Article 751 of the French General Tax Code (CGI) establishes a major tax presumption with regard to inheritance and gift tax. This provision specifically concerns dismembered assets, notably usufruct, and can have major consequences for taxpayers. Understanding the mechanisms of this presumption enables you to anticipate tax risks and prepare your defense in the event of an audit. Find out how the tax authorities apply this rule, and what options you have to challenge it.

What does article 751 of the CGI apply to usufruct?

Article 751 of the French General Tax Code establishes a presumption of ownership enabling the tax authorities to consider the usufructuary as the full owner of a dismembered asset in the event of an inheritance or gift. This anti-abuse provision is designed to combat abusivetax optimization schemes aimed at artificially reducing the tax base by dividing usufruct and bare ownership. In concrete terms, if you hold the usufruct of an asset (real estate, securities, company shares or cash), the tax authorities may reintegrate the full ownership in the calculation of transfer duties, particularly when the dismemberment results from a prior gift or purchase in bare ownership. The tax stakes are considerable, as the value of the full ownership, assessed according to the scale in article 669 of the CGI, always exceeds the sum of the separate values of the usufruct and bare ownership, making it essential to be extra vigilant when structuring any estate involving dismemberment.

Tax presumption mechanism for usufruct

The 751 CGI tax presumption is based on a formidable principle: the tax authorities presume that the usufructuary has financed the acquisition of full ownership of the dismembered asset. When declaring an inheritance or gift, if it finds that ownership has been dismembered, it directly reintegrates the full ownership into the inheritance assets. This tax reintegration entails a substantial tax adjustment. The burden of proof to the contrary lies with the taxpayer, who must demonstrate that the presumption does not apply to his situation.

Valuation is based on the tax scale set out in article 669 of the CGI, which determines the value of each dismemberment according to the age of the usufructuary. For example, for a 65-year-old usufructuary, the usufruct represents 40% of the total value of the property and the bare ownership 60%. The administration then reconstitutes the full ownership (100%), which systematically increases the taxable base compared with the separate taxation of the two dismembered rights.

Conditions of application of the presumption

The application of article 751 CGI is based on three cumulative conditions. Firstly, there must be a dismemberment of ownership between usufruct and bare ownership. Secondly, this dismemberment must have been established at the time of death or donation. Thirdly, the tax authorities must establish that the dismemberment is the result of a prior transaction likely to reduce the transfer duties.

The presumption applies with increased vigilance when the dismemberment is recent, particularly if the usufruct was acquired less than three months before the death. In such cases, the tax authorities will carefully examine the circumstances of the transaction to determine whether its main purpose was to reduce the tax base. However, this presumption does not apply to certain situations: dismemberments arising from a previous succession, a matrimonial regime or the legal usufruct of the surviving spouse.

Inheritance tax implications

The application of article 751 CGI toinheritance usufruct has major financial consequences. The reconstitution of full ownership automatically increases the inheritance tax base. Depending on the age of the usufructuary, the nature of the assets concerned and the family relationship with the deceased, the additional tax cost can be as much as 30 to 50%.

Heirs are faced with an unforeseen tax burden, which they must settle within the legal deadlines or face penalties. This situation often creates major cash flow problems, especially when the estate assets are mainly made up of illiquid real estate. Anticipatory estate planning is therefore essential to avoid these pitfalls.

Impact on gifts with usufruct reserve

Article 751 presents a major risk for gifts with usufruct reserve: the tax authorities may requalify the transaction and calculate the duties on the full ownership if the donor dies shortly after the gift, or if the circumstances reveal an intention to evade tax. To ensure the security of your donation, systematically document the reality of the usufruct (collection of income, upkeep of the property, payment of expenses) and the non-tax reasons for the transaction.

How to challenge the presumption of article 751: procedure and arguments

This simple presumption can be rebutted by proof to the contrary. You must demonstrate either that the dismemberment is the result of a legitimate prior transaction (succession, old donation, matrimonial regime), or that the usufructuary did not finance the acquisition of full ownership. Notarized deeds, bank documents and asset history are the main means of proof you will need to contest the reassessment.

Contestation follows the classic contradictory procedure. Once you have received the rectification proposal, you have 30 days to submit your written observations. If the disagreement persists, you can refer the matter to the departmental tax commission, or lodge a contentious appeal with the administrative court within two months of the assessment. The assistance of a specialized tax lawyer maximizes your chances of success against the tax authorities.

To contest an adjustment based on article 751, you have 30 days from receipt of the rectification proposal to submit your observations. Amicable appeals (departmental commission, hierarchical appeal) may be initiated before the litigation phase. If you are unsuccessful, you have 2 months from the date of collection to take your case to the administrative court. Assistance from a firm specializing in presumptive taxation maximizes your chances of success in this complex procedure.

Tax optimization and risk prevention

To avoid the application of article 751 CGI, give preference to dismemberments resulting from inheritance or matrimonial transactions, which benefit from a reinforced presumption of legitimacy. To avoid any suspicion of abusive optimization, ensure that there is a gap of several years between the dismemberment and any taxable event. Systematically document the origin of the dismemberment, and make sure that the usufructuary is actually exercising his rights (collecting income, occupying the property, paying for repairs) in order to demonstrate the economic reality of the transaction. This traceability is your best defense in the event of a tax audit.

Given the complexity of article 751 of the CGI and the considerable financial stakes it raises, the support of a tax law professional specialized in estate litigation can prove decisive. The technical expertise required to put together a solid case, in terms of analyzing the legal situation, gathering evidence and building an argument based on case law, justifies the use of qualified counsel. However, rigorous anticipation and appropriate documentation of your asset transactions remain the best protection against the application of this tax presumption.