Naked Ownership as a Wealth Management Strategy
Investing in bare ownership means purchasing a property without immediate use of it, as that right remains with the seller, who is known as the usufructuary.
This strategy can serve several purposes: preparing for retirement, optimizing tax planning, or even making an early transfer of assets while taking full advantage of gift tax exemptions.
Initially, only the building’s walls are acquired, with no right to occupy or rent it—privileges reserved for the usufructuary. In return, the bare owner benefits from a significant discount on the purchase price. This discount corresponds to the value of the rent that could have been earned through a “traditional” rental investment.
The longer the term of the usufruct, the higher the discount and the lower the value of the bare ownership. One final advantage: when the property is resold as full ownership, the capital gain realized is subject to favorable tax treatment.
"With a discounted purchase price, no rental risks, and no tax complications (no property income tax), acquiring bare ownership of a property offers numerous advantages for those looking to make a long-term investment," explain Thomas Abinal and Amaury de Calonne, the founders of Monetivia, a French company specializing in real estate engineering.
This strategy can serve several purposes: preparing for retirement, optimizing tax planning, or even making an early transfer of assets while taking full advantage of gift tax exemptions.
Upon completion of the division of property, on the scheduled date of termination of the usufruct, the bare owner automatically becomes the full owner. Full ownership is automatically restored without any formalities.
If the investor then decides to resell the property, the capital gain is calculated as follows: Capital gain = Sale price of the property in full ownership – Market value of the property in full ownership at the time of acquisition as bare ownership.
In other words, the initial discount—which will constitute a gain upon exit—will not be taxed as capital gains.
Furthermore, the purchase price may be increased by “notary fees,” which, as another advantage, are calculated based on the discounted price of the bare ownership interest.
It should be noted that the standard deductions based on the length of ownership also apply to the capital gain (Art. 150 VC of the General Tax Code). The sale is therefore fully exempt from income tax after 22 years and from social security contributions after 30 years.
Example of a purchase of bare ownership
The bare ownership of a Parisian property is initially acquired for €325,000 as part of a 15-year temporary division of ownership, while the property’s full ownership is valued at €500,000. The discount is therefore €175,000.
If the property is worth €673,000 after 15 years (assuming a 2% annual increase in property value), then the investor’s total gain amounts to €348,000 (€175,000 from the discount + €173,000 from the increase in property value).
However, the taxable capital gain will amount to only €173,000 because the discount is not considered a capital gain by the tax authorities. Capital gain = 673,000 – 500,000.
If the property is resold after 15 years, after taking into account the tax deductions for the length of ownership, the capital gains tax amounts to €37,994.
The total net gain from the transaction is therefore €310,006.
This represents an internal rate of return (IRR) for the investor (excluding notary fees) of 4.84%.
(Sources and calculations by Monetivia)
