Usufruct and Bare Dominium

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.