Dismemberment of Property in Luxembourg
The dismemberment of ownership consists of splitting the full ownership of a property into two distinct rights: usufruct (the right to use the property and collect its income) and bare ownership (ownership without enjoyment). This wealth-planning technique optimises transmission and taxation in Luxembourg.
Dismemberment Diagram
The 3 Types of Dismemberment
Dismemberment can be lifelong, temporary (fixed term) or result from a gift.
Lifelong Dismemberment
The usufruct ends on the death of the usufructuary. This is the case with an occupied life annuity.
- ✓Lifelong usufruct
- ✓Life annuity
- ✓Stay in the home
Temporary Dismemberment
The usufruct is transferred for a fixed term (5, 10, 15 years). Used for investment.
- ✓Fixed term
- ✓Predictable yield
- ✓Tax optimisation
Gift of Bare Ownership
The donor keeps the usufruct and transfers bare ownership to their heirs.
- ✓Early transmission
- ✓Reduced duties
- ✓Control retained
Usufruct vs Bare Ownership
| Feature | Usufructuary | Bare Owner |
|---|---|---|
| Right to live in | ✓ | ✗ |
| Right to rent out | ✓ | ✗ |
| Collect rents | ✓ | ✗ |
| Sell their share | ✓ | ✓ |
| Property tax | Their responsibility | Exempt |
| Routine maintenance | Their responsibility | Exempt |
| Major repairs | Exempt | Their responsibility |
| When the usufruct ends | Loses their rights | Becomes full owner |
The Advantages of Dismemberment
Tax Optimisation
Reduction of the taxable base for gifts and inheritances. Only the bare ownership is transferred.
Early Transmission
Pass on your wealth during your lifetime while retaining the enjoyment of the property.
Additional Income
With a life annuity, the seller receives a pension while retaining the usufruct of their property.
Spouse Protection
Usufruct allows the surviving spouse to remain in the family home.
How to Calculate the Value of the Usufruct?
The value of the usufruct and the bare ownership is calculated using tax scales based on the age of the usufructuary. The younger the usufructuary, the higher the value of the usufruct.
| Age | Usufruct | Bare Ownership |
|---|---|---|
| 61-70 years | 40% | 60% |
| 71-80 years | 30% | 70% |
| 81-90 years | 20% | 80% |
Dismemberment and Life Annuity: The Link
Occupied Life Annuity
The occupied life annuity is a form of dismemberment in which the seller keeps the usufruct or the right of use and habitation.
- ✓You stay in your home
- ✓You receive a lifelong annuity
- ✓Favourable taxation on the annuity
Sale of Bare Ownership
Alternative to the life annuity: sell only the bare ownership and keep the usufruct with no life annuity.
- ✓Larger immediate capital
- ✓No annuity constraint
- ✓Possibility to rent out the property
Frequently Asked Questions about Dismemberment
What is the dismemberment of ownership?
The dismemberment of ownership consists of splitting the full ownership of a property into two distinct rights: usufruct (the right to use and collect income) and bare ownership (the right to dispose of the property). This technique optimises wealth transmission and taxation.
What is the difference between usufruct and bare ownership?
The usufructuary may live in the property or rent it out and collect the income. The bare owner holds ownership but cannot enjoy it while the usufruct exists. When the usufruct ends (death or term), the bare owner recovers full ownership automatically, free of charge.
What are the tax advantages of dismemberment in Luxembourg?
Dismemberment reduces the taxable base for gifts or inheritances because only the bare ownership is transferred (reduced value). In addition, the bare owner is not liable for the property tax, which remains the responsibility of the usufructuary.
How is the value of the usufruct calculated?
The value of the usufruct is calculated using tax scales based on the age of the usufructuary. For example, at age 70 the usufruct represents 40% of the property value and the bare ownership 60%. The younger the usufructuary, the higher the usufruct.
Is dismemberment relevant to a life annuity?
Yes, the occupied life annuity is a form of dismemberment in which the seller keeps the usufruct or the right of use and habitation. This allows you to sell while staying in your home, with tax advantages on the life annuity received (allowance based on age).
Is Dismemberment Right for You?
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