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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