Written by Professor Robert Anthony, Anthony & Cie
French Property News, February 2010
A property-holding company is one way to get around France’s forced heirship rules, says Robert Anthony.
A Société Civile Immobilère (SCI, a French civil company set up to hold property), is a fully incorporated company registered in France whose head office can be at the property itself, although we generally advise to use their accountant’s address to avoid administrative problems. The SCI is owned by shareholders who, in most cases, are private individuals and often related.
The shareholders do not have to be French residents but it is important to examine the tax consequences of purchasing a property via an SCI and, where the shareholders are non-resident, examine any tax conventions in place between France and the country of their residence.
An SCI can be used for inheritance planning, the main advantage being that it protects unmarried couples who buy property together. The principle is both complex and yet simple at the same time. Ownership of the property is structured as a life- interest with each shareholder having a right-of-use. Both shareholders exchange their life-interest and right-of-use with the other. Should one of the shareholders, the surviving partner cannot be forced out by the heirs.
An SCI is also a great way for parents to maintain their majority shareholding position. In the articles of association, a couple who are shareholders can stipulate that, upon death, the SCI will continue to be run by the surviving shareholders. Thus an SCI can be used to ensure the surviving spouse retains control of the SCI: all decisions concerning the property will be taken by the surviving spouse who remains the majority shareholder.
Concerning the occasionally thorny question of estate planning, the shares of an SCI are easier to redistribute than a property. The inheritance is easier to manage and transfer of ownership is simplified. In addition, the articles of association can also be modified at any time.
Insofar as non-resident private individuals are concerned, an SCI is extremely flexible; property is usually subject inheritance laws of the country where the property is situated. However, if the property is held by an SCI, it would be subject to the inheritance law of the last country of residence of the deceased. This is a very key point to keep in mind as it impacts on inheritance planning. However, it’s important to seek advice as in countries that haven’t signed a tax treaty with France, a current account is not deductible for estate duty purposes. In these cases we advice use of a Société Civile Monégasque.
An SCI also enables people with limited means to pool their funds into a partnership structure, which would be otherwise difficult to achieve. It is also easier to assign parts of the property to certain members (no notaire, necessary). Another advantage of an SCI is that the net value of a property can be reduced on account of its level of indebtedness, which in turn diminishes any wealth tax and death duties due.
So what’s the catch ?
Clearly there are numerous advantages to owning a property through an SCI. However, there are other factors to be considered. First and foremost, using an SCI to purchase a property incurs extra costs. Purchasers always have to pay notaire’s fees and conveyancing duties, however they choose to purchase their property, but with an SCI, you will also have to cover set-up costs, running costs and annual management and accounting fees.
You will need to write the articles of association register the SCI and publish annual French accounts, in accordance with French accounting procedures. If all this sounds slightly intimidating, it’s worth bearing in mind that a family-owned SCI does not involve the in-depth and costly management of a professional company.
Shareholders can, of course, keep their own accounts but, if you are not familiar with accounting procedures– French or otherwise– it may be prudent to hire a professional to produce them for you; the costs involved are far from prohibitive.
Once the accounts have been published, an annual meeting must be held for the shareholders to agree them. The minutes must be written and retained on record.
If these processes are not adhered to, the French authorities could dissolve the SCI and the shareholders would be responsible for any taxes due on the property as a result– additional wealth tax due, for example.
In the UK the law changed on the ownership of second homes by way of legal entities changed in 2008. There are certain conditions that must respected so as not to fall foul of the taxman if you use the SCI route, so make sure you seek professional advice before you buy!
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