; nor to restitution debts incurred over the sale price of an asset in respect of which the deceased had reserved the usufruct, provided it is demonstrated that such debts were not incurred for a principally tax-driven purpose. The precise characterisation of the quasi-usufruct and the analysis of its origin are therefore decisive in assessing deductibility.

It retains an interest in terms of enjoyment, as the donor keeps the use of the funds, and of transfer of the bare ownership. However, since Article 774 bis of the French Tax Code, the restitution claim arising from such a gift of a sum of money is no longer deductible from the donor's estate, which neutralises the inheritance tax advantage formerly sought. The choice between this configuration and other structures (gift in full ownership, gift of securities, controlled reinvestment) must be assessed case by case, within an overall estate planning strategy.

The quasi-usufruct agreement must be drawn up in writing and precisely organise the base, the term, the restitution arrangements and, where appropriate, the security granted to the bare owner. To be enforceable against the tax authorities and to allow the deduction of the debt where permitted, it must acquire a certified date, through a notarial deed or registration. Article 773, 2° of the French Tax Code makes the deductibility of debts granted by the deceased in favour of his or her heirs conditional upon rigorous proof by authentic instrument or by private deed bearing a certified date prior to the opening of the estate.

The certified date establishes beyond dispute the existence and the anteriority of the restitution claim. Without it, the tax authorities may challenge the reality of the debt and refuse its deduction, or even treat it as a disguised gift. Article 773, 2° of the French Tax Code requires, for debts granted by the deceased to his or her heirs, proof by authentic instrument or by private deed having acquired a certified date before the opening of the estate. Documenting the quasi-usufruct and conferring a certified date upon it is therefore a condition of its recognition for tax purposes.