Donation with reservation of usufruct, watch out for the pitfalls

The parent transfers a property to their children, reserving the usufruct, and the children take on the mortgage debt in their own names. The notarised deed mentions «property donation with establishment of usufruct».

The tax authorities consider this not to be a gift but a sale because the property transfer was subject to two counter-performances: (i) the creation of a usufruct in favour of the parent and (ii) the assumption of the mortgage debt. Therefore, there could be no tax deferral as a gift, and the transaction was thus subject to property gains tax.

The cantonal judges upheld the taxpayer's appeal, ruling that cantonal law provides for tax deferral in the event of the creation of a usufruct in favour of the transferor or (and) the assumption of the mortgage debt by the acquirer.

Federal judges recall (i) that the tax deferral applies to both gifts and mixed gifts (para. 5.2.1.), (ii) that «the usufruct reserve is not a counter-performance because the property is already transferred encumbered by the stipulated right of use, i.e. at a value reduced by the capitalised value of the usufruct (deductio servitutis)» (para. 5.2.2.1.), (iii) that a cantonal practice which provides for a disproportionate distribution of assets (and therefore a mixed gift) as soon as the difference is 25% is consistent with the LHID, (iv) that a difference of less than 25% allows for the deferral of taxation to be granted as a mixed gift, (v) that a cantonal law which would in all cases grant a deferral of taxation in the event of a mixed gift made in the form of the creation of a usufruct or the assumption of debt, and not on the basis of the disproportion of benefits, is contrary to the LHID (para. 6.3).

The judgment is in French. It is a Neuchâtel case. A BGE publication is planned.

TF, ruling 9C_22/2024, of 21 March 2025