Split-ownership donation with retained usufruct and the Dutreil agreement: the condition that changes everything

Are you planning to transfer your company shares to your children while retaining the usufruct, but are unsure if this split-ownership donation remains compatible with the Dutreil pact exemption?

The answer is yes, provided a specific condition is met—a condition many executives have discovered too late, only after facing a tax audit or questioning their advisors.

This guide details this statutory requirement, what it means in practical terms for your company, and how to secure your split-ownership transfer before the donation takes place.

Dutreil Pact: what you need to master before considering a split-ownership donation

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What the Dutreil pact is

The Dutreil pact is a tax mechanism that allows for up to 75% of the value of company shares to be exempt from gift and inheritance taxes when transferred via donation or succession, provided that several retention commitments and management requirements are met.

General conditions to be met in all cases

To benefit from the exemption, the company must carry out an industrial, commercial, artisanal, agricultural, or professional activity, and the donor must have entered into a collective retention agreement for the shares of at least two years covering 17% of the financial rights and 34% of the voting rights, and one of the signatories must hold a management position for the duration of the agreement and for the three years following the transfer. The recipient of the donation must then retain the shares for an additional four years.

Why split-interest gifts change the game

When a gift involves only the bare ownership of shares, with the donor retaining usufruct, the Dutreil agreement remains applicable, but the tax authorities have imposed an additional condition specific to this arrangement. This condition is not included in the general terms of the scheme, which explains why it is frequently overlooked.

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Gifts with retained usufruct: the statutory condition imposed by the Dutreil agreement

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What does this condition entail?

The partial Dutreil exemption applies to gifts made with retained usufruct, provided that the company's articles of association limit the usufructuary's voting rights solely to decisions concerning the allocation of profits. This limitation must be included in the articles of association before the gift is made, and cannot be decided after the fact to regularize the situation.

Why is this statutory requirement so strict?

Case law has confirmed that a decision made after the deed of gift, even if taken shortly thereafter, is not sufficient to satisfy this requirement. Only a statutory provision in force on the day of the gift allows for claiming the benefit of the exemption, which makes it necessary to anticipate the amendment of the articles of association several weeks before signing the deed.

What this condition means for your governance in practice

In practice, the usufructuary—often the business owner passing on the company—retains voting rights solely regarding the allocation of profits (dividend distribution or allocation to reserves), while the bare owner (the child receiving the gift) gains all other voting prerogatives, particularly concerning strategic decisions and amendments to the articles of association.

What happens if this statutory condition is overlooked

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A typical scenario observed in case law

In a case heard by the Reims Court of Appeal, a donation was made applying the Dutreil exemption, but the company's articles of association had not been amended prior to the deed to limit the usufructuary's voting rights to decisions regarding profit allocation only. The tax authorities issued a reassessment, fully denying the 75% exemption, as this condition was not met at the time of the transfer.

The consequences for the donor and their children

The reassessment applies to the entire expected tax benefit, rather than just a portion: the full 75% exemption is revoked, with back taxes calculated on the total value of the transferred shares, plus late payment interest.

Potential additional liability for advisors

In several rulings, judges have found the notary or lawyer who drafted the deed of gift liable for professional negligence for failing to verify or recommend this prior amendment to the articles of association, resulting in orders to compensate a significant portion of the tax loss suffered by the beneficiaries of the gift.

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Setting up a secure split-ownership transfer with the Dutreil pact

Who must make the retention commitments?

For gifts made with a reserved usufruct, only the bare owner is required to sign the individual four-year share retention commitment. The initial collective commitment, however, must be made by the donor prior to the transfer, which highlights the two levels of commitment that must not be confused when drafting the deed.

The quantified impact of split ownership on the exemption

The value of the bare ownership transferred is calculated according to the scale set out in Article 669 of the French General Tax Code, based on the age of the usufructuary on the date of the gift. The 75% exemption applies to this bare ownership value, rather than the full ownership value of the shares, which automatically reduces the taxable base compared to a gift of full ownership.

The timeline to follow before signing

The amendment to the articles of association must be voted on and published sufficiently in advance to ensure it is indisputably prior to the deed of gift, iideally documented by a dated general meeting minutes and updated articles of association filed with the registry before signing with the notary.

Why entrust your split-ownership Dutreil transfer to the Virtus Group team?

Combining a donation with retained usufruct and the benefits of a Dutreil agreement requires precise coordination between the drafting of the articles of association, the transaction timeline, and the deed of donation itself. Virtus Group relies on an organization designed for this coordination : each client has a single point of contact, supported by a supervisor, capable of managing all legal, tax, and accounting matters related to the transfer of your business.

This continuity of service ensures that, prior to the donation, the articles of association correctly incorporate the limitation of the usufructuary's voting rights, rather than discovering this oversight during a tax audit several years later. Our teams also assist with the valuation of shares and the calculation of the bare ownership transferred, to secure the entire structure before its final implementation.

A poorly prepared split-ownership donation can result in the loss of the entire Dutreil exemption, even years after the transfer. Request a callback from a Virtus Group expert.