Usufruct and bare dominium
Let’s start with the words first 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, but because you don’t own it, you can’t sell it.
Bare dominium is quite simply ownership without the right of use (usufruct). So, if you have bare dominium over a property, can you sell it? Only with the consent of the usufruct holder, otherwise you would be depriving them of their right.
Now, put usufruct together with bare dominium and you have full ownership and right to use the property (that is you own it in the more common sense of the word).
When is usufruct awarded?
Typically when I own a property that someone else is living in (my wife, ex-wife, uncle) and I want them to enjoy occupation until they die whether or not I am still alive, but thereafter I want my child to become the full owner of the property, then I might award a life usufruct to the occupant and the bare dominium to my child. Once the usufruct expires, then my child acquires it and owns the property in full. The usufruct is recorded on the title deed.
Another reason arises when you want to transfer ownership of a property to a trust, but do not want to pay massive transfer duty and CGT. If you transfer only the bare dominium and retain the usufruct, you can achieve this. The usufruct is worth nothing to your creditors if you are bankrupted and the gain in the value of the bare dominium is protected from them because it is owned by the trust. All very well in theory. The trouble with these more elegant structures is that they look good on paper, but require energy, management and specialised tax knowledge to put them into practice and that rarely happens. Also, when you apply the time value of money (the value of R1m now against the value of R1m in the future) there is no significant gain or loss on tax, so I favour 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.
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Thank you for your answer. So, at last my 2nd exemple can be a real tax efficient way to incorporate to a trust a letting property, to keep, that you baught under your name (big mistake!). For this purpose we admit that this property won’t be sold before your death. CG will be also more, but you did already so much for your kids…..
Your answer shows me that my question wasn’t properly formulated. It was about tax on the usufruct. 1st exemple: Through a will you give the usufruct to your wife and the baredominium to your son. Am’ I right to say that at the wife’s death, the value of the usufruct will be reevaluated and will be integrated to her estate?
2nd exemple : if I sell the baredominium of my property to the trust I founded and keep the usufruct for myself. At my death; Is the value of the usufruct going to be integrated to my estate?
Hope my question makes more sense?
Hi Thomas,
That’s what I thought you were asking. On death of a usufructuary, the usufruct ceases to exist so it has no value. It’s the wording of the act that is a bit obscure. It says effectively that there is no usufruct beyond the life of a usufructuary.
Good day
If I sell the bare dominium of my property to a trust owned company. Is the value of the usufruct gone to be reevaluated according to the age of my death and be integrated to my estate duty or the usufruct is dying with me?
Hi Thomas,
Deeds Registries Act of 1937. s66. No personal servitude of usufruct, usus or habitatio purporting to extend beyond the lifetime of the person in whose favour it is created shall be registered, nor may a transfer or cession of such personal servitude to any person other than the owner of the land encumbered thereby, be registered.