IHT and Usufruit

[Mike789]

My parents part gifted and part sold their French ski apartment to my brother and I, thirteen years ago, with the intention of removing it from their estate if they survived for more than seven years.

However, on the advice of their notaire, they retained a usufruit on the property, as they were informed that it would not effect any considerations regarding French IHT.

However, I now understand that this clause may constitute their maintaining an 'interest' in the property from the perspective of HMR&C, unless they paid open market rental for the use of the property.

FYI

They have only used the apartment for a maximum of two weeks/year, in the last seven years, as my guests.
They have not used the apartment for the past two years.
They have contributed to some of the upkeep costs, equivalent to open market rental for the time that they have used the apartment.
The open market value of the property is now approx. 280,000 Euros.

I gather from a French taxation perspective that the value of the usufruit on the property to my father (aged 85) is currently 20% of the value and to my mother (aged 75) 30% of the value, which would equate to approx. 70,000 Euros.

I am trying to establish:

1. Whether HMR&C are likely to consider that the property still to be in my parents' estate for IHT considerations?

2. If 'yes', whether they then assess IHT on the whole value or part value of the property?

3. Whether it is worth considering buying out their usufruit now, in the hope that they survive for a further seven years? I believe that French stamp duty and notaires fees would amount to 6,200 Euros and some UK CGT may have to be paid.

I should be most grateful for any advice or thoughts on the matter.


Mike

[TN]

My understanding of a split of usufruit and neu propriete, is that the usufruit is treated like a life interest so would be in their estate.

However, if your parents are not domiciled in the UK it may be that the French property is excluded property for iht purposes in the UK. I work closely with a French lawyer and we would be happy to advise further if required.

[Mike789]

Thank you for your reply.

My parents are UK domiciled.

I don't think that I have a problem with French IHT whether I buy out the usufruit or not.

However, if HMR&C currently consider the property to be still in my parents' estate because of the usufruit, will it make any difference whether:

a) they renounce the usufruit?

or

b) I buy out the usufruit for the assessed value under French law?

Ideally, I am looking for a way of getting the property out of my parents' estate (as they originally intended) with immediate effect or, if this is not possible, at least in seven years time if they manage to survive this long.

I should very much appreciate any further recommendations on how best to proceed.