It is often suggested that, in order to avoid CGT and/or Transfer Duty, it is advisable to sell only the Bare Dominium (that is, the physical property) of a fixed property into a trust structure, retaining the usufruct (right of use) in the hands of the original owner.

If the owner is relatively young, the usufruct has a high value and the bare dominium has a low value, hence the apparent avoidance of tax.

What are the problems with this scheme?

• The tax in the long run, bearing in mind the time value of money, works out about the same, so there is no tax saving, only delay.
• The usufruct is registered on the title deeds.
• The bare dominium is worth nothing to a bank because they cannot sell the property in the event of default, so there’s no chance of raising a bond.
• If creditors attack the usufruct holder, they can attach it. This has serious consequences:
  • The creditor can then let the property out.
  • The bare dominium can neither earn income nor be sold until the death of the usufruct holder.
  • The bare dominium needs to be maintained in good order at the cost of its holder in order to retain its future value.
  • And it is stuck with the rates and levies.
• So, the Bare Dominium holder bears all the costs and  none of the income.

Not a good idea.